THESIS Using Urban Consolidation Centres as Warehouses for Physical Stores: A Design Science Approach

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THESIS

Using Urban Consolidation Centres as

Warehouses for Physical Stores: A Design

Science Approach

MSc Supply Chain Management & MSc Technology and Operations

Management

Faculty of Economics and Business

Rijksuniversiteit Groningen

January 27

th

_{, 2020}

Marco Hulsman

m.c.hulsman@student.rug.nl

S2955601

Supervisor: Prof. Dr. K.J. Roodbergen

Co-assessor: Dr. I. Bakir

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Abstract

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Chapter 1: Introduction

A rise in urbanization combined with an increasing popularity of e-commerce has several negative logistical consequences for cities (Nordtømme et al., 2015). These problems are caused by the fact that business to consumer logistics are quite inefficient (Navarro et al., 2015). Partially empty trucks drive around to customers that are frequently not home, so they are unable to receive their goods. This causes congestion, noise pollution and environmental pollution (Nordtømme et al., 2015). Urban Consolidation Centres (UCCs) are suggested as a possible approach that may alleviate these problems (Faure et al., 2016). UCCs are warehouses located near the perimeter of a city that collect shipments going into the city and bundle them, to deliver goods in the last part of the delivery with smaller, more sustainable and more efficient vehicles (Van Duin et al., 2018). This contributes to combating pollution and congestion and it improves the efficiency of urban logistics (Van Duin et al., 2018; Faure et al., 2016). There is however the problem, that urban consolidation centres often fail to be viable, and need value-added activities to improve their chances of survival (Björklund & Johanssen, 2017; Lebeau et al., 2017; Faure et al., 2016).

From practice arises the idea to develop a system in which UCCs keep stock for physical stores and are able to ship this stock to the stores within a window of two hours. This would form a value-added activity for UCCs, while also enabling physical stores to keep less products in stock and still offer a broader variety of products (Lin et al., 2014; Aastrup et al., 2012). It also allows retailers to maximize profitable selling space, as less space is needed at their store to stock items (Janjevic et al., 2017). Research on value-added activities is scarce, so it is unclear how such a system can be designed and how it would affect the different stakeholders. These stakeholders are the UCC, physical stores, shippers and the local government (Björklund & Johanssen, 2018; Luo et al., 2018; Souza et al, 2014). It is for example unclear how such a short delivery window can be achieved in this context and to what extent data needs to be shared (Janjevic et al., 2017).

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5 will be focused on the design of this system to facilitate deliveries from UCCs to physical stores, so it takes a B2B perspective. Based on the literature review in Chapter 2, several research questions have been formulated. The research methodology of this paper is similar to that of Singh et al. (2017), who also focus mainly on the first stages of the design science process by doing literature research and interviews to come to a solution design and less on the stages of solution validation and design refinement.

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Chapter 2: Background

The concept of delivering stock to physical stores in a window of two hours consists of four main stakeholders, being the physical stores, UCCs, shippers and local governments (Björklund & Johanssen, 2018; Luo et al., 2018; Souza et al, 2014). In each of the following sections the design requirements for these stakeholder groups are addressed. Addressing the requirements of each of these main stakeholder groups gives an integral perspective on the system and covers the needs of all the main stakeholders, which improves validation and the practicality of the solution design.

In Section 1 central definitions and general system design requirements that are available in literature are addressed. This gives an overview of the research already performed in this context and conceptualizes how Urban Consolidation Centre initiatives can be designed. Section 2 highlights requirements specific to this system from a local government perspective. In Section 3 the several forms of shipping to facilitate same-day delivery are addressed, therefore addressing the needs of the shippers. In Section 4 requirements for UCCs as a stock-keeping unit are analysed.

2.1: Central definitions & general design requirements

This section focuses on setting a base in the problem investigation. First, several definitions of important concepts are given. Second, a literature search is performed in order to gather general requirements for the design that can be taken from previous research.

City logistics is a general term that is used to cover all the logistic activities in urban areas (Slabinac, 2015). In operational terms, city logistics covers all transportation, consolidation and distribution activities of goods in urban areas (Awasthi & Chauhan, 2012). As mentioned in Chapter 1, UCCs are defined in this paper as warehouses located near the perimeter of a city that collect shipments going into the city and bundle them, to deliver goods in the last part of the delivery with smaller, more sustainable and more efficient vehicles (Van Duin et al., 2018). The basic principle of UCCs is to facilitate urban freight consolidation and temporary storage for retailers (Björklund & Johanssen, 2017), as well as a reduction in congestion in urban areas (Allen et al., 2012).

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7 the problems faced in urban areas (Estrada et al., 2018). This happens while supply chains are changing, because of just-in-time delivery and the pressure to deliver within small time windows (Allen et al., 2018). This makes it important to conduct research on the design of these systems, while focussing on more than the end customer alone, which is why the B2B perspective for this research is taken.

The requirements for the solution design phase resulting from a literature search are summarized in Table 2.1. It is mentioned in the table for which stakeholder group each design requirement is relevant, signalled by the ‘check marks’ in the table. This signals for which group each design requirement is important, based on literature. The stakeholders ‘local government’, ‘shippers’, and ‘physical stores’ (mentioned as ‘receivers’ in several papers), are chosen as stakeholders for this paper, as they are the most commonly mentioned stakeholders in UCC literature (Björklund & Johanssen, 2018; Awasthi & Chauhan, 2012; Cherrett et al., 2012).

Design requirements from literature Stakeholders References UCC P HYS ICA L S T ORE S HI P P E R L OCAL GO VE RN M E N T 1 Reduction of CO2 emissions

✓ ✓ ✓ ✓ Van Duin et al. (2018); Kiba-Janiak (2016); Harrington et al. (2016) 2 Market growth/local

prosperity

✓ ✓ ✓ ✓ De Carvalho et al. (2019); Van Duin et al. (2018); Kin et al. (2017); Kiba-Janiak (2016); Harrington et al. (2016)

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8 4 Maximization of load

factor

✓ ✓ ✓ De Carvalho et al. (2019)

5 Customer satisfaction ✓ ✓ ✓ Harrington et al. (2016)

6 Low customer complaints ✓ ✓ ✓ Harrington et al. (2016); Rao et al. (2015)

7 Customizability of the service

✓ ✓ ✓ Lim et al. (2018) Kin et al. (2017); Harrington et al. (2016); Rouges & Montreuil, (2014)

8 Deliveries on-time ✓ ✓ ✓ De Carvalho et al. (2019) Harrington et al. (2016) 9 Low number of damaged

parcels

✓ ✓ ✓ Harrington et al. (2016)

10 Low number of lost parcels

✓ ✓ ✓ Harrington et al. (2016)

11 Low lead time ✓ ✓ ✓ Harrington et al. (2016); Behrends (2016)

12 High delivery frequency ✓ ✓ ✓ Harrington et al. (2016); Ballantyne et al. (2013

13 Attaining proof of delivery

✓ ✓ ✓ Lim et al. (2018) Harrington et al. (2016)

14 Professional qualification of personnel

✓ ✓ ✓ De Carvalho et al. (2019)

15 Parcel traceability ✓ ✓ ✓ Allen et al. (2017) 16 Transparency in costs,

benefits and reasoning

✓ ✓ Harrington et al. (2016)

17 Minimise travelled distance

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9 18 Personal and friendly

contact

✓ Harrington et al. (2016)

19 Insurance options ✓ Harrington et al. (2016) 20 Compensation for poor

service levels

✓ Harrington et al. (2016)

21 Access to Urban Loading and unloading areas

✓ ✓ ✓ Ploos van Amstel (2018); Ballantyne et al. (2013)

22 Limited geographical area ✓ ✓ Lim et al. (2018); Lagario et al. (2017); Jin et al. (2018)

23 Sufficient capacity of the warehouse

✓ Moufad & Jawab. (2019); Graindorge et al. (2015) 24 Low distance from hub to

city

✓ Van Rooijen & Quak (2010)

25 Free access to a city centre

✓ De Carvalho et al. (2019)

26 Low shipping price ✓ ✓ Kin et al. (2017); Harrington et al. (2016)

27 Easing Congestion ✓ ✓ Kin et al. (2017); Kiba-Janiak (2016); Harrington et al. (2016); Agrebi et al. (2015)

28 Enough margin on the product to allow stock keeping and delivery costs

✓ Ploos van Amstel (2018)

29 Reduction of road accidents

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10 30 Data needed to make

decisions in the system is available

✓ ✓ ✓ Arshinder et al. (2011)

31 Data can be shared ✓ ✓ ✓ Arshinder et al. (2011)

Table 2.1: Design requirements for a UCC system design

The design requirements of Table 2.1 are requirements resulting from literature in similar research in logistics contexts. To test whether these requirements are also applicable to the context of this research, the following research question is formulated:

‘What are the solution design requirements applicable in this context?’

2.2: Local government and policy

Given that local governments are non-profit organizations, their needs and requirements can differ from those of for-profit stakeholders. Local governments have for example a heavier focus on establishing emission-free cities and take for example city infrastructure and accessibility more into account than physical stores and UCCs. This section explores the impact that local government rules and policies can have on the design requirements.

Lin et al. (2018) state that same-day delivery increases the amount of delivery vehicles on the road and it can thus cause more congestion when going from a ‘regular’ UCC to a UCC that delivers products on the same day. This despite the fact that easing congestion can be considered as one of the main selling points of a UCC for local governments and shippers (Kin et al., 2017; Kiba-Janiak, 2016; Harrington et al., 2016; Agrebi et al., 2015). Therefore, if the proposed system also wants to achieve an easing of congestion, additional design requirements are needed in order to make this possible. Congestion is a problem for both shippers and local governments, but it is the local government that has the most power and stake in solving this problem, as the government has control over urban planning, road networks and city policies (Morfoulaki et al., 2016; Moen, 2014).

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11 2019; Björklund & Johanssen, 2016; Nordtømme et al. 2015). This will result in less vehicles at a time in the city centre and a more efficient unloading when the vehicles are there, and it will therefore result in less congestion (Mirhedayatian & Yan, 2018). Additionally, De Carvalho et al. (2019) state that the unloading rules and laws in the urban area need to attend the retailers and the drivers and need to be efficient, as according to them this is an effective way of easing congestion in urban areas. It is unclear however which of these suggestions will be the most effective solution, which is it is one of the key factors that is researched in Chapter 4. The subquestion for this thesis that will be answered to address the issue of congestion is:

‘How can congestion be taken into account in the design of the system?’

2.3: Same-day delivery

This section explores the design requirements that accompany a same-day delivery system. It gives general requirements and suggests several different forms of shipping that are according to literature suitable to achieve a same-day delivery.

Geographical restrictions and distance limits are needed in a system in which goods are delivered to retailers on the same day, as same-day delivery is not realistic over a great distance (Jin, Li & Cheng, 2018). For sustainable city logistics systems this is because electric vehicles and cargo bikes have a limited action radius and a limited speed when compared to ‘regular’ means of transport, which is why geographical restrictions play a large role in sustainable city transport. Same-day delivery is a logistically complex and potentially expensive service to operate, because it requires faster handling of deliveries and more means of transport to be available (Voccia et al., 2017). This is why there are several requirements for a system that aims to deliver on the same day, as it needs to be designed in such a way that the expenses and logistical complexity are taken into account.

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12 problems, being caused by the fact that delivery is needed on such short notice (Voccia et al., 2017).

In literature on same-day delivery, there are three main forms of shipping that are suggested. The first form is a regular form of shipping, in which (electric) delivery vehicles drive from the hub to the customer. The second form is a crowdshipping model. The third is a form with microhubs. Literature is not conclusive about which model is best or most suitable for a UCC initiative or for a same-day delivery system. Therefore, each of the shipping forms are highlighted below, together with their advantages and disadvantages in order to highlight the options that are available according to literature to achieve a two-hour delivery window in the proposed design.

Form 1: Regular shipping from the UCC

In this form of shipping, the UCC delivers its products by using its own fleet of vehicles and its own deliverers. A same-day delivery system operated by a single party with a fleet of vehicles faces the aforementioned dynamic dispatch waves problem. As mentioned in Stroh et al. (2019) this problem can partially be tackled in a shipping system where the shipper has its own fleet of vehicles, by having lower priority orders ready to fill up any space left in the delivery vehicle. There is also the possibility of incorporating probabilistic information in the solution approach to anticipate future requests, which lowers the expenses. To incorporate such probabilistic information however, it is required that information like this is kept and the UCC needs to have the ability to use and interpret the information (Stroh et al., 2019)

The downside of this form of shipping is that it is quite expensive for a UCC to buy its own fleet of vehicles and that it could be costly because of the dynamic dispatch waves problem (Klapp et al., 2018). Therefore, if this form of shipping were to be implemented either costs for participants to use the UCC would rise or additional government funding would be needed.

Form 2: Crowdshipping

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13 the delivery is needed. The downside of such a system is that it is hard to control whether deliveries are made by environmentally friendly means and it also faces the problem that supply and demand of couriers does not always match (Gdowska et al., 2018). Other than regular shipping however, the risk of not using delivery vehicles or not using them efficiently does not lie at the UCC, but at the independent shippers. In a crowdshipping model delivery can be sourced exactly at the moment that it is needed, so there is no time lost in a vehicle is waiting for an accumulation of orders.

Form 3: Delivery by using microhubs

In this urban delivery model several stations are distributed around the city that further consolidate and distribute parcels (Wang et al., 2016). This means that in this model there are several smaller hubs next to the UCC, which are often facilitated by the local government (Browne et al., 2012). Microhubs reduce the total distance travelled and make it possible to use smaller and more efficient vehicles (Janjevic et al., 2013). A microhub is best applicable in a situation in which the UCC is located relatively far from the perimeter of the city, so that the UCC can use bigger vehicles to distribute to the microhubs and the microhubs can for example use cargo bikes to do the final part of the delivery (Leonardi et al., 2012). Therefore, the UCC could be allowed to not be located as close to the perimeter of the city, which can potentially reduce costs for the UCC and therefore make the same-day delivery system less expensive. A downside of the microhub is that it creates additional handling, which causes the delivery to take longer and be more expensive. Next to this, because microhubs are often facilitated by the local government, it creates an extra dependency for the UCC on the local government (Browne et al., 2012).

Given that literature is not conclusive about which form of shipping is most appropriate for the suggested design, Chapter 4 tries to answer the subquestion:

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2.4: Data sharing

In the proposed system with stockholding services for retailers, efficiency gains and additional sales can be achieved which reduces the costs (Janjevic et al., 2017; Allen et al., 2012; Browne et al., 2011) and next to this, it can also form as a buffer for retailers during seasonal peaks (Johanssen & Björklund, 2017; Triantafyllou et al., 2014). Such a stockholding system implies that the UCC has storage space that receivers can rent (Johansson & Björklund, 2017). This storage space can be rented by retailers stocking their own goods, but also by brands keeping stock at the UCC in order to supply the retailers selling their products quicker or in order to supply their online consumers quicker (Ploos van Amstel, 2017). The possibility for retailers to hold stock in multiple places puts them in a more omnichannel environment, which requires the physical stores and the UCCs to manage their inventory from a more integral perspective (Ploos van Amstel, 2017). This requires good communication between retailers and UCCs about the stock and also requires there to be information technology to facilitate this exchange of information (Triantafyllou et al., 2014). Therefore, the existence of such information technology is required, as well as the willingness for UCCs and retailers to adapt this technology (Janjevic et al., 2017). Next to this, the data that parties share in the system should be available. This data sharing also help to link supply chain nodes all the way until delivery or consumption points, and can thus improve efficiency throughout the whole system (Arshinder et al., 2011). In the proposed system it is thus required that inventory is monitored closely. This yields another benefit, as close monitoring of inventory can prevent theft by employees of the retailer, the UCC and the shipper (Janjevic et al., 2017;).

The shipper also profits from sharing more data in the supply chain, as data sharing improves the satisfaction of the customers, as it gives the potential to trace deliveries (Lin et al., 2018). This also improves the safety for the shipper, as less parcels are lost (Harrington et al., 2016). Data sharing thus yields a vast array of benefits for the proposed system, but it does not become clear from literature what the current state of data sharing is in UCC systems and how to facilitate more data sharing in such a system. Therefore, Chapter 4 attempts to answer the following subquestion:

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Chapter 3: Methodology

The chosen research method for this research is design science research. Design science research involves a process to design artefacts, to solve observed problems, make research contributions, evaluate designs and communicate the results to appropriate audiences (Peffers, et al., 2007). The goal of this research is to design a solution for the problem defined in the introduction, being the development of the concept of a two-hour delivery window in shipping from UCCs to physical stores. A DSR study is suitable for the goal of this research, as a DSR study delivers definitions, ontologies, boundaries and guidelines for the design of a new system (Hevner, 2007). Given that this design is for a system that does not exist yet, or an envisioned system, definitions, ontologies and boundaries are exactly what is needed, as they give insight in the feasibility and practical implications of the system. The design science research method is fit to solve practical problems and generalizing knowledge from the solution (Wieringa, 2009), which makes it also fit for this research as it aims to solve both a practical problem as well as gain scientific knowledge from the solution.

Wieringa (2009) defines four main steps for doing design science research. These steps are problem investigation, solution design, design validation and design refinement, which is also called the regulative cycle. This cycle is followed in this research and each of the steps are highlighted in the sections below.

3.1: Problem investigation

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16 After the preliminary interview, the problem and the design requirements found in Chapter 2 are investigated in a more practical setting by conducting interviews with stakeholders from practice. This answers the applicability of the design requirements from Chapter 2 in the setting of this research.

The interviews are conducted with parties from each of the stakeholder group in order to gain input from the full spectrum of stakeholders and in order to be able to create a design that fulfils the design requirements as well as possible. The data of these interviews serves to further define the problem, gain a better understanding of the context and gather additional input for the solution design phase. More information on the interviews is included in Section 3.4.

The input for the solution design phase comes from the design requirements gathered from the literature in Chapter 2, the preliminary interview with a stakeholder from practice, the in-depth interviews with other stakeholders from practice and several governmental documents. The interviews that are held are semi-structured interviews with open-ended questions, allowing for stakeholders to give their own opinions and formulate additional ideas for the research. An interview guideline is included in Appendix 1. After the interviews are done, they are transcribed and coded in order to achieve an overview of the dominant perspectives on the research questions. These dominant perspectives serve as proof and practical application of the design requirements found in Chapter 2.

3.2: Solution design

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3.3: Solution validation and design refinement

In this phase, the solution that is designed in the previous phase is evaluated. The design that is made in this research will be evaluated by conducting interviews with operations management students. This means that the evaluation will take place before anything is implemented, which means that the evaluation will be ex ante, in line with the definition of Venable et al. (2012). Doing the interview with a stakeholder from practice, allows for the design to be evaluated in a natural, or real world setting which is in line with the definition that Venable et al. (2012) give of a naturalistic setting. The evaluation stage is set up in this manner because of time and resource constraints, making actual implementation of the proposed system impossible. The final step in the DSR process is design refinement. This is in line with the iterative and cyclical aspects of design science (Wieringa, 2009). Due to the time constraints for this project the design refinements and improvements developments in the system are proposed, based in suggestions from the validation interviews, but not executed.

3.4: Data collection

As mentioned in the previous sections, preliminary data, data for the solution design and data for the design evaluation is collected by conducting interviews with stakeholders from practice. In the coding process, several documents in addition to the interview transcripts, in order to gain additional insight in the long-term visions and current local policies of different local governments. An overview of the data used in the coding process is visible in Table 2. Each of the interviewees has active practical experiences with UCC initiatives. An interview guide is set up to ensure that the interviews are done in a reliable and valid way (Karlsson, 2009). Setting up an interview guide also helps in making sure that all relevant topics are covered and that the interview is done in a structured manner, which helps participants to understand the questions (Runeson & Höst, 2009). This interview guide is utilized in each interview.

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18 After the interviews, the coding is done as follows. First the transcribed interviews are imported in ATLAS.ti, a programme that facilitates qualitative data analysis. The coding will be carried out by using the 3-step coding procedure, proposed by Miles et al. (1994). First order codes will be given to relevant quotes and sentences that state something which could be helpful in answering one of the research questions. Second order codes are formed inductively, based on frequency and relevance of occurring information. Third order codes are formed based on the second order codes. Third order codes therefore form a consolidation of the second order codes and will say something about the dominant perspectives on the design requirements of the proposed system. The end result of this coding process is a coding tree that is included in Appendix 2.

Code Type and

explanation Stakeholder type Duration/Reference - Preliminary interview: M. Vos 59:03 U1 Interview: B. Hendriks UCC 1:15:03 U2 Interview: B. Wiekema UCC 58:45

S1 Interview: T. Kramer Shipper 1:10:42 S2 Interview: K. Rosendaal Shipper 1:06:35 P1 Interview: J.W. Janssen Physical store 1:30:42

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19 van goederen in de Oude Pijp in Amsterdam, kenmerken en kansen D2 Document: Laadinfrastructuur voor elektrische voertuigen in stadslogistiek https://topsectorlogistiek.nl/wptop/wp- content/uploads/2019/08/20190813- Laadinfrastructuur-voor-elektrische-voertuigen-in-stadslogistiek.pdf D3 Document: Gemeente Groningen meerjarenprogramma verkeer en vervoer 2019-2022 https://www.provinciegroningen.nl/uploads/tx_ bwibabs/86671b30-f846-4c51-b586-c52e7f4bcaee/86671b30-f846-4c51 -b586- c52e7f4bcaee:b6f91fe9-8e79-4923-b88c-29e1a16ace92/Bijlage_Meerjarenprogramma_ Verkeer_en_Vervoer_2019-2022.pdf D4 Document: Convenant duurzame stadslogistiek Groningen https://gemeente.groningen.nl/sites/default /files/Convenant-Duurzame-Stadslogistiek-Groningen.pdf

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Chapter 4: Findings

This chapter summarizes the most relevant and interesting results from the interviews and the coding process. The solution design is created based on these results, as well as the results from the theoretical background and the discussion. The coding tree resulting from the interviews in visible in Appendix 2. Each of the factors mentioned here is based on several nodes in the coding tree and is grouped by code family.

Financial viability

De UCC should be able to perform additional services like return logistics, packaging or cleaning to make this system financially viable. It is stated by interviewee U2 that ‘generally

speaking, mere remote storage for a UCC is not profitable’. It is also stated by interviewee S2

that ‘two-hour shipping of a small number of products just as something extra is on its own

probably not financially viable right now’. The general consensus is therefore that the two-hour

delivery window needs to be combined with some additional service, and that on its own, the service is not financially viable. Next to this, the hub itself should be independently viable. This means that the hub should not be dependent on this service alone to make a profit or break even. It is stated by interviewee U1 that ‘this initiative will not be profitable from the start’ and

‘profits from regular operations could be used to set up this system’. This ties in with the

aforementioned need for value-added activities to improve the financial viability of the system.

Electric vehicle viability

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21 economic uncertainty of using electric vehicles, which is based in the notion that they have uncertain residual value and battery life.

Logistical movements in the city

There is no clear consensus among interviewees on whether the system affects congestion and whether or UCC operations are a main cause of urban congestion. According to interviewees U1 and U2, the effect of UCC transport on congestion is quite marginal, as other sectors have a much larger impact on city congestion. On the other hand, interviewee G1 states that ‘causing

more congestion is a risk in this system, and all sectors should take measures to circumvent this’. As no clear consensus is found, conclusions cannot be drawn on whether to take measures

to circumvent city congestion, based on the interviews.

Data sharing

Product information needs to be clear and centrally available, because the availability of product information allows UCCs to identify products quicker and it therefore helps to track the storage better and prevents mistakes. It becomes clear from the interviews that whether product data is available is dependent on the circumstances and the products. ‘Information sharing can,

generally speaking be done by either linking existing systems together or creating a new system to share information’ (Interviewee E1). The choice between these two options is, according to

the interviewees dependant on how technology savvy the participants are and the type of information that is shared. Regarding the current situation it is said that currently ‘checkout

systems for physical stores are not capable of real-time data tracking or data exchange’

(interviewee P1). It is also stated that ‘physical stores are usually not the most technology savvy’ (interviewee U1) which refers to a general inability of physical stores to link current information systems together.

Hub Conditions

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22 located not too far from the city, as that would prevent the use of electric vehicles, but also not too close to the city as this would be too expensive to make the hub financially viable. This therefore ties in with the financial viability and the viability of electric vehicles in the system. The participants also mention that in order to gain enough participants in the system, the service value proposition that the UCC offers should be convincing. It is stated that ‘generally speaking

the bulk of local entrepreneurs are quite conservative in their business and do not have the strong entrepreneurial spirit that others do. It takes a strong service value proposition to interest and potentially convince these stores, which you need to do to gather a sufficient number of participants’ (interviewee U1).

The UCC also needs to have sufficient capacity to be able to gather products and send them out timely. This means for example sufficient personnel, sufficient speed of operations and sufficient IT-system capacity to handle the demand. In order to achieve this, it is also mentioned that sufficient product data is available, so that warehousing operations and capacity are not hindered by lacking product information. This hub condition therefore ties in with the availability of data.

Governmental regulations

‘Local governments should allow bike-or electric vehicle deliveries in city centres all throughout the day in order to make this possible’ (interviewee P1). From documents D1 and

D2 and interviewee G1, it becomes clear that in the current situation a lot of cities still have constraints for deliveries done by electric vehicles throughout the day. More flexibility regarding electric vehicles is expected to come in the future, but in several cases this is not regarded as sufficient to facilitate a system that provides delivery throughout the day. There are for example rules in Amsterdam that restrict delivery vehicle access at certain times of the day, which would make it impossible to deliver within two hours.

Physical store conditions

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Supply chain profit allocation

Parties in the system need to be transparent in their costs, so that the costs and benefits of the system can be shared. This ties in with the result that the UCC needs to be independently viable, which was addressed before. It is stated that ‘the UCC should use its size to get discounts for

the physical stores at the suppliers, as the suppliers are the ones most benefitting from the UCCs and these profits should be relocated’. This means that next to sharing operational data,

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Chapter 5: Discussion

One of the most interesting results is that each of the interviews at some point noted the financial viability of the system or one of its components. Financial aspects are also important in the electric vehicle viability, the hub capacity and location and the type of products that are stored. Several interviewees were quite sceptical of the financial viability of the system after its implementation. Overall financial viability is not addressed explicitly in Chapter 2, which makes it interesting nearly all of the participants brought it up in some way. It is mentioned in the article of Harrington et al. (2016) that in order to achieve financial profit in UCC initiatives, first sufficient scale is required. Next to this, it is noted that at the start of UCC initiatives, merely financial indicators are utilized to address future potential of the service. This is quite logical, as UCC initiatives are often seen as a necessity for the future and as businesses with good future financial potential. As the article of Björklund & Johanssen (2017) mentions, there is a lack of research into the financial aspects of UCC initiatives, which can be explained by the fact that short term financial profits are not seen as a necessity. UCC initiatives just need to show their potential and attract investors (Janjevic & Ndiaye, 2017). This also defends the notion that the concept is well-suited for products with high profit margins, as this shows financial potential. Financial viability on the short term in UCC initiatives is therefore merely dependant on their ability to attract investors and subsidies and to popularize the UCC initiative (Janjevic & Ndiaye, 2017). The interviews therefore give reasons to assume that the current market is too much focused on short term financial aspects of the UCC and its additional services, whereas the focus should be on long-term potential for profitability.

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25 in turn also helps to improve long term financial viability. In order to paint a true and clear picture about the service, data on for example capabilities and costs needs to be available and needs to be shared. Therefore, this also ties in with the data sharing aspect.

The notion that delivery by using microhubs are not suitable for this system is confirmed by the research of Cherret et al. (2017). They found that in general this adds more handling and time which makes microhubs not applicable in this case. As mentioned, interviewees deem it necessary that the transporting function of this system is combined with something additional in order to share risks and costs. This addresses the dynamic dispatch waves problem researched by Stroh et al. (2019). Stroh et al. (2019) state that this problem can be circumvented by prioritizing orders which improves the capacity utilization of the delivery vehicles. The finding that additional services are needed to circumvent the risks of delivering within two hours with electric vehicles also solves the dynamic dispatch waves problem, as it serves to gain more capacity utilization.

The finding that the hub should be located at an optimal location near the city is a culmination of the design requirements ‘minimize travelled distance (Lim et al., 2018)’, ‘limited geographical area (Lim et al., 2018)’ and ‘low distance from hub to city (Van Rooijen & Quak, 2010)’. The interviewees also mention the importance of a hub that is well accessible, which is also found by De Carvalho et al. (2019). The ideal hub location optimizes the travelled distance and facilitates electric delivery, so it relates to the viability of electric vehicles and the financial viability of the system.

Whereas literature is quite clear that adding additional services and electric vehicles would lead to more congestion in the city, the interviews do not paint such a clear picture. There is debate among the interviewees on the exact effects of the system on congestion and on whether measures should be taken to circumvent any effects it has on congestion. Literature is also not clear about this matter. The closest related article we could find is the article of Harrington & Srai (2018), who state that explicit measures should be taken to circumvent congestion caused by B2B construction traffic. It is however still unclear whether this also applies to regular B2B logistics.

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26 implies that an overarching data sharing system should be used is however new. It builds on the work of Ploos van Amstel (2017), who states that in a system in which stocks are shared, an integral perspective to data sharing is needed, especially in urban logistics initiatives.

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27

Chapter 6: Solution design architecture

This chapter contains the solution design which is made with IDEF0 diagrams. IDEF0 is a designing method suited to model decisions and activities in a proposed system. It helps to organize the analysis of the system and provides a communication of the operational choices and implications of the research. Based on the theoretical background, findings and discussion the IDEF0 diagrams are created by using CORE. This chapter addresses the solution design and highlights the design choices. The design is made to give a first operational look at the system that fulfils as much of the design requirements as possible and addresses the results from the coding process and the discussion.

Below the hierarchical overview of the system is given as well as several IDEF0 diagrams with the corresponding inputs, outputs and influencing factors. The choices that were made in the designs are further elaborated upon in the sections below the diagrams.

Diagram 6.1: Overview of the system

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28 platform or making a transport planning beforehand. This factor is further elaborated upon in diagram 6.3.

Diagram 6.2: First level functions IDEF0

From this diagram it becomes apparent that the hub location influences both the supply and the transport. As mentioned in the interviews, the hub needs to be easy to reach for suppliers and close to the city. Each of the functions in the system have both data input and output and do not directly exchange data to each other. This highlights the choice for using an integral data sharing system, instead of linking existing functions together. Next to the aspect that currently, physical stores are not technology savvy, their inability to share data otherwise would be an entry barrier for physical stores. Next to this, the shared data on costs and profits can be used to create or improve the service value proposition. The diagram shows that an integral perspective is taken, as it opens the possibility for all stakeholders to access all data and not merely specific data shared with them.

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29 permits or make exceptions for sustainable initiatives in city logistics (interviewee G1). This therefore also advocates the use of electric vehicles, as it is expected that in the future only sustainable transport will have access to the city. The use of electric vehicles makes the hub location also much more important in the design. With ‘regular’ means of transport the location of the hub is much more flexible, as regular vehicles have a bigger action radius than electric vehicles. The ideal location for the hub is therefore much more restricted in this design than in other urban consolidation centre initiatives.

The capacity limitations of warehousing operations in the UCC is dependant on the type of products that are stored. For this design, the products are assumed to be relatively expensive products, like expensive shoes or jewellery, as these products have enough profit margin on them to cover the costs associated with warehousing and transport and have the potential to show long-term profitability of the service.

Diagram 6.3: Second level functions of transport IDEF0

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30 then no delivery is sourced (Gdowska et al., 2018). When consolidating the service with additional services, like suggested in the interviews, there will still be periods of low demand and the services need to be adjusted to each other. Therefore, crowdshipping is considered to be the most effective option here.

After the delivery method is sourced the products are transported. No measures are taken to prevent congestion, as it is unclear what the impact of this system is on city congestion. City congestion does however influence the transport, as it can delay the delivery.

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Chapter 7: Design validation and refinement

As mentioned in the methodology, the design validation and refinement stage will merely suggest refinements to the current design. In order to gather these refinements, 3 students from the field of operations management were asked about their opinions on the design.

With regards to internal validity, it is stated in the more research and refinements are needed with regards to the data sharing portion of the design. The current design does not yet fully show all the types of data that need to be shared and whether these data types are available. It is remarked that ‘it is important for practice to know exactly what data will need to be shared

and how this will work privacy-wise’. Therefore, a concept needs to be created that shows what

type of data is needed from which stakeholder group and how this data should be sourced, as this is too vague in the current design. The current design was regarded as a useful and practical visualization of the system and its requirements.

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Chapter 8: Conclusion

The main goal of this research was to research what the design requirements are for a system in which UCCs are used as permanent warehouses for physical stores and can deliver goods to the stores within two hours. When broken down in several research questions, several subgoals of the research were to test design requirements found in literature for such a system, find out what impact the system has on congestion and how congestion could be mitigated, what form of transport to use for the system and to research the impact, facilitation and necessity of data sharing in this setting.

This is done by a design science approach, in which the design science cycle of Wieringa (2009) is followed for the first three stages, being the problem investigation stage, the solution design stage and the design validation and refinement stage. The problem investigation stage consists of 9 interviews with stakeholders from practice and 4 governmental documents leading to a coding tree. The results are summarized based on this coding tree and lead to a solution design created in IDEF0 diagrams. The design validation and refinement stage consists of an interview with a stakeholder from practice which gives suggestions for refinements of the design.

From the results it can be concluded that the current market seems to be focused predominantly on short term profitability of the service. It can be questioned whether this is essential, as literature shows that on the short term it is merely important to attract investors and show long-term potential. In order to make the system work optimally, participants need to share data with each other, so that expectations can be managed and a good service value proposition can be created. Data sharing will be challenging, as the current market is regarded as not technology savvy. The design and the practical implication should therefore take this into account. From the findings, it does not become clear what the exact impact of congestion on the service is and whether or not measures should be taken to circumvent the risk of potentially causing more congestion in urban areas.

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Appendices

Appendix 1: Interview questions

Introduction

- Thank the participant for taking part in the interview - Explain the research and the goal of the interview - Ask permission for audio recording

- Make it clear how much time the interview will take

General questions

- Can you shortly tell something about your organization

- Can you tell something about your function in this organization

- Do you know what a UCC is and if yes, what are your experiences with UCCs?

After this general part the envisaged system will be explained in more detail than in the introduction. I explain what the research is about and explain what the main themes of the questions will be, with the help of visual aids to explain the different types of transport.

- Do you think that such a system would work in practice? - How could a 2-hour delivery window be achieved in practice?

Make sure each of these three is highlighted: o Crowdshipping

o Microhubs

o UCC met eigen vloot aan vervoersmiddelen

- Would this system have a large impact on city congestion?

- What is, in your experience the current situation regarding urban congestion?

- How do shippers, stores and hubs currently share data?

- What would be the ideal formalization of data sharing in the envisaged system?

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42 Congestion topics:

o Parking spaces in the city centre o Accessibility of the city centre o City center business

o Local government rules o Need for zero emission

Transport topics:

o Size of the electric bikes or trucks o Potential of a microhub

o Distance to city center

o Warehousing space in the hub o Speed of order picking in the hub o Hub costs

o Transportation costs o Efficiency of the system

o Achievability of 2-hour delivery o Potential of crowdshipping

Data sharing topics:

o Current situation of data sharing in UCC initiatives o Willingness to share data

o Data sharing safety

o Data sharing rules regarding privacy o Costs

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Appendix 2: Coding tree

Code Code Groups Code Families

The system could be combined with additional services

Additional services

Financial viability

For permanent storage you need a supply chain perspective

It should also offer permanent storage as a buffer

The hub can also deliver additional services

There is much to gain in returns We want extra services

You should offer additional services that the store wants

You should offer the stores more flexibility You want to improve availability

Crowdshipping will be hard to do outside urban areas

Crowdshipping viability

A substantial amount of emissions is related to city logistics

Green logistics viability Delivery method depends on the product

Electric transport will be more viable in the future

Electric vehicles are more expensive to buy Electric vehicles have lower operational costs

Environmental impact will be taxed more in the future

Financial viability is key

Only use cars when you have to

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We don't know what the residual value of electric vehicles will be

Cities need to remain attractive

City infrastructure

Logistical movements in the

city

Close to the city means shorter distances Deliveries in crowded streets could be challenging

Infrastructure to facilitate green logistics will be improved

The city is too busy at certain times The city should remain well-accessible The way a business is supllied is important for the vitality of a neighbourhood

Transport in 2025 will be as much zero emission as possible

Congestion might not be such a large problem

Congestion causes The impact of this system on congestion is

only marginal

Too much congestion is a risk

Too much congestion should be prevented Urban deliveries could be done more efficiently

A tow-hour window per store does not seem possible

Two hour delivery achievability A two-hour window would be

anti-consolidation

We have enough personnel for this

Data sharing is still bad at a lot of companies

Data availability data sharing

Data should be available

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In the logistical supply chain, you should make a lot of connections

There should be enough volume to make it viable

A lot of companies have their own core IT system

Data sharing Communication and actions need to be

quicker Data sharing

Data sharing is a key issue

Data sharing is a precondition to gain profit in all facets

Data sharing is crucial to optimize supply chains and make them transparent

Data sharing is hindered by the amount of parties

Data sharing is still bad at a lot of companies

Data sharing needs to be based on identification, authorization and authentication

It is crucial to have a standard for data sharing

Just building a platform to share data is not enough

The main point of data sharing is confidence

There needs to be enough product information

Different systems need to be connected

It could be hard to get competitors to participate

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Data should be shared

Data sharing should be focused on efficiency

Type of data shared Different systems need to be connected

Stores should be able to check stock at any time

Deliveries can be insured

Delivery safety Delivery safety

Delivery vehicles should be tracked with GPS

Bike delivery is still too far for us

Electric vehicle characteristics

Electric vehicle viability

If it is viable, we could do environmentally friendly logistics

In cold weather, batteries die sooner Local entrepreneurs do not know how to use electric vehicles viable

The action radius of electric transport is not trustworthy enough yet

We don't know what the residual value of electric vehicles will be

You can get extra benefits with electric logistics

You should use electric vehicles

Electric bikes can be very dangerous

Electric vehicle safety There is a lack of rules for electric vehicles

There is already regulations for electric bikes in Amsterdam

Governmental policy will be more focused

on sustainable transport Governmental regulations

Governmental regulations

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Measures to facilitate CO2 free transport will be taken

Parking rules will be used to facilitate sustainable transport

Regular delivery times will be more strict The hub should be accessible for large trucks

There is a lack of rules for electric vehicles Wrong delivery methods should be

punished

You can get extra benefits with electric logistics

You could give zero emission logistics advantages in delivery window

You should connect to the urban delivery window

Close to the city means shorter distances

Hub location

Hub conditions

Hub needs to be close to the city Hub should be close to the city

Our location is interesting, right next to the highway

You should be able to cycle to the city

The hub is currently not viable

Hub viability The hub removes delivey windows for

shippers

We have enough space for storage

Costs per stop are lower for a hub

Microhub viability Dedicated microhub is too expensive

Delivery via microhubs requires too much work

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You should not have a dedicated microhub

Collecting the products depends on the

scale Order collection

at hub We can collect orders within an hour

We have enough personnel for this

Personnel availability You need a base of own employees in

crowdshipping

Consumers prefer buying offline

Service value proposition Hub should have a good value proposition

Participants will need to be convinced Physical store always pays the transport The value proposition should be tailored to the local situation

Value proposition depends on the hub and communication

If you can guarantee business,

crowdshipping becomes possible Warehousing options at hub We do not do permanent storage yet

We rarely provide permanent storage

If large companies participate, the initiative could be interesting

Participant characteristics

Physical store conditions

Large brand participation

Large brands won't change to facilitate this system

Specialty stores are more suited for the system

Stores could also want less delvieries per day

Stores often have too little space

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The brand should be large and common enough to make this viable

The system depends on its participants

Participants need to be able to organise the

system themselves Participant voice

Personnel should be able to keep stock well

Personnel competencies

Consumers prefer personal service and advice

Product characteristics Crowdshipping price is based on supply

and demand

It should work in a higher segment of products

Space in urban areas should be used differently

There should be enough margin on the product

There should be enough volume to make it viable

You want products that require extra service

Standardization with crates could make room for RFID

Standardization

System operations

Standardization with crates would improve sustainability

Stock differences should be solvable Stockkeeping system

Cost allocation to producer

Supply chain profit allocation

Supply chain profit allocation

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