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Master thesis

Factors that influence the transition of

warehouses towards the Physical Internet

MSc. Technology and Operations Management University of Groningen

Jeanine Vorsterman van Oijen S2524082

Supervisor: dr. ir. P. Buijs Co-assessor: dr. O.A. Kilic

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Abstract

Purpose – The goal of this thesis is to explore the factors that influence the transition of warehouses towards a Physical Internet environment in 2050. The Physical Internet is a new concept that is based on fully interconnected and open networks of logistics services in which physical objects are moved, stored, delivered and used. The Physical Internet will increase the efficiency and sustainability in the global logistics system.

Design/Methodology/Approach – An explorative case study was conducted. Information from academic literature, interviews and the internet is used. Practical insights are gathered by doing interviews with frontrunners of the Physical Internet. Multiple case studies are executed with several warehouses in the Netherlands.

Findings – The following factors are identified which influence the transition of warehouses towards a Physical Internet in 2050: the use modular packages and standardisation; customer expectations and needs; the interconnection between companies; the development of technologies; the use of data sharing; and legal factors. These factors are strongly interrelated.

Research and Practical limitations/-implications – The thesis has an explorative character which leads to a more global outcome. Therefore, further research is needed towards a more in-depth analysis of several aspects of the identified factors of this research.

Value – The Physical Internet is a new innovative concept which is expected to be fully operational in 2050. Therefore, research about factors that influences the transition of logistics services that are used in the Physical Internet and in the current global logistics system are important. So far, there is no research about the transition of warehouses, a logistic service, towards the Physical Internet in 2050. This research will contribute to the theory and forms a basis for further research.

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Acknowledgements

Since February I have been doing research for my thesis of the master degree Technology and Operations Management at the University of Groningen. I learned a lot about the subject, but also about myself and the different companies involved. I spend a lot of time and effort in this thesis and I am very proud and happy with the final results. I would never have been able to write this thesis without support, feedback and help of my supervisor dr. ir. Paul Buijs. I would like to thank him for his support and guidance during my master thesis project. Every time I struggled with the innovative complex constructs of the Physical Internet, he was there to help me. Moreover, his feedback was always valuable for continuing my master thesis.

Furthermore, I would like to thank my interview partners for their openness in the interviews that are conducted. Whenever I needed additional information, I could contact them. Interviewing the frontrunners of the Physical Internet gave me some important practical insights and it made it easier for me to understand subject matter. The interviewees of the warehouses were very kind and open. They gave me extensive answers to all my questions and gave me some valuable information for my master thesis.

Finally, I want to thank my study mates, especially the TeMaladies, who were there for me during my bachelor and masters. I shared great, but also stressful moments with my study mates. Despite that, looking back, I had a wonderful time. During the studies, discussions about our projects were also very helpful. I would also like to thank my ‘JC’ and my friends that were always interested in my thesis. They also filled my busiest weeks with happiness, which gave me more strength to finish my thesis. Last, but not least, I would like to thank my family and boyfriend. They always supported me and my ideas and I would not be able to finish the master thesis without them.

Thank you all!

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Contents

Abstract ... 2 Acknowledgements ... 3 List of Figures ... 5 List of Tables ... 5 List of Abbreviations ... 5 1. Introduction ... 6 2. Theoretical background ... 8 2.1 Physical Internet ... 8

2.1.1 Open and interconnected logistic networks ... 8

2.1.2 Standardisation and modularity ... 10

2.1.3 Distributed intelligence ... 11

2.2 Warehouses ... 12

2.2.1 Warehouse processes ... 13

2.2.2 Warehouse performance criteria ... 13

3. Methodology ... 14

3.1 Research method ... 14

3.2 Case selection and description ... 15

3.3 Data collection ... 17

3.4 Data analysis ... 18

4. Findings ... 20

4.1 The use of modular packages and standardisation ... 20

4.2 Customer expectations and needs ... 21

4.3 The interconnection between companies. ... 22

4.4 The development of technologies ... 22

4.5 The use of data sharing ... 23

4.6 Legal factors ... 24

4.7 Discussion ... 24

5. Conclusions ... 26

5.1 Limitations ... 26

5.2 Suggestions for further research ... 27

References ... 29

Appendices ... 32

Appendix A - Case study protocol ... 32

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List of Figures

Figure 1 - Overlapping versus interconnected networks (Sarraj et al., 2014) ... 9

Figure 2 - Illustrating some potential modular dimensions for π-containers (Montreuil et al., 2010). ... 11

List of Tables

Table 1 - Case vignettes case companies. ... 16

Table 2 - Case vignettes frontrunners Physical Internet. ... 17

Table 3 - Data collection per case. ... 18

Table 4 - Coding scheme. ... 19

Table 5 - Coding scheme, the use of modular packages and standardisation. ... 34

Table 6 - Coding scheme, customer expectations and needs. ... 35

Table 7 - Coding scheme, the use of data sharing. ... 35

Table 7 - Coding scheme, the interconnection between companies. ... 36

Table 8 - Coding scheme, the development of technologies. ... 37

Table 9 - Coding scheme, legal factors. ... 38

List of Abbreviations

PI Physical Internet

π-containers Physical objects in physical packets or

containers encapsulates by the PI

IoT Internet of Things

B2B Business-to-Business

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1. Introduction

In recent years, there has been a surge of academic interest and publications in the area of the Physical Internet (PI). This can be partly explained by the growing desire to improve efficiency in the global logistics system. The PI is a new concept which is introduced to make the global logistics system more sustainable and efficient. It is aimed towards reversing the unsustainable situation existing in current logistic systems (Sallez, Pan, Montreuil, Berger & Ballot, 2016). The PI is an open global logistic system that consists of three main aspects: open and interconnected logistic networks, standardisation & modularity and distributed intelligence (Montreuil, 2011). One of the important applications of the PI is to meet the increasingly demanding services required by the users and to increase the global logistic performance (Sallez et al., 2016). The PI will not be realised today, but it is the way forward to create a more efficient and sustainable supply network for our global logistic system in 2050 (ALICE, 2016).

As long as the PI is only a dot on the horizon, there are some changes needed in the current global logistics system to realise it. In a PI environment, there will likely not more warehouses, but current warehouses will be transformed into cross-docking hubs or open warehouses (Montreuil, Meller, and Ballot, 2013). Current warehouses are a key aspect of modern supply chains and play a vital role in the success, or failure, of businesses today (Frazella, 2002) and play an important role in the global logistics system (Sallez et al., 2016). Therefore, it is important that research will be done, concerning how current warehouses should change to participate in the PI and how the three aspects will contribute to these changes. For this purpose, the following research question will be addressed within this thesis: “What are the factors that

influence the transition of warehouses towards the Physical Internet in 2050?”

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To answer the research question, this thesis will conduct an explorative case study. The first element of this thesis is a structured in-depth literature review that is followed by practical insights of frontrunners of the PI. This will give an overview about the understanding of the three aspects of the PI and how it works in practice. The main second element of this thesis consists of five interviews that are conducted with managers of warehouses. The aim of the interviews is to identify the factors that influence the transition of current warehouses towards the PI and to gain more understanding about the changes that warehouses forces as a result of the PI.

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2. Theoretical background

2.1 Physical Internet

Since the PI is a new innovative concept, the PI literature is largely disjointed for several reasons (Treiblmaier, Mirkovski & Lowry, 2016). According to Treiblmaier et al. (2016), the PI is a novel concept that has not matured enough to achieve a major influence in top journals and the papers that have been published, are aimed towards an audience rather than towards academia. However, the large number of white papers and the steadily growing number of papers being published in high quality journals are indeed strong indicators that the relevance of the PI is rapidly growing. The PI cannot be realised today, but it could be reachable in the future. Therefore, the things that are known about the PI are elaborated more in this section. This includes academic literature and white papers, but also practice insights which are gathered from interviews with frontrunners of the PI.

The PI is an innovative concept aiming at optimizing logistical processes to create more efficient and effective supply chains. The PI is defined as “a global logistics system based on the interconnection of logistics networks by a standardised set of collaboration protocols, modular containers and smart interfaces for increased efficiency and sustainability” (Ballot, Montreuil & Meller, p. 23, 2014). The PI consists of three main aspects. These are: open and interconnected logistic networks, standardisation & modularity and distributed intelligence.

2.1.1 Open and interconnected logistic networks

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Thivierge & Z. Montreuil, 2012) and this will lead to more efficiency of the network. This is also shown in Figure 1, where the difference between overlapping and interconnected networks are illustrated. In the overlapping network, there are many more routes than in the interconnected network. Products are loaded at the plant in a set of π-containers and each of these π-containers is shipped through hubs of the network in relay mode toward its destination. Simulations have shown that open and interconnected logistic networks are more efficient than closed networks (Ballot, Montreuil & Glardon, 2012; Sarraj et al., 2014; Venkatadri, Krishna & Ülkü, 2016).

Figure 1 - Overlapping versus interconnected networks (Sarraj et al., 2014)

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2.1.2 Standardisation and modularity

The second aspect of the PI is standardisation and modularity. The PI aims for smart modular containers of different sizes instead of all kind of various shapes, sizes and materials of load-carriers. It uses a set of smart and secured containers, namely π-containers, with modular dimensions and standardised interfaces for handling and communication (Sarraj, Ballot, Pan, Hakimi, & Montreuil, 2014). The PI encapsulates physical objects in physical packets or containers, hereafter termed π-containers to differentiate them from current containers. These π-containers with a global-standard are smart, green and modular containers. They are modularized and standardised worldwide in terms of dimensions, functions, and fixtures (Montreuil, 2011). Some key specifications for these modular/standardised load-carriers could be (Montreuil, Meller & Ballot, 2010):

- easy to flow through various transport, handling and storages modes and means; - smart tag enabled, with sensors if necessary, to allow their proper identification, routing

and maintaining;

- coming in various modular sizes: from the cargo container dimensions down to tiny sizes;

- minimizing packaging materials requirements through the enabling of fixture-based protection and stabilization of their embedded products.

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Figure 2 - Illustrating some potential modular dimensions for π-containers (Montreuil et al.,

2010).

In practice, there are already some companies that provide software applications to optimize the packages in a company. The software chooses the best fitting package for a product and calculates the optimal order of loading of the package. Furthermore, the software chooses the smallest possible number of boxes and empty volume in the packages. It is also possible to calculate the optimal pallet stack, so the smallest number of pallets is needed. These software applications are only used by one company and are not yet integrated for the whole chain.

2.1.3 Distributed intelligence

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information across platforms through a unified framework”. This is to develop a common operating picture for enabling innovative applications. IoT will work without the aid of human intervention. IoT is all about creating a smart environment, which will make the global logistics more efficient and sustainable. Therefore, IoT is an important aspect in the PI concept.

Another aspect that is involved in the ‘distributed intelligence’, is a more integrated track & trace system. Track & trace systems are already a well-known concept in the global logistic system. Ha & Choi (p. 9, 2002) define a track & trace system as follow: “the system which provides consignors, transporter, and customers with vertical tracing information of parcel movement status, after the repository has been constructed to register, inquire, delete, or modify inventory status and moving paths information effectively including transport contract through Business-to-Consumer (B2C) and Business-to-Business (B2B) transactions”. The system is intended to increase the efficiency, precision and overall customer satisfaction through an automated process that monitors the delivery process of the postal goods from beginning to end (Ha & Choi, 2002). When the first two aspects of the PI want to be realised, it is important that there is an integrated track & trace system between the different companies. Since, companies are sharing resources, the track & trace system also should be shared. Therefore, there is a need for a more integrated track & trace system in a PI environment.

The interfaces and protocols that must be developed for the PI environment are also aspects of the ‘distributed intelligence’. Interfaces and protocols will be used to connect all the users of the PI and to monitor and register all the activities of the users. Connecting users will lead to an open and interconnected logistic network. In an open and interconnected logistic network, companies work together and they have to share data with each other. Protocols make it fast, cheap, easy and reliable to interconnect companies and π-containers. Interfaces and protocols can be a powerful leverage for helping constitute the PI (Montreuil, 2011).

2.2 Warehouses

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of warehouses. Since all the aspects of the PI will have an impact on warehousing, it is important to elaborate a bit more on the processes of warehouses and the performance criteria.

2.2.1 Warehouse processes

The flow of items through the warehouse can be divided in several distinct phases, or processes. Rouwenhorst et al. (2000) describes four main processes of warehouses, those are: the receiving process, the storage process, the order picking process and the shipping area. The receiving process is encountered by an arriving item. The products may be checked or transformed (repacked into different storage modules) and put on hold for transportation to the next process. The next process, is the storage process, where items are placed in storage locations. The storage process may consist of two parts: the reserve area and the forward area. The third process is the order picking, this refers to the retrieval of items from their storage locations and can be performed manually or partly automated. The last process is at the shipping area, where orders are checked, packed and eventually loaded into trucks, trains or any other carrier. Those processes are very important in operating a warehouse. The introduction of the PI could have an influence on every process in the warehouse, since the warehouses should undergo a transition towards the PI. The warehouse processes will be changed and this generates necessary impact on the warehouse and the corresponding company. Therefore, it is important that the operation of these four main processes will be taken into account in this research.

2.2.2 Warehouse performance criteria

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3. Methodology

3.1 Research method

To investigate which factors influence warehouse processes as a result of the realisation of the PI an exploratory multiple case study research is conducted. Case studies are particularly suited for exploring contemporary phenomena and they allow to get an in-depth understanding of the underlying mechanisms (Eisenhardt, 1989; Yin, 2009). This thesis explores the transition of warehouses towards the PI, which have not been studied extensively in literature before. Therefore, the design of this research is exploratory and the findings will contribute to the literature. The following research question will be answered in this research: “What are the

factors that influence the transition of warehouses towards the Physical Internet in 2050?” It

contains a ‘what’ research question and therefore a case study is the most appropriate research method to investigate this phenomenon (Voss, 2009). It is particularly important to pay attention to reliability and validity in case study research (Karlsson, 2016). There are four quality criteria in case research, namely construct validity, internal validity, external validity and reliability (Yin, 2009). Throughout this section the four quality criteria will be integrated.

This study includes multiple cases, because multiple cases provide a stronger base for theory building and explanation research (Yin, 2009). In addition, multiple cases have higher external validity than single cases (Yin, 2009). By studying multiple cases with different characteristics regarding warehouses, rich data can be obtained. Moreover, studying multiple cases in one sector allows comparison of warehouses across multiple cases, which increases generalizability and augments external validity (Voss, 2009). The unit of analysis is the warehouse process. By studying the underlying mechanisms of the transition of warehouse processes towards the PI, a valid exploratory outcome of the factors that influences warehouses will be the result of the study.

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3.2 Case selection and description

This phase includes an explanation of the case selection and a description of the cases. It is important to set boundaries in the case selection phase to get a representative sample and useful variation on the dimensions of theoretical interest (Seawright & Gerring, 2008; Karlsson, 2016). Therefore, this case study research includes criteria that must be taken into account by selecting the cases. Since the unit of analysis is the ‘warehouse process’, the companies must have a warehouse within their company. The next criterion is that all companies have to be located in the Netherlands to increase similarities between cases and to avoid cultural influences. In addition, in the PI, companies must work together so that they could share warehouse space and trucks for example. To realise this, it is easier to start with a small range and therefore it is preferable that the companies are located in the same country, close to each other. Another criterion is that the companies should be open to new innovative concepts, since the PI is an innovative concept. This will be ensured by giving some information about the subject to potential companies at beforehand. Furthermore, companies are selected in order to create a diverse sample. There are some differences within the sample in terms of type of warehouse and company size. Based on these selection criteria there are five cases selected. Due to time constraints, there are only five cases selected, but this amount still lies within the range of four to ten cases suggested by Eisenhardt (1989). Table 1 gives an overview of the five companies and their corresponding characteristics.

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Stock tins company

Biscuits company Airplane parts company Transport and warehouse specialist company Freeze warehouse specialist company Storage capacity 1948 pallet spots. 2355 m " and 2000 pallet spots. 35.000 m". 65.000 m" and 100.000 pallet spots. 100.000 m# and 22.500 pallet spots. Description of the company An online shop that provides all sorts of promotional tins, to promote your brand or business in a unique way. International operating producer and exporter of a wide range of savoury/sweet biscuits, pastries and cakes.

They provide aero structures (for example empennages and wing structures) for major platforms ranging from helicopters to advanced fighter aircrafts. They offer a progressive package of logistics services, like warehousing, transport & distribution, crossdocking and container handling. A one-stop facility offering all-inclusive, highly specialised storage, distribution and logistics

solutions for all refrigerated and frozen product needs. Market position Largest range of standard tins in the Benelux. It is a leading manufacturer in puff pastry biscuits on the European market.

Market leading and technology leading in aero structures. One of the largest transport and warehouse specialist in the Netherlands. A large distribution network in the Netherlands, Belgium and Germany. Description of the warehouse process They receive products and put it on pallets to store in their warehouse or the pallet will be shipped directly to the customer.

They receive raw materials on pallets. Some semi-finished products must be stored in a refrigerator for a certain time. The end-product is stored into the warehouse on pallets. Next, shipping pallets.

Materials are stored in the warehouse or used in the

cross-dockcenter. There is a very strict inspection in the receiving process. Then materials will be stored till they are needed in the factory. End-products are also stored in the warehouse. Receiving process, inspection of products, store products on pallets, shipping pallets. Receiving products, packaging of products, freeze products, store products, shipping process. Type of warehouse Private warehouse (factory in a foreign country, importers). Manufacturer with a warehouse (private warehouse). Manufacturer with a warehouse (private warehouse) Third-party logistics warehouse. Full-service freezing and refrigerated warehouse.

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Logistics sector company Online marketplace for on-demand warehousing Smart packaging company Logistics sector company Establishment

of the company 2009 (big company) 2017 (start-up) 2005 (medium-sized to big company)

2009 (big company)

Description of

company The logistics sector is of enormous economic importance to the Netherlands. It is a most important service that is an integral part of all sorts of other (top) sectors. So, it is in the interest of the

Netherlands that the logistics sector is maintained and strengthened.

Start-up that

provides the basis for an online

marketplace in on-demand

warehousing.

They help

companies with the analysis and

improvement of the

packaging process in the supply chain. Next to that, they offer software solutions in the areas of packing, loading and shipping.

The logistics sector is of enormous economic importance to the Netherlands. It is a most important service that is an integral part of all sorts of other (top) sectors. So, it is in the interest of the Netherlands that the logistics sector is maintained and strengthened. Subject

interview Getting more insights of the activeness in business that are facing the three aspects.

Open and interconnected logistic networks. Getting more insight about sharing of warehouse spaces.

Modularity and standardisation. Getting more insight about smart packaging.

Distributed

intelligence. Getting more insights about blockchain technology that is a new upcoming technology with regard to data sharing. Table 2 - Case vignettes frontrunners Physical Internet.

3.3 Data collection

The next step in the research method is the data collection. The data is collected by means of semi-structured interviews as well as tours of the warehouse facility of each case company and the collection of relevant documents, like annual reports and websites of the case company. Observations from the warehouse facility and sometimes a plant tour were used to corroborate the data gathered by means of interviews. Multiple sources of collecting data allow for triangulation of data, that is using a combination of different methods to study the same phenomenon (Karlsson, 2016). Moreover, using multiple sources of evidence ensures the construct validity of this research (Voss, 2009).

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reliability of the study (Yin, 2009) and can be found in Appendix A. The case study protocol includes the background of the case study, preparation of interviews and the main interview questions. The internal validity is ensured by applying themes in the interview questions. The themes are found in the literature review. These themes are the three aspects of the Physical Internet (open and interconnected logistic networks, standardisation & modularity and distributed intelligence). The themes in the semi-structured interviews with the frontrunners of the PI are different from each interview, since each interview focuses on a different aspect of the PI. Therefore, there is not a case study protocol designed for the interviews with the frontrunners of the PI. To ensure the reliability of this research, a database is developed with all the data that is gathered from interviews, documents and observations. The database is created in an Excel spreadsheet. An overview of the data collection per case could be found in Table 3.

Source of Data Interviewee Length of interview

Stock tins company Sales/Office Manager 50 minutes

Biscuits company Plant Manager 45 minutes

Airplane parts company Manager Material Handling 55 minutes Transport and warehouse specialist

company

Operational Director 75 minutes Freeze warehouse specialist company Deputy Director 50 minutes Logistics sector company Program manager SMEs 50 minutes Online marketplace for on-demand

warehousing

Co-owner 40 minutes

Smart packaging company Project Manager 50 minutes

Logistics sector company Senior research scientist 35 minutes Table 3 - Data collection per case.

3.4 Data analysis

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first-analysis construction. These codes provide a label to combination of codes. The last step is trying to find patterns or dimensions that could be used for the findings. These are the third-order-codes and consist of themes that moves towards the findings. An overview of the second-order-codes and third-second-order-codes that also will be used as an input for Section 4 are shown in Table 4. The first-order codes are presented in Appendix B.

Second-order-codes (Interpretative codes) Third-order-codes (Pattern codes)

Positive impacts of modular packages. The use of modular packaging and standardisation.

Negative impacts of modular packages. Limitation of modular packages. Prerequisite of modular packages.

Positive impacts of standardisation in labels and barcodes.

Motivation to use modular packages. Prerequisite of standardisation.

Change in delivery times. Customer expectations and needs. Customer satisfactions.

Triggers of customer’s needs.

Prerequisites of data sharing. The use of data sharing. Negative impacts of data sharing.

Change in data sensitivity. Positive impacts of data sharing.

The power of agreements. The interconnection between companies. Change in partnerships.

Trust in partners.

New conditions of partnerships.

Collaboration with competitors is not necessarily a problem.

Increase in the importance of the use of internal and external Track & Trace systems.

The development of technologies. The rise of new technologies.

Positive impacts of technologies on the efficiency of warehouse processes.

Prerequisites of technologies.

Restrictions for certain products in a warehouse.

Legal factors. Obstacles of warehouses itself.

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4. Findings

Since the aim of this research is to find out which factors influence the transition of warehouses towards the PI in 2050, five case studies are conducted and an analysis is made of the interviews. The PI is a dot on the horizon and for a lot of companies in the Netherlands the PI is an unknown concept. The three aspects of the PI (open and interconnected logistic networks, standardisation & modularity and distributed intelligence) are more recognisable for companies. Within these aspects there are already some trends that are upcoming, like smart packaging or online market places for on-demand warehousing. However, not all companies are equally well prepared for these trends. Changes are needed in the global logistics system to make sure that companies want to follow the trends of the PI. Therefore, there will be not only a focus on the factors that are found in the data analysis phase (Table 4) in this section, but also a focus on the chances and barriers of the trends of the PI in general. So, this section includes an overview of the findings of this research and it will end with a discussion about the findings.

There are six patterns found in the data analysis that could be marked as factors. Those factors influence the transition of warehouses towards the PI in 2050. The factors are: the use of modular packaging and standardisation; customer expectations and needs; the interconnection between companies; the developments of technologies; the use of data sharing and the legal factors. Each of these factors will be explained in this section.

4.1 The use of modular packages and standardisation

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packages, for example in the food and farmer sector. They use two kind of crates worldwide. However, in other sectors there are still a lot of companies that working different from each other. Using own labels, barcodes and packages will increase the complexity in the receiving stage of a warehouse process. Companies receive products and need to change the label or barcode before the products can be stored in the warehouse. If there would be more standardisation in for example labels and barcodes, the whole warehouse process will increase their efficiency. GS1, mentioned by one of the case companies, is an example of a company that formulates a uniform definition for labels and barcodes. This will make the chain more efficient. The π-container that is described in the literature, is the ultimate container that can be used in the PI. But, integrating all the functional specifications of a π-containers, such as enabling a smart tag, made of environment friendly materials and sealable for security purposes (Montreuil, 2011), are very costly. Since π-containers are very costly, it would be better if each of the functional specification will be slowly integrated in the global logistics system. Then, companies can get used to it and will become more enthusiastic about the π-containers. Nowadays, companies are struggling with the fact that π-containers also have negative impacts, for example not all the products are very suitable for the modular packages, which means that companies have to ship a lot of air in the packages. The transport costs will increase if this happens to often. Another important finding is that a lot of companies share their opinion about the fact that the modular packages only work in the B2B sector and not in the B2C sector. There are too many aspects involved in the B2C sector that makes modular packaging very difficult to apply in the B2C sector. Therefore, the use of modular packages and standardisation should first evolve in the B2B sector.

4.2 Customer expectations and needs

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to change a lot in their warehouse processes, for example opening a new warehouse at another location or a reorganisation in the shipping process. The case companies could perform better if customers conform more delivery moments. Thus, the customer must not always expect ‘ordered today, delivered tomorrow’, then there will be more stability in warehouses and they could fulfil all the customer expectations and needs better.

4.3 The interconnection between companies.

Another factor that influences the transition of warehouses towards the PI in 2050 is the interconnection between companies. In a PI environment, networks are open and interconnected, which means that companies also should be cooperating and interconnect with each other. All the case companies mention clear agreements as a prerequisite for an open and interconnected network. These agreements should include the way of data sharing and how to deal with other people’s products. The case companies are operating in different sectors, so it is necessary that the agreements are set up by different disciplines from different industries that are all part of the logistic network. Then, all the aspects will be covered in the agreements to form one general agreement instead of a lot different agreements. Agreements provide trust between companies. There are not only changes in agreements needed, but also new conditions are added to partnerships. For example, the transparency of the chain should increase, because if companies want to interconnect with each other, they should abandon some data that could be used to share warehouses spaces and trucks. If there is more interconnection between companies, the logistic system will be more efficient, but the warehouse process could become more complex, since they should deal with different kinds of products and companies. Another aspect in ‘the interconnection between companies’ is the collaboration with competitors. What derives from the data analysis is that the collaboration with competitors is not necessarily a problem. The main reason for this is that a lot of products stand next to each other in for example; the supermarket, so why could it not be possible that products will also be stored in a warehouse next to each other? So, for warehouses operating in the B2C sector, it will not necessarily be a problem to collaborate with competitors.

4.4 The development of technologies

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Technologies becoming more important in warehouses, since a human being is not capable to do every handling in a warehouse. There are more complex processes involved in the PI and therefore new technologies are needed. In addition, more integrated internal and external track & trace systems could help in the transition of a warehouse. Track & trace systems provide rich data which warehouses can use to make their warehouse process more efficient. For example, track & trace systems are not only used for tracking products, but also includes data for food safety regulations. However, there are some prerequisites of developed technologies. Technologies should be trustworthy and there must also be some flexibility in the technology systems. If there is anything wrong in the software of the technology, then it must be possible to intervene. The blockchain technology is one example of a new technology. The blockchain principle is a database shared with all concerned, which is safe, open and controllable. The chain can exist without a centralised operator by using the blockchain technology. Because this technology is quite new, many companies have not worked with this technology yet. Therefore, it is difficult to estimate the barriers and obstacles in practice associated with this technology. Such technologies can be best developed when technology is analysed in practice. Therefore, it is very important that (new) technologies will be analysed in practice, which will contribute to the development of such technologies.

4.5 The use of data sharing

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4.6 Legal factors

The last factor is the ‘legal factors’. The PI also has to deal with a lot of legal factors. There are a lot of restrictions for certain products in a warehouse, for example in the food industry or healthcare industry. Therefore, it is not possible for those industries to share warehouse spaces. There are some new agreements needed that provide new classifications about the locations of products in a warehouse. Those classifications should clarify which kind of product may or may not use a specific location in a certain warehouse. It is also important in this case that product information is right. There are not only restrictions regarding products, but there are also obstacles for warehouses itself. There are a lot of different warehouses and it is not always possible for certain warehouses, like a freeze warehouse, to store all different kind of goods. So, those specific warehouses could only work together with competitors, which is not necessarily a problem, but it is not very beneficial for them to take part in the PI environment. Therefore, it might be interesting to do research towards the phenomenon that the global logistics system consists of different industries and how this will work out in the PI environment. Another aspect in the ‘legal factors’ is the increase of complexity. If companies are going to share warehouse spaces and truck spaces it is very difficult for the government. The government does not have a clear overview of the product flows and the VAT that should be paid by the companies anymore. It will be a very complex system for the government to manage. Therefore, the legal factors could increase more complexity in a legal form, but also in terms of complexity in processes, which is already explained in previous paragraphs.

4.7 Discussion

Each of these factors have their own positive and/or negative impacts on the transition of warehouses towards the PI in 2050 as well as motivations, limitations and prerequisites. But, are these factors in line with the literature? And what are the chances and barriers of warehouses towards the PI in general? In this paragraph, the findings will be discussed in general.

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transparency and changes in technologies. All these changes might scare off the companies in the global logistics system.

There are already many recognizable things from the PI used in the current global logistics system. Many more companies are innovating in the aspects of the PI and that is a great perspective for the PI. The chance of succeeding is great. There are many opportunities in the current global logistics system for the PI. Since the PI is innovative and it shows through simulation that the PI could improve the efficiency and the sustainability in the global logistics system. Sustainability is for a lot of companies an important aspect and the PI can contribute to a more sustainable company. Another chance lies in the aspect of collaboration between companies. Companies are increasingly willing to work together, but there is one big issue, namely sharing of data. Sharing data takes a bit of the privacy away and many companies are struggling with this. Fortunately, there are already technologies developed, such as blockchain technology, which can protect the data. But this technology is not very commonplace in the logistics sector. Where many companies in the financial sector are already working with the blockchain technology, it is less common in the logistics sector.

Another barrier in the transition of the current logistics system towards the PI is that processes become more complex, because every company is interconnected with each other and thus companies will not only store their own products, but also products from others. This will give a lot of complexity and companies may lose the overview of their business. In addition, not only companies will lose their overview, the government will also lose their overview on the companies. The government is clearly not ready for this innovative concept yet. Many new classifications, agreements and certifications have to be set up to make the PI more realisable for the government. No attention has been paid to the role of the government in the literature.

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5. Conclusions

The PI is a new innovative concept that increases the efficiency and sustainability of the global logistics system by using open and interconnected networks, standardised or modular packages and distributed intelligence. This concept will not be realised today and therefore it was important to look at what factors influence the transition of certain logistic services of the global logistics systems. In this research, there was a focus on warehouses, since they are a key aspect in the current global logistics system and in the PI. In addition, warehouses should undergo a transition to operate in the PI. Therefore, this explorative multiple case study is conducted to give answer to the following research question: “What are the factors that influence the

transition of warehouses towards the Physical Internet in 2050?”

Five semi-structured interviews with warehouses and four semi-structured interviews with frontrunners of the PI are conducted to get answer on the research question. Analysing the interviews have led to six factors which have influence on the transition of warehouses towards the PI in 2050. The following six factors are identified: the use modular packages and standardisation; customer expectations and needs; the interconnection between companies; the development of technologies; the use of data sharing and legal factors. The factors are strongly interrelated with each other and contribute to the transition of warehouses towards the PI in 2050.

The PI-concept is promising. The technological features of the PI are already elaborated by researchers in the academic literature and white papers. But, there is no research about the transition of warehouses towards the PI and therefore the findings in this research may contribute to the literature and constitute a basis for further research. There are still changes needed in the current global logistics system, for example the mind-set of companies, to realise the PI in 2050. If companies show more openness to each other and are willing to collaborate, the PI will become a success in the global logistics system.

5.1 Limitations

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exhaustive enough. It is also possible that the factors are not enough grounded as they are influenced by the researcher’s bias. Voss (2009) support this argument, because the researcher’s bias is one of the limitations of case study research. But, the factors that are identified are logical and systematically derived and thus, the researchers bias does not negatively affect the findings of this research. Another limitation is that the information that is gathered from interviews, was very rich, but some information did not always lead to findings answering the research questions.

5.2 Suggestions for further research

This research shows many opportunities for further research towards the PI. There were some companies that could not imagine how the PI will work in practice. Therefore, a further research should be conduct to investigate how all the players of the global logistics system could be persuaded to participate in the PI. The future research must be done to allow companies to appreciate the value of the PI. Another suggestion for further research is to study the findings of this research more in-depth. Due to the explorative character of this research, the findings are still a bit abstract. A possibility is to do further research towards the identified factors in this research, and how these factors could be implemented in practice.

The focus of this research was on warehouses. Warehouses are an important aspect in the global logistics system, but it would be valuable for literature to do also research towards other logistics services, like ports. It would be interesting to investigate if the identified factors in this research are the same for other logistics services. Another interesting suggestion for further research is to investigate the relations between the different logistics services in a PI environment

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partnerships. An investigation towards these agreements is needed. What may or may not be in the agreements? And what is necessary to write down in the agreements? When it becomes more clear what the setup of the agreements will be, the PI will be more realisable. These agreements have to be set up by different industries. Therefore, it is important that the further research will include a lot of different industries.

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References

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Appendices

Appendix A - Case study protocol

Design and background of case study

The research question for this multiple case study is: “What are the factors that influence the

transition of warehouses towards the Physical Internet in 2050?” To give answer on this

question, several cases are selected to conduct interviews. This case study protocol describes the preparation before the interview and the semi-structured interview questions that are used in the interviews.

Preparation interviews

The semi-structured interview questions are formulated based on literature and discussions with frontrunners of the PI. Additionally, research was conducted on each case to get familiar with each specific case. Moreover, annual reports and websites of each case gave some information about the specific cases. There was also contact with the interviewees on beforehand about the subject of the thesis and the interview.

Semi-structured interview questions

General questions

1. How does the warehouse process look like in this company? 2. What is the bottleneck of the warehouse process?

3. To what extent do you think the efficiency of your warehouse can be increased? 4. Is there a department or group that is involved in improving the efficiency of the

warehouse process?

5. Are there already any steps taken to improve the efficiency of the warehouse process? If so, what steps are these?

Aspect: Open and interconnected logistic networks

1. What is your opinion about this aspect?

2. What do you think about the idea of sharing warehouse spaces with third parties? 3. Do you think there is a future for this aspect for you warehouse? And in general? 4. What makes this aspect different from what you are already doing? Thus, not sharing

warehouse spaces with customers but with third parties? (Question only for 3PL). 5. What are possibilities of sharing warehouse spaces with third parties now?

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8. How do you look at these impacts (or effects)?

9. What about the trust issue that is likely to happen if warehouse spaces are shared? 10. Would you also like to work with competitors?

11. Do see a future in this aspect?

Aspect: Standardisation & Modularity

1. What is your opinion about this aspect?

2. How do you view the idea that packages are standardised?

3. What are the possibilities for this warehouse regarding the modular/standardised packages?

4. What must change in the company and in the warehouse if the packages have a standard size?

5. What kind of impact has standardisation on the current warehouse process?

6. To what extent should things be changed in the warehouse process with regard to automatization and standardisation?

7. What will be the impacts on the warehouse process of the standardisation of packages? 8. What would be a major development for you warehouse with regard to standardisation?

and standard packages?

9. What will be the effect of you warehouse if this trend becomes reality? 10. Do you see a future in this aspect?

Aspect: Distributed intelligence

1. What is your opinion about this aspect?

2. What is your opinion about systems that could organize things by themselves? 3. How will this aspect affect the current warehouse process?

4. What will be the impacts of this aspect?

5. What are the possibilities to make this aspect happen?

6. How should the interfaces & protocols be created? What is the most important thing that should be included in those interfaces & protocols?

7. What will be the impacts of monitoring and registering all the activities and users of the Physical Internet?

8. To what extent do you already work with a track & trace system? Internal? External? 9. To what extent do you already work with (new) technologies?

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Appendix B – Coding schemes

The Tables 5 till 9 all represents the coding scheme from first-order-codes till the third-order-codes.

First-order-codes (Descriptive codes) Second-order-codes

(Interpretative codes) Third-order-codes (Pattern codes) - Pallets could be filled better if there are modular boxes.

- Standard packages will lead to more efficiency in the

warehouse process, because order picking and (un)loading the containers can be done faster now.

- Standard packages will reduce the material handling and internal transport in the warehouse.

- Standard packages increases flexibility which will lead to a decrease in the lead time of the warehouse process.

Positive impacts of modular packages.

The use of modular packaging and standardisation.

- Standard packages will increase transport costs, if there is a lot of air that will be shipped.

- If you use standard sizes, there is chance that you have to pay for overcapacity.

Negative impacts of modular packages.

- It is not always possible to match the packages with standard sizes.

- Standard packages also involves deviations. - Standard packages are very costly.

Limitation of modular packages.

- Reorganization of the warehouse is needed, the layout of some pallet storage racks have to be changed.

- The design of the standard packages should be so that it could be used immediately in the factory.

- Working with 'Collomodule' packages is better for the standardisation in the process.

Prerequisite of modular packages.

- Standardisation is a good thing for doing business. - Standardisation lead to more efficiency.

- Uniformity and standardisation can make a chain much more flexible.

Positive impacts of standardisation in labels and barcodes.

- Nowadays, the size of packages is difficult to work with, because there are a lot of different sizes and shapes.

- There is more inventory if packages are different in size than expected.

- Trying to use as little diversity as possible in packaging. - If the data and labels of a product are correct, then there will be less deviations in the warehouse process.

Motivation to use modular packages.

- Standardised work in B2B will work, but if you involve the consumer, you make it harder.

- Everybody should use a uniform definition for labels. For example, GS1.

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First-order-codes (Descriptive codes) Second-order-codes (Interpretative codes) Third-order-codes (Pattern codes) - Customers’ expectations about delivery time becomes higher by

time.

- More stability in the market and if people want to conform more delivery times, will lead to a smoother warehouse process. And you could plan better. Now, customers are expecting too much.

- Faster delivery times and more often unloading containers is what the consumers want. But it costs a lot.

Change in delivery times.

Customer expectations and needs.

- Customers can change their orders and when they do this, there will be more inventory for us, but we have to satisfy the customer.

Customer satisfactions. - We are triggered by customer needs. The customer stands central.

Customer wants to have everything delivered faster and faster.

Triggers of customer’s needs. Table 6 - Coding scheme, customer expectations and needs.

Table 7 - Coding scheme, the use of data sharing.

First-order-codes (Descriptive codes) Second-order-codes (Interpretative codes)

Third-order-codes (Pattern codes) - In multiple areas, you must check what information is

available and what not.

- The information that is shared must be correct, accuracy, completeness and security of your physical and information flows.

- Some information could not be shared with others, like data about customers.

Prerequisites of data sharing.

The use of data sharing.

- Losing data due to hacking.

- Getting transparency in the chain is also difficult.

Negative impacts of data sharing. - Data that becomes public, would be not nice. Competitors

could see our data and that is something we don't want. - Activities could be shared with any partner, but certainly not with customers. The customer does not have to know what we are doing.

- There is always a better way to protect data. - Sharing data in terms of privacy, it is anxious.

- Not everything has to be shared and open. Some information, like customer information should be protected.

Change in data sensitivity.

- It is all getting easier if there is a large database, then you do not have to fill in the same when you book with another carrier next time. It becomes easier than. The warehouse process will change.

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First-order-codes (Descriptive codes) Second-order-codes (Interpretative codes)

Third-order-codes (Pattern codes) - The business is very confidential. If people want to cooperate

with sharing warehouse spaces, there should be clear agreements. We have to know who you are and if you deviate from these agreements/protocols, you have a big problem.

- Protocols and interfaces must be developed by multiple disciplines. All disciplines have different interests. All kinds of loose switches in the chain (everyone has an opinion) is difficult. - A protocol must be set up and it should contain what should and should not be shared and who could see those data.

- There are agreements needed about how to deal with products, that you will place in another warehouse.

- If you have the same agreements with all customers, it will be much more efficient. Agreements about data sharing, labels and for example barcodes.

The power of agreements. The interconnection between companies.

- The biggest change for us, if we participate in PI, will be that we will no longer cooperate with our regular carrier.

- The only third party that is involved in our process is a sub supplier has their own warehouse space for their products. - A company does not want to share everything. Jealousy is an aspect that plays a role in this.

- Sometimes there is a need for extra warehouse space.

Collaboration with others is needed then, if the costs are not that high.

- Collaboration with people you already know would be better.

Change in partnerships.

- A new partner must be checked and not only at this company also in the headquarters from other countries.

- Working with larger parties gives you confidence earlier. It is also important that the consumer is not involved in the open network.

- Choosing a new partner is a risk. There are always fraudsters and unreliable partners.

Trust in partners.

- Working with larger parties is safer, for example to share the transport or sharing spaces in warehouses.

- Trust, openness and transparency between companies must be conditions to make the Physical Internet real.

New conditions of partnerships.

- Collaboration with competitors must also be possible. A lot of products standing next to each other in the supermarket. So, this must be also possible in warehouses or trucks.

- Collaboration with competitors is no problem. You could also

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First-order-codes (Descriptive codes) Second-order-codes (Interpretative codes)

Third-order-codes (Pattern codes) - Sometimes we cannot see the results of the track & trace

system, so we don't know where the products are.

- Track & trace systems provide a lot of knowledge about the location of a product. Then, it is easier to anticipate on for example errors that will derive from the track & trace system. - Track and trace is very important and everybody should know that.

Increase in the

importance of the use of internal and

external Track & Trace systems.

The development of technologies.

- When the internet just came, nobody knew about it. So why is that not possible physically?

- We still have some manual work, but it would be better to have everything automatic.

- Big data is an important aspect in the future for the global logistic system. As long as we are able to cope with it as people.

- Technologies with regard to smart packaging are very smart and useful. There will be less air shipped.

The rise of new technologies.

- More technologies involved will lead to more efficiency in the warehouse process.

- Another impact of track & trace systems is that you can see your capacity in your warehouse and you can pick up faster. - WMS (warehouse management system) is a software application, designed to support warehouse or distribution centre management and staff.

- Technologies make it increasingly possible to work more efficiently and to reduce costs.

- Big data analysis is a very useful tool; you could learn a lot from this intelligence.

- Based on information, it is possible to exchange pallets and shipments in an open network.

- Everything will be digital in the future (for example paper flows). If you have standard things, the warehouse process will be easier.

Positive impacts of technologies on the efficiency of

warehouse processes.

- Systems should be trustworthy and there must also be some flexibility, if there is anything wrong there must be well taken. - If you want more convenience, speed and progress, then you have something to give up or accept the vulnerability that entails.

- Analysing is a very important aspect in this concept. Ultimately, it will be developing itself.

Prerequisites of technologies.

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First-order-codes (Descriptive codes) Second-order-codes (Interpretative codes)

Third-order-codes (Pattern codes) - There are restrictions for certain products, like

BRC-certification.

- It is hard to share warehouse space at this plant, because there are a lot of restrictions. This plant is 80% military.

- There are food safety regulations, so some products may not be in the warehouse or in the trucks in principle.

- It would be efficient if pallets are stored with other customers, but they should comply with food safety regulations.

- Safety of goods is also very important.

- There are a lot of certificates in our business. So, it is not possible to store all kind of products here.

Restrictions for certain products in a warehouse.

Legal factors.

- Not possible to store all kind of products since there are storage conditions.

Obstacles of warehouses itself. - By sharing warehouse space, you add complexity to your

process.

- The government is not ready yet for this concept, because they can not control it anymore, like the VAT.

- Those moments that the warehouse is full, there are many disturbances in our company. Disturbances cost a lot.

Increase of complexity.

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