Delft University of Technology
FACULTY MECHANICAL, MARITIME AND MATERIALS ENGINEERING
Department Marine and Transport Technology Mekelweg 2 2628 CD Delft the Netherlands Phone +31 (0)15-2782889 Fax +31 (0)15-2781397 www.mtt.tudelft.nl
This report consists of 159 pages and 10 appendices. It may only be reproduced literally and as a whole. For commercial purposes only with written authorization of Delft University of Technology. Requests for consult are only taken into consideration under the condition that the applicant denies all legal rights on liabilities concerning the contents of the advice.
Specialization: Transport Engineering and Logistics Report number: 2015.TEL.7915
Title: On Cost Reduction in Unilever’s Supply Chain, and the
Interpretation and Implementation Thereof Author: J.K. van Zeeland
Title (in Dutch) Over Kosten Vermindering in de Productieketen van Unilever en de Interpretatie en Implementatie daarvan
Assignment: Masters thesis
Confidential: yes (until December 31, 2018) Initiator (university): prof. dr. ir. G. Lodewijks
Initiator (company): M. van de Loenhorst MSc, M. Loonen MSc (Unilever N.V., Rotterdam) Supervisor: dr. ir. H.P.M. Veeke
Delft University of Technology
FACULTY OF MECHANICAL, MARITIME AND MATERIALS ENGINEERING
Department of Marine and Transport Technology Mekelweg 2 2628 CD Delft the Netherlands Phone +31 (0)15-2782889 Fax +31 (0)15-2781397 www.mtt.tudelft.nl
Student: J.K. van Zeeland BSc BA Assignment type: Master project Supervisor (TUD): dr. ir. H.P.M. Veeke Credits (ECTS): 35
Supervisor (Unilever): M. van de Loenhorst MSc Specialization: TEL
Supervisor (Unilever): M. Loonen MSc Report number: 2015.TEL.7915 Confidential: Yes
until: December 31, 2018
Subject: On Cost Reduction in Unilever’s Supply Chain, and the Interpretation and Implementation Thereof
Background
Unilever is constantly seeking to improve its position as market leader, both by caring for the environment as well as generating profit for their stakeholders. This goal can be achieved via many ways–one of which is reducing the cost of internal expenses, in this case the internal expenses for the Unilever supply chain.
Unilever is already actively seeking to reduce these cost but has no proper insight in the cost-breakdown. It is unknown which factors influence the final supply chain cost and therefor unclear what needs to be addressed first.
Prior Research
Unilever has already made managerial decisions and calculations to see where the biggest opportunities lay hidden; however for the next phase a more insightful model needs to be create to address the more difficult opportunities.
Additionally, Unilever has already made big progress in data accumulation from all posts in the supply chain in both terms of cost and other parameters.
Research Question
My assignment is to identify the cost-saving opportunities, as well as propose and potentially implement a solution for a specific opportunity. The question sought answer to is:
”How and to what extend does the stacking configuration influence the cost (savings) within Unilever; what are the other (key) variables in the cost analysis?”
The professor,
Prof. dr. ir. G. Lodewijks
The supervisor,
It does not seem good to be always going with the current. There is more satisfaction in squaring ones back, and fighting against it, and winning ones way forward in spite of it. —Jerome K. Jerome, Three Men in a Boat
It was only in the first few years that she felt herself screaming silently, at times, for a glimpse of human ability, a single glimpse of clean, hard, radiant competence. She had fits of tortured longing for a friend or enemy with a mind better than her own. —Ayn Rand, Atlas Shrugged
Consummatum Est —Donna Tart, The Secret History
Preface
Etymologically the word ‘hermeneutics’ stems from the winged messenger Herm´es, the Greek mythological figure who brought messages from the Gods to man. He interpreted the will of the Gods to make it understandable for humans. The philosophical tradition has taken this conception and superimposed it on day-to-day reality. The worlds is essentially an interpretation. Hermeneutics is the art of interpreting.
I add hereto the conception that all interpretation is reduction. There is no interpretation that retains the multiplicity that is initially offered—if it was, it would not be an interpre-tation, it would be the original. I will use the mathematical term ‘homomorphism’—the mapping of a mathematical set whilst retaining similarity but not identity—to denote this concept.
Combining these two concepts (reductive hermeneutics) forms my main objection to ‘scientific reasoning’ as advocated by the Delft University. It is oft forgotten that all scientific reasoning is based on this homomorphistic hermeneutics approach; it interprets reality, it interprets behaviour, and mathematics. Given that this is science’s strong suit, it is, once forgotten, also its main flaw.
This is only by the grace of the author’s—or interpreter’s—erudition and Erlebnis that the transposition of the observed to the paper (that what you are reading) retains similarity (and most of its identity). It is within the modern discourse and my own vocabulary that I have to convey the meaning—the message. Conversely this means that the text written can be (and most likely will be) misinterpreted on some points due to the nurture and nature of the reader—the interpreter.
I will credit the reader with having enough knowledge to understand the basic math-ematics and the concepts employed. But, additionally, the reader should summon ample Erlebnis whilst reading and truly wanting to understand its intended meaning. Conversely the author should show competence to closely convey all the ideas into words.
However, as is the nature of hermeneutics: different interpretations and explanations thereof exist. Not a single interpretation is hewn in stone, le temps detruit tout . . .
Summary
Unilever is the market leader in the fast moving consumer goods industry. It is constantly seeking ways to effectively use its resources. The company approached me and requested a decision tool which could determine the ‘switch-over’ point between single and double stacking of pallets (the so-called stacking configuration). The model was to present the decision based on the cost.
Currently the optimization focus in the logistics chain is on transportation which accounts for e400 of the e640 million in the total logistics spend. Their method: optimizing the transportation by effectively using both weight and volume limits of the truck. This is done by creating either higher pallets, or double stacking the pallets. The choice for the stacking configuration is by and large reliant on the cubic density (the switch-over point is put at 400 kg/m3). However a more holistic approach to finding the switch-over point is suggested, taking into account all the individual cost post making up the total logistics chain spend. This holistic approach solves the problem of possible negative effects that changes in transportation can have elsewhere in the chain.
In order to determine which factors influence the cost, a conceptual framework was put in place which addresses all the key cost posts in the logistics chain. It conceives a list of variables which influence the cost and additionally change when changing stacking configuration. These factors are the causal basis for the remainder of the analysis. The amount of influence each of these factors have on the final cost is determined by the method of higher order linear regressions. This gives the correlation or amount of co-occurrence. These regressions were made in Statistics R.
The results were tested for satisfying the Gauss-Markov theorem; which tests the results for being the best linear unbiased estimator (BLUE). It was also made sure that all the variables tested were exogenous; meaning that the change in one variable can not be explained by another.
At this point we had a model for which the causal basis is supported by the correlation of the variables (some show higher correlations than others, reasons for missing co-occurrence was given everywhere necessary). The model, being quite difficult to interpret, it is not easily used by Unilever employees and therefore a tool was created. The tool is made in Excel for end-user convenience. The tool additionally allows to supplement the cost function by functional constraints; both legislative, and physical.
The final tool can be used to project the cost of new (or renewed) products when they are created (or changed) by ‘research and development’. The tool gives the design that was used as input (‘current design’) and the savings that can be made by switching to ‘double’ or ‘single’ stacks. It is able to export the answers as a usable PDF format such that it can be easily implemented in Unilevers ‘innovation funnel’.
The first result are very promising. The model suggests that a savings of 23.9% can be made on the 48 cases under scrutiny. This means that with 95% it can be said that the savings for the complete dataset is somewhere between 21.9% and 26.0%. This would yield annual savings in the logistics chain of between e141 and e160 million. To achieve these savings between 12.8% and 37.5% of the pallets should be changed to double stacking.
Validation shows, however, that singular values might differ up to 50% (both positive and negative) from the data; which is attributed to the low explanatory power of the ‘primary transport cost’ (read: on of the) regression(s). This assumption was also validated and turned out to be true.
This is, obviously, a theoretical optimum for savings, it does not account for product integrity (the quality), which was set as a constraint (it was stated that the cost could be minimized under the constraint that the quality remained at least as high as current
standards). This is therefore suggested to be a topic for further research.
There is some work to be done to the model before it can be taken into use by Unilever employees. It was suggested that the regressions should be re-run with all the indicated variables (which requires some additional data acquisition) and that the gathered data was time-stamped in order to account for money and oil price volatility. These actions would likely yield a tool and model where the answers are centred closer to the true cost value.
For all statistical models, and this one in particular, keeping it up to date is of the utmost importance. This keeps the answers up to date and the tool usable for all new and renewed products for Unilever.
List of Figures
1 Unilever organisational structure. . . 4
2 Full Unilever supply chain. . . 6
3 Primary packaging selection. . . 7
4 Secondary packaging selection. . . 8
5 Tertiary packaging selection. . . 8
6 Rich picture excerpt. . . 12
7 Extended black box. . . 14
8 Supply chain specific interpretation of the black box. . . 14
9 Functional schematic of the logistics chain. . . 16
10 Low level product creation flow. . . 17
11 Low level product packing flow. . . 18
12 Low level transportation and pallet management flow. . . 19
13 Low level product storage flow. . . 20
14 Schematic logistics chain including total cost. . . 22
15 Linear regression schematic. . . 32
16 Chi squared qualitative behaviour. . . 38
17 Correlation between pallet management cost and the number of pallets handled. 44 18 Comparison Jumbo and Dutch average. . . 51
19 Total order size Jumbo 2014. . . 52
20 Exogeneity in dynamic variables. . . 52
21 General behaviour cost function. . . 58
22 Qualitative cost function behaviour. . . 59
23 General cost function including boundaries. . . 61
24 Specific cost functions for ‘Amora Ketchup’. . . 62
25 Specific cost functions for ‘Rock Tea’. . . 62
26 Product items variations for ‘Amora Ketchup’ and ‘Rock Tea’. . . 64
27 Product height variations for ‘Amora Ketchup’ and ‘Rock Tea’. . . 64
28 Product weight variations for ‘Amora Ketchup’ and ‘Rock Tea’. . . 65
29 Projection variations for ‘Amora Ketchup’ and ‘Rock Tea’. . . 65
30 Model working black box. . . 68
31 Model PDF output. . . 69
32 Model internal calculations output. . . 70
33 User testing input sheet. . . 72
34 Unilevers innovation funnel. . . 73
35 Validation of the complete model. . . 78
36 Histogram of model deviations. . . 79
37 Outliers validation specifics. . . 80
38 Model outcomes concerning SS and DS . . . 81
39 Validation loop. . . 82
40 Savings per considered case. . . 84
41 Deviations from expected cost savings. . . 86
42 Deviations from expected cost savings, check. . . 87
43 Cubic weight fill assumption results. . . 88
44 Normal distribution for results error. . . 89
1 Random scatter data and regressed linear function with indicated errors. . . . xix
2 Final qualitative cost function behaviour with arbitrary boundaries, α and β. xix 3 Validation of the complete model. . . xxii
5 Possible case patterns. . . xxiv 6 Low level complete logistics chain. . . xxv 7 The schematic rich picture. . . xxvi
List of Tables
1 Report structure. . . 1
2 Category breakdown within Unilever. . . 4
3 Supply chain annual expenditure. . . 6
4 Definition of the different dependent variables interpreted as item of expenses. 42 5 Complete list explanatory variables. . . 43
6 Pallet management cost factors. . . 43
7 Pallet management cost regression result. . . 43
8 Pallet handling in SU cost factors. . . 45
9 Pallet handling in SU cost regression result. . . 45
10 Pallet handling in DC cost factors. . . 46
11 Pallet handling in DC cost regression result. . . 46
12 Pallet storage cost factors. . . 47
13 Pallet storage cost regression result. . . 47
14 Pallet picking cost factors. . . 47
15 Pallet picking cost regression result. . . 47
16 Primary transport cost factors. . . 49
17 Primary transport cost regression result. . . 49
18 Secondary transport cost factors. . . 50
19 Secondary transport cost regression result. . . 50
20 Tabulated exogeneity results. . . 53
21 Complete list descriptive and explanatory variables. . . 54
22 Tabulated coefficients for case 1 and 2. . . 61
23 Product variation sensitivity input. . . 63
24 Projection variation sensitivity input. . . 65
25 Cost of keeping the model up to date. . . 74
26 Input table for hand calculation ‘Knorr Soup’. . . 76
27 Cases of ’renewed products’ previously explored by the F1ve task force. . . . 79
28 Probability of savings distribution. . . 85
1 Table validation and results for paper. . . xxi
2 High level cost breakdown appendix. . . xxvii
3 Low level cost breakdown appendix. . . xxviii
4 Regression results CHSU. . . xxx
5 Regression results CHDC. . . xxxi
6 Regression results CSDC. . . xxxii
7 Regression results CPP. . . xxxiii 8 Regression results PT. . . xlii 9 Regression results ST. . . xlii 10 Regression results CPM. . . xliii 11 Model validation input. . . xliv 12 Model validation input continued. . . xlv
List of Symbols
symbol description unit
P profit e
E expense e
I income e
a intercept coefficient in arbitrary formula
-b slope coefficient in arbitrary formula
-ei point specific error
-yi point specific y location
-xi point specific x location
-y matrix consisting of arbitrary size, n × 1
-ˆ
y, ˆy specific interpretation of the descriptive variable
-Yi, Y, ˆY over the complete data the descriptive variable per data point, i, the mean
over the data, and the specific interpretation over the data
-x matrix consisting of arbitrary size, n × k
-ˆ
x, ˆx specific interpretation of the explanatory variables
-d some dummy variable
-β coefficients corresponding to X, size k × 1
-ˆ
β, ˆβ specific interpretation of coefficients
- error coefficients corresponding to y, size n × 1
-S summation over all deviations
-µ mean value for some distribution
-σ standard deviation for some distribution
-x mean value for some data
-n, N number of observations
-p number of regressors
-R2 coefficient of correlation
-φ some arbitrary constant
-ui error terms for the Lagrange Multiplier test
-C total cost of the cost function
-P1 static price variable which is dependent on category, vendor country, etc.
-P2 static price variable dependent on travelled distance and cost per case
-P3 dynamic price variable dependent on pallet configuration dependent variables
-c1 cost per case coefficient e
j corresponding total number of cases that need transport
-c2 cost per kilometre travelled coefficient e
k corresponding total number of kilometres travelled
-a logistics cost for a single pallet e
x1 corresponding number of total pallet transported
-b cost of logistics for a single item e
x2 corresponding total number of items on a pallet
-c cost of logistics for a mm height e
x3 corresponding total height of a pallet mm
d cost of logistics for a kg product e
x4 corresponding total weight of a pallet kg
li total items on a single layer
symbol description unit
lw total weight of a single layer kg
lp projected total layers that need to be distributed
-cp projected number of cases
-lc total cases per layer
-x5 total layers to be transported
-δ discount for using less trucks in new stacking configuration -∆abs absolute deviation between model and hand calculations e
∆rel relative deviation between model and hand calculations
-µs mean savings over the considered data e
σs standard deviation over the considered e
µΣs cumulative mean savings over the considered data e
σΣs cumulative deviation from the considered data e
s1, . . . , s48 individual savings per data point
-t total deviating answers array
-d total deviation from answers array
-s total savings from data analysis array e
Sn cumulative savings for a combination of t, d, s e
Ci confidence interval
-Abbreviations and Acronyms
AbbreviationsBenelux Belgium, the Netherlands, Luxembourg
Nordics Norway, Sweden, Finland
EUR Euro sized pallet 1 × 0.8m
IND Industrial sized pallet 1 × 1.2m
PLT Pallet
VAR Variance
Acronyms
CHDC Cost Handling in Distribution Centres
CHSU Cost Handling in Sourcing Units
CSDC Cost Storage in Distribution Centres
CPM Cost Pallet Management
CPP Cost Pallet Picking
DC Distribution Centre
df Degrees of Freedom
DS Double Stacked
FMCG Fast Moving Consumer Goods
GDC Global Design Centre
HC Home Care
HPC Home and Personal Care
HSS High Single Stacked
LC Logistics Chain
LM Lagrange Multiplier
LTT Logistic Trade Terms
MCO Multiple Country Organization
MRDR Master Reference Data Repository
PC Personal Care
PDF Portable Document Format
P&I Product and Innovation
PT Primary Transport
R&D Research and Development
RDC Regional Deploy Centre
RegSS Regressional Sum of Squares
RSS Residual Sum of Squares
SC Supply Chain
ST Secondary Transport
SU Sourcing Unit
TSS Total Sum of Squares
Contents
Preface ii
Summary iii
List of Symbols viii
Abbreviations and Acronyms x
Contents xiii
1 Introduction xiv
1.1 Research Question . . . xiv
1.2 The Scientific Article . . . xiv
1.3 Roadmap and Approach . . . xv
I On the Analysis of Problems 2 2 Background 3 2.1 Company Organization . . . 3
2.2 Supply Chain . . . 5
2.3 Packaging and Handling . . . 6
2.4 Supplementary Concepts . . . 8 2.5 Conclusions . . . 9 3 System Analysis 11 3.1 Starting Point . . . 11 3.2 Systems Thinking . . . 12 3.3 Root Definition . . . 14
3.4 Supply Chain Processes . . . 15
3.5 Requirements and Performance . . . 20
3.6 Relevance . . . 21
4 Approach to Solution 22 4.1 Why a Cost Analysis . . . 23
4.2 Relevance for Unilever . . . 24
4.3 Cost Distribution . . . 26
4.4 Switch Over . . . 26
4.5 Research Question(s) . . . 27
II On the Solution of Problems 28 5 Conceptual Framework 29 5.1 Data Analysis Strategy . . . 29
5.2 Data Analysis Conceptual Framework . . . 29
5.3 Results Testing . . . 35
5.4 Exogeneity or Endogeneity . . . 38
5.5 Model . . . 39
6 Data Analysis 41
6.1 Choice of Variables . . . 41
6.2 Solving the Regressions . . . 43
6.2.1 Pallet Management, y7 . . . 43
6.2.2 Pallet Handling in SU, y1 . . . 45
6.2.3 Pallet Handling in DC, y2 . . . 46 6.2.4 Pallet Storage in DC, y3 . . . 47 6.2.5 Pallet Picking in DC, y4 . . . 47 6.2.6 Primary Transport, y5 . . . 49 6.3 Exogeneity . . . 51 6.4 Synthesis . . . 53 7 Sensitivity Analysis 55 7.1 Sensitivity Cost Equation . . . 55
7.2 Boundaries . . . 58
7.3 Stacking Configuration Sensitivity . . . 59
7.4 Some Examples . . . 61
7.5 The Best Pallet . . . 61
7.6 Marginal Effects . . . 63
7.7 Variable Input Sensitivity . . . 64
7.8 Sensitivity Conclusions . . . 66
III On the Interpretation of Solutions 67 8 Modelling 68 8.1 Model Appearance and Use . . . 68
8.2 Model Internal Calculations . . . 70
8.3 Implementation and User testing . . . 71
8.4 Model Conclusions . . . 73
9 Model Analysis 75 9.1 Verification . . . 75
9.2 Validation . . . 77
9.3 Validation of Single and Double Stack . . . 79
9.4 Verification and Validation Conclusions . . . 81
10 Results 82 10.1 Confidence Interval of the Sample Size . . . 83
10.2 Total Savings for the Sample . . . 83
10.3 The Crossover Point . . . 87
10.4 Structural Integrity of Pallets . . . 88
10.5 User-Model Interaction . . . 89
11 Discussion 90 11.1 Volatility of the Solution . . . 90
11.2 The Limits of the Model . . . 90
11.3 The Bigger Picture . . . 91
11.4 The Power to Innovate . . . 91
13 Recommendations 93
Acknowledgement 94
References xvi
A Scientific Article xvii
B Packaging Imagery xxiv
C The Complete Process xxv
D Rich Picture xxvi
E Cost Breakdown in Data xxvii
F Cost Breakdown (High Level) Regression Results xxviii
G Regression Results xxix
G.1 Cost Handling in Sourcing Unit, y1 . . . xxix
G.2 Cost Handling in Distribution Centre, y2 . . . xxx
G.3 Cost Storage in Distribution Centre, y3 . . . xxxi
G.4 Cost Pallet Picking in Distribution Centre, y4 . . . xxxii
G.5 Cost Primary Transport, y5 . . . xxxiii
G.6 Cost Secondary Transport, y6 . . . xlii
G.7 Cost Pallet Management, y7 . . . xliii
H Validation Data xliv
I Final Product (Excel Model) Output xlvi
1
Introduction
Suppose you, like Unilever, had to transport tens of thousands of pallets each year. From all the corners of Europe to the smallest retailers that want to sell your products. Customers want quick delivery in small quantities to reduce stock and investment, but you, you want to fully use all the transport equipment to save cost and you would rather not start up all the machinery to make a few bottles of shampoo or rookworsten.1
It is on this intersection of these contradictory interests is where you have to operate. This is the same struggle for Unilever every year. How to optimize their internal processes whilst keeping the customer satisfaction and product quality high?
Unilever spends around e400 million annually on transportation in Europe alone(!), and around e640 in their logistics chain. Unilever is figuring out how to optimally use their trucks in order to reduce logistics spend. This would not only be good in terms of cost, but a reduction of the number of trucks on the road would also be profitable for the environment. Last year the companies CEO Paul Polman has said that the focus for logistics lies in: overhead improvements, reduction in advertising production cost and supply chain savings. This puts the screws on the supply and logistics chain; new ideas are needed to reduce cost whilst staying as agile.
1.1 Research Question
Unilever has already done a fair amount of truck lane optimization and is currently focussed on fully using the trucks capacity in terms of weight as well as volume. The company requested me to find the ‘optimal switch-over point for stacking configurations’. The stacking configuration is the choice whether to stack pallets on top of each other or simply add a layer of product to the pallet.
This change has consequences elsewhere in the logistics chain. More pallets in the logistics chain require more people to handle those pallets, or more man hours to place them in racks in storage. What is the extend of this savings in transport if we also account for the possible increase in cost elsewhere?
Consequently we can identify what makes these changes, is it the weight of the pallet that is the driving factor? Is it the number of products or layers on a pallet? These variables all have an influence, but which one is key? This leads us to the research question:
“How and to what extend does the stacking configuration influence the cost (savings) within Unilever; what are the other (key) variables in the cost analysis?”
In this graduation project a model was made to analyse the cost and show the configuration influence; this report is meant to show the reader the reasoning and argumentative structure behind the approach taken.
1.2 The Scientific Article
The concise but complete description of the project is given in the scientific article. It is also recommended reading material for those who have little time. The article roughly follows the same line-of-reasoning that this thesis adheres to. The reader is referred to this larger and more extensive thesis if additional results, reasoning or information is needed. The scientific article can be found in appendix A.
1Note too, that I have sometimes allowed for the more intimate use of ‘we’, ‘us’ or ‘I’. Although this might be considered outside the engineering discourse it will make reading, hopefully, a more enjoyable experience.
1.3 Roadmap and Approach
The report is by and large divided into three separate parts. Table 1 gives the roadmap for the complete report with its three parts, it shows the chapter which are included and the corresponding appendices.
The first part is dedicated to finding the problem that requires solving as well as proposing a strategy and direction for the solution. This is supported by literature and the delft systems approach strategy. It is meant to give a theoretical basis for the remainder of the report as well determine the causal factors in Unilevers logistics chain.
The second part deals with the analysis of data; it provides the conceptual framework and the implementation thereof. It explains how the method is applicable to the problem at hand as well as the limits of the method. Once the method is employed it also dedicates a part to analysing the sensitivity of the performed analysis.
The third part is directed towards the final goal of the model. It gives insight into the tool that was eventually created and verifies and validates this model. It addresses the users and the way the model is to be implemented and used. This part concludes with results that stem from the model.
Finally the report closes with a discussion which puts the model in a larger frame. The reader is also served extensive conclusions and recommendations.
Table 1: Report structure.
Chapter 1 Appendix A
Introduction Scientific Article
On the Chapter 2 Appendix B
Analysis Background Packaging Imagery
of
Problems Chapter 3 Appendix D
System Analysis Rich Picture
Appendix C Full SC Process
Chapter 4 Appendix E & F
Approach to Solution Cost Breakdown
On the Chapter 5
Solution Conceptual Framework of
Problems Chapter 6 Appendix G
Data Analysis Regression Results
Appendix J
Data Analsyis Code
Chapter 7
Sensitivity Analysis
On the Chapter 8 Appendix I
Interpretation Modelling Model Output
of
Solutions Chapter 9 Appendix H
Modelling Analysis Validation Data
Chapter 10 Results Chapter 11 Discussion Chapter 12 Conclusions Chapter 13 Recommendations
Part I
On the Analysis of Problems
In which a process description and com-pany background is given and the position of the supply chain within the company is made clear to the reader.
Where a systems approach to the problem is undertaken. And where the goal is to find the underlying question.
Where the definitive research question is posed together with the sub-questions to which answer is sought in the remainder of the thesis.
2
Background
At any given moment Unilever is moving enormous quantities of products through Europe and the rest of the world. Trucks, boats, planes—all working together to displacing vast amounts of pallets and do so at an ever increasing rate. Even with all the current state of the art solutions Unilever already has in place, they spend over e1000 million per year in Europe alone(!). These costs are distributed over the production, storage and transportation which we will explain in due time.
This chapter will familiarize the reader with the background of Unilever and the project. Therefore this chapter will consist of a succinct background description of Unilever—the company providing the assignment. Additionally it will introduce key elements that will form the physical background the analysis and modelling that is to come. This chapter is meant to be descriptive; I have tried to suspend judgement (epoch´e) and leave interpretations for later chapters, a process description.2
2.1 Company Organization
Unilever—the graduation company—is, in the world of fast moving consumer goods (FMCG), the market leader. In other words, they create food and non-food products which can be consumed by customers—things you buy in the supermarket other than produce. Compe-tition comes mainly in the form of Procter & Gamble and Nestl´e. Unilever owns over 400 brands which are sold globally but focusses mainly on what is dubbed billion dollar brands.3
Although Unilever is primarily a marketing company its sheer size makes it (amongst oth-ers) heavily depended on logistics—luckily the theme of the transporation engineering and logistics masters. (Unilever, 2014)
Unilever’s organizational structure can roughly be split into three parts: 1. a categorical;
2. a functional; and 3. a regional.
Unilever maintains that it has a matrix structure, the essence thereof is captured in fig. 1. This structure puts the categories at the top of the columns and the functions lead the rows. This results in ‘cross functional teams’ consisting of quality, research and development, logistics, etcetera, who work together in a dedicated category (e.g. refreshments or foods).
Categorical
The categorical split is the most important of the three since Unilever is primarily a marketing company and it cannot do without the products emerging from the categories. It is the ‘fuel’ of the company. It breaks down into refreshment, foods, personal care (PC), and home care (HC); which in turn could be further specified. Within the foods category, for example, we discern spreads and dressings, savoury—where savoury is categorized as wet or dry. Similarly the other categories can be broken down further too, depicted in table 2. Categories are tasked with defining long-term strategies and the realization thereof.
2
Since the company is known to all those involved I will not tire the reader with historical (diachronic) descriptions of the company or basic concepts employed. Unless indicated otherwise the descriptions will by synchronic (i.e. ‘a slice of time’, and in this case the ‘current slice’) on all fronts.
3The fourteen billion dollar brands that Unilever owns are: Axe, Dove, Omo, Becel, Heartbreand ice creams, Hellmann’s, Knorr, Lipton, Lux, Magnum, Rama, Rexona, Sunsilk, and Surf.
Figure 1: A schematic representation of the organisational matrix structure of Unilever; it in-cludes the regional, categorical and functional split in the company. The cross categorical teams consist of people from each split. A more in-depth description can be found in the supporting text.
refreshments foods personal care home care
beverages spreads and dressings deo’s and fragrances household care
ice cream savoury hair care laundry
skin care oral care
Table 2: A breakdown of the categories is subcategories; this serves the reader to get an idea of where different products emerge from.
Functional
The functional split guarantees the companies ‘structural integrity’; it works cross category and parallel to all categorical endeavours. Supply chain is tasked with procuring raw ma-terials and checking the quality and bringing that to the customers. Supply chain exists amongst others of procurement, manufacturing, logistics, operations, and quality. Logistics is responsible for (big) projects that have influences cross category and functions. Operations is tasked with day-to-day operations (e.g. hiring transport companies to fulfil a demand). Research and development is bisected into the global design centres (GDC) which are re-sponsible for the innovations in the coming years, and the regional deploy centres (RDC) responsibility is the regional implementation of GDC projects and making them conform the market.
Regional
The regional split can be seen as the ‘engine’—it has to keep going. Each continent is subdivided into several multiple country organizations (MCO) which are responsible for e.g. the Benelux or the Nordics. The MCOs manage relations to the customers (e.g. Ahold, Tesco, Delhaize, or SuperUnie) as well as the inventory in different distribution centres (DC).4 Additionally they are responsible for procuring the raw resources that are turned into end-products by the sourcing units (SU).5
Part of Unilever’s organizational structure is the 3+1 targets that all employees have. The first ‘three’ are quantitative targets which are to be met at the moment of review, the second ‘one’ is more often a personal or qualitative target. At the highest level of abstraction all the 3+1 ’s are derived from the CEO’s targets: minimizing waste whilst maximizing profit—also referred to as the Unilever sustainable living plan (USLP). The further they seep down the ranks the more concrete the targets become. These targets determine to a large extend what is deemed important by the different splits.
The Unilever sustainable living plan (USLP) is a big commitment for a company as Unilever. It defines the strategy for a decade. Therefore let us explain with a little more detail what the USLP is about. In short the USLP breaks down into four targets:
improving health and well-being; reducing environmental impact; enhancing livelihoods; whilst doubling the total business.
These number all have gotten an quantitative interpretation.
Since the studies force me to focus on subject related to transportation and logistics the supply chain is evaluated next. It can be viewed as a new—lower—aggregation layer. It is a system within an system; it supports the larger going-ons in Unilever.
2.2 Supply Chain
The supply chain starts at buying bulk materials locally. These goods are transported to a sourcing unit where it is handled and made ready for primary transport. The distribution centres store and redistribute the goods to the appropriate customers, the transport from distribution centre to the customers distribution centres is called secondary transport. Fi-nally the customer distribution centres allocate the goods to the appropriate local vendors, which put the product in the hands of the customers.
From a company stance not the autonomous human beings are the customer, but parties such as Tesco, Ahold and Delheaze. This is who Unilever supplies. Figure 2 gives a schematic representation of the aforementioned. The transport of raw materials to sourcing units is omitted from this project; admittedly this might be the hardest part to optimize, it is however omitted on ground of being very non-uniform, and possibly also impossible to impose change.
Expenditure
Annual expenditure per individual posts is given below. It can be seen that transportation adds up to 66% of the total logistics cost, warehousing makes up for another 25%. This
4Distribution centre is a euphemism for a warehouse, although the latter focuses too much on the storing (loss of productivity) of goods and therefore the name has been changed to distribution center—which focuses on distributing.
5
Figure 2: A schematic showing the Unilever supply chain, from initial buying of raw materials and packaging to the delivery to the customers. The main items are physical entities whilst ‘under the arrows’ the transformations are depicted. A functional description of the supply chain can be found in fig. 9.
corresponds to literature. Wilson (2012) notes that 64% of total logistics cost in the United States of America is made up by logistics; the remainder is made up by inventory cost (33%) and administrative cost (4%). It should be noted that logistics cost make up for only 4%(!) of the total annual expenses, which means that total annual expenses are in excess of e40 billion. Unilever is constantly vying with other big players, such as Nestl´e and Procter & Gamble to keep their market share.
(One could, preliminary and possibly falsely, be led to believe that optimizing trans-portation yields biggest returns. This contention could be false; although costs lions share is in transportation it could be simpler and cheaper to change warehousing. Only in-depth analysis and accurate insight into the cost breakdown could resolve this question.)
post annual expenditure (Me) as percentage (%)
sourcing units 80 7.6%
primary warehousing 260 24.8%
secondary warehousing 15 1.4%
raw and pack transport 170 16.2%
primary transport 235 22.4%
secondary transport 290 27.6%
total expenditure 1050 100%
Table 3: Expenditure on different posts in Unilevers SC. Projects with the likes of F1ve, Duplo, and Graceland try to reduce the total SC expenses. Costs are divided into static and dynamic cost posts. Courtesy of Unilever N.V.
Within the supply chain the goods are moved—from a to b whilst being stored and transformed along the way. This process requires specifications from the system and from the transported goods. Next I will indulge the reader in the packaging and handling world that exists within the Unilever chain—a lower aggregation layer even.
2.3 Packaging and Handling
As explained goods are ‘created’ in the sourcing units and brought to the customers via the distribution centres. The sourcing units are responsible for creating the product and the primary casing which are made ready for the primary transport—they are put on pallets. Pallets are transported, either in single or double stacks and brought to the distribution centres. This de-tops, picks, re-collates, and stores pallets and ultimately readies them for transport to the customers. What are these concepts: primary casing, de-topping, double stacks? This will be explained in this section.
The packaging of products and transportation thereof formed the topic of my research assignment, for a more elaborate background into packaging and the transport thereof the
reader is referred to Zeeland (2014). This section draws upon this work.
Let us start by giving the most basic trichotomy in packaging, also made by Coles and Kirwan (2011) and for which examples are provided in appendix B:6
Primary packaging Packaging being in direct contact with the to be shipped good that is intended for the customer to take away, arbitrary examples are shown in fig. 3. Secondary packaging Packaging that contains and collates a set of primary packs. Also
referred to as case or (outer)casing, see fig. 4.
Tertiary packaging Packaging that collates a number of secondary cases, pallets and roll cages—as well as stretch wrap around a pallet—are tertiary packaging, see fig. 5.
Figure 3: A small selection of primary packaging. The first is a soda can, both food preserving as shelf presence are discounted, the second—a shampoo bottle—is designed for shelf presence and the third is also about shelf presence (the pouch inside is made for conserving the food). Courtesey of Unilever N.V.
The research assignment had some interesting conclusions; these are reiterated here. Most remarkably the research showed that the major hurdles in organization of a relaunch or a new product launch was the interdisciplinary nature of the company, rather than an engineering problem. It requires all distributed decision makers to get aligned and working towards the same goal—the individual, oft-contradictory, goals of the aforementioned functional split make an overall ‘best’ design very difficult. Individual targets can be thought of as looking for a local optimum rather than company-wide global optimum.
The same was witnessed in the design funnel (guidelines regarding product design) which has specific ‘locks’ which fix the design up till that point. This means that secondary case design is made post factum—after the primary package design is made. This too leads to local optima (e.g. for the primary package or for the secondary package) but not global. (Solving this problem would require less of an engineering- but rather a philosophical-organizational approach.)
Furthermore a study into the nature of analytical pallet organisation models showed that when compared to daily practise that it almost always failed to predict pallet behaviour. It was thus concluded that there is a serious discrepancy between theory and practice, the former solving irrelevant problems for the latter. It is no surprise that pallet design is more often than not based on heuristics.
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Note that the data that will be presented in this chapter is already fairly limited in scope—it is tailor made for the Unilever supply chain—, other company, such as e-tailers, will use unit load devices (ULD) and storage thereof rather than casings and pallets. Some supermarket chains use roll-cages rather than pallets to supply their individual stores. These are all different interpretations of the same trichotomy. Primary is the product, secondary is a means to transport it in larger quantities and tertiary is capable of handling larger amounts of secondary units.
Figure 4: Images of a small range of secondary product packaging. The first shows tray and hood packaging, the second tray and overwrap, third: the perforated case. Courtesy of Unilever N.V.
Figure 5: A small selection of pallets from the Keuhne+Nagel warehouse in Raamsdonkveer; it clearly shows a discrepancy between real-life and the theory, even when pallets are (near) per-fectly stacked there are many other influences, such as forklift drives, wrapping, other damages. Courtesey of Unilever N.V.
Additionally, the research showed that there is a lack of understanding of the cost-breakdown for a specific product. What is that makes up the cost of a pallet? Number of products, weight, size? This question remains unanswered although the contemporary assertion is that pallet density is the key cost driver.
With this the reader can now understand where to place products in the Unilever com-pany, why they are important and who is responsible for specific parts in the design of a product and the transportation thereof.
2.4 Supplementary Concepts
Favouring readability of the chapter over overloading the reader with data meant omitting some concepts which might add to the readers understanding of the topic. This section will provide those supplementary concepts, it will do so by giving descriptive definitions, ordered from small to large entities.
Collation Primary packages are put into a secondary case; the orientation and organisation of these primary product in the secondary case is called the collation.
Load bearing If primary packaging takes part of the load of upper layers this is referred to as load sharing, enabling a lighter secondary case; HPC already makes use of this principle, deodorants mostly do not because risk of spray-off, food pouches also do not use this principle because they cannot hold any significant weight. PacDevPro by JRC and PackExpert by Smurfit Kappa for the main tools employed to asses structural integrity of pallets.
Floor utilisation The amount of floorspace used by secondary casing gives a measure for the efficiency of the pallet, this is also referred to as pallet footprint. η ≈ 95 − 98% is considered to be best practice. This yields a certain amount of underhang which prevents pallets from damaging one another when put side-by-side. Additionally we can also talk about truck floor utilization which denotes the floor space used in a truck. Pallet design They way secondary cases are stacked on the pallet is referred to as the pallet organization. Commonly the Cape software tool is used to create a pallet loading organization.
Cubical efficiency Analogous to the floor utilization; cubical efficiency is a measure of which the pallet differs from the ‘optimal’ pallet configuration in its specific case (neg-atively formulated: it is a measure of waste).
Picking Customer requirements which are less than full pallets give rise to the need for picking; this is the removal of single boxes from the full pallet—normally done by hand.
De-topping Customers require less than a full pallet or country requirements and leg-islation (Logistic Trade Terms (LTT)) put limits to the pallet height gives rise to de-topping; that is, the removal of complete layers—usually done by machinery. Protection Corner-posts and shrink wrap are often applied to pallets to increase stability
and protection. Excessive use of shrink wrap is often witnessed and has a negative effect on pallet integrity.
Single stacking (SS) A term to refer to pallet stacks which are relatively high, hpallet ≈
1.5 − 1.8m, also used to indicate that the current pallet height is sub-optimal (i.e. it could be made higher without major changes in the supply chain).
Double stack (DS) This indicates two pallets stacked on top of each other where the height of each single pallet is limited by the supply chain, normally hsingle ≤ 1.2m, however
the height of two on top of each other is limited to hdouble≤ 2.4m.
Pallet Configuration Either the single or double stacking of pallets in the transportation of pallets. Pallet configuration is also used to indicate higher order stacking such as triple or quadruple stacked pallets.
This should enable any reader to understand goings on in the remainder of the thesis.
2.5 Conclusions
Armed with the knowledge of this chapters a systematic problem analysis can be performed. This will be the subject of the next chapter. The main idea’s from this chapter are concluded here for the fast-forwarding reader and clarity.
When a product is created in a factory, or sourcing unit, it has to be stored and trans-ported. Enter packaging. Packaging serves—from a supply chain point of view—ease of transport and storage, from a customer stance it serves as the interaction with the brand—it is what you recognize in the supermarket, it is what you relate to.
In research it was found that different types of packages (primary, secondary, and tertiary) are constants in the end-to-end supply chain; whereas trucks come and go, and warehouse storage is temporary as is factory creation of the products, the pallets and cases get trans-ported through the supply chain. Analogous to the objects present in the simulation world.
The research also showed that, notably, the structure of this specific company does not have a central meaner which defines and projects and their implementation (Bravo and Vidal, 2013); moreover it is distributed decision makers that has to come to consensus. Ostensibly this is due to the sheer size of the company. However it leads to local, rather than global, optima.
The question posed by Unilever is, paraphrased: should we put two pallets on top of one another or should we put extra layers on the existing pallet? There is currently no proper way of assessing whether pallets should be double stacked or high single stacked. Structural assessment of this problem is done by James Ross Consultants (creating the PacDevPro tool) and Smurfit Kappa (in creating the Pack Expert tool).
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System Analysis
The Delft Systems Approach (DSA) is a methodology used to create ordo ab chao, it is adopted in this project in order to create a profound understanding of the problem in ques-tion.7 The method—as the name suggests—is a way of ‘systems-thinking’ essentially retain-ing the multiplicity of relations that exists between different entities within the whole. In solving problems one should see it within the larger structure in which it operates—reality. It does so by naming functions, processes and giving functional descriptions—these functions can essentially be interpreted in many ways—one of which will be mine.
The method uses a large variety of tools to enable the problem-solver to analyse the complete system and deduce the bottleneck. Rather than solving arbitrary problems (which might not be the bottleneck) the systems thinking and the Delft Systems Approach help separating irrelevant problems from relevant problems. It separates symptoms from sick-ness—underlying from apparent.
Illustrating this with an example: supply chain operation is determined by the sourcing units output, which is, in part, determined by the buy-in behaviour of procurement. But there is also customer behaviour and willingness to invest or not from a financial perspective. It is a network in which all (if not, a lot) of different entities are connected. This chapter aims at finding the real, underlying, question.
The data and imagery presented here is a homomorphism of reality: whilst retaining all crucial elements (similarity), it will shed all excess elements which cannot be simulated (identity). In short, the analysis performed leads to a similar-to-real-life problem, but not identical. It is a reduction of reality, so to say.
3.1 Starting Point
Unilever posed the following question:
“Determine the parameters and optimum switch over point between double or single stacked pallets. With pallet density, logistics cost and packaging strength as key variables.”
Question that immediately come to mind regarding the posed question: What does the decision for double or single stacks depend on? What is considered optimal, and in what sense?
What are the consequences of these decisions in the supply chain and for the logistics? Are the key variables indicated by Unilever the right variables?
These questions put Unilevers question under scrutiny. What we want to do, however is to put the posed question in Frage—is it the right question to ask—therefore more general questions should be asked which focus more on the essence than on the apparent surface. Arising questions are along the lines of:
Is this the right question to be asked?
What is the origin, or where does the question originate? Why would we want to impose changes on the supply chain?
7Create order from chaos—a system can be interpreted in many ways. The DSA does not favour one look, it forces the user to think about their view and helps taking the thoughts and putting them to paper.
How can such change—if necessary—best be implemented?
This is the starting point of this chapter; it is looking for the underlying problem and questions. We determine Unilevers and its supply chain function, its in- and output, and its weaknesses and strengths.
Rich Picture
The rich picture is not bounded by any rules as its goal is to map the situation. It should map—as extensively as possible—the relations, interactions, stake holders, proposition and opposition, of the supply chain within Unilever. Figure 6 shows an excerpt from the complete rich picture which can be found in appendix D. This rich picture is meant to illustrate the scale of stakeholders, interactions, and other parties involved. It will allow us, in time, to draw upon for understanding and insight.
Figure 6: A small excerpt from the rich picture, it shows stakeholders (such as logistics), operational entities (the factories) and moved objects (the pallets).
3.2 Systems Thinking
So what then is systems thinking? It is a holistic approach to problems rather than the reductionists or logical approaches (the standard engineering and scientific approaches func-tion mainly on this basis). It focusses on retaining the multiplicity of relafunc-tions; a is not solely caused by b—they are impossible to isolate—it is depended on the Zeitgeist, location, and on many other (small) influences—all being part of the whole.
Describing systems as having functions leaves open the specific interpretation of such a function. This is considered to be more holistic than identifying a specific interpretation. We ask ourselves the question: what is its function? and when we know there are many ways to then go about solving something. The mechanical and the electrical engineer solve a problem in a different manner whilst both serving the defined function.
Systems thinking gives the user the black box tool. When the function is unbeknownst to the problem solver (s)he can write down all input and output and deduce the function this way, conversely if the function is known input and output can be used to get more profound understanding of the entities transformed by the function. One can conceive almost anything to be modelled by a black box model, given by ??. For a certain input there is a specific output.
So what then is Unilever’s function? What is it meant to be doing? This is an important question, because all functional, categorical, and regional teams within Unilever exist to fulfil this primary function. Unilevers function can be described as:
generate profit by selling a multitude of products in the consumables industry.8
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From this we can infer what the supply chains function should be, at any rate it should support Unilevers primary function. It is in another sense a derivative thereof.
Allow me a small digression: my studies require the focus to be on logistics—hence the logistics chain analysis that follows—but beware that this analysis is isomorphically applicable to all systems within the system—finance, human resources, marketing alike. Note that our outer boundary—Unilever—is, in turn, also part of a system; it should thus neither be considered the ultimate system nor only system that can be considered. It is, however, the system under consideration here. Let us pick up where we left and draw up a list of in-and output of the supply chain.
Input of the logistics chain’s black box: raw materials;
packaging materials; labour;
energy; and equipment.
Output of the logistics chain’s black box: finished products;
finished packaging;
waste (time, labour, etcetera); ‘used’ labour;
transported goods; and value.
Considering the aforementioned inputs and output (which are graphically iterated in ??) a functional description of the supply chain can be given. The supply chains function is twofold, and can be described as:
all activities involved in transforming the raw material to finished products; and the transportation of the goods to and fro the right place.
Storage, although currently necessary, should not be considered a function; in a perfect world we can conceive storage to be pure waste.9 Consequently supply chain is not about the feel of
a product, or its shelf presence. These might be attributed to other teams like marketing or research and development. We focus for the remainder of the research mainly on the second point: transportation to and fro and incidentally also storage. This means that there is not a real focus on the creation of goods, although this is a very important part of Unilevers’ supply chain.
This process of transformation from input to output does not occur automatically. There are certain requirements: a planning and a specific interpretation of a product, but also physical limitations. These requirements are needed to reach the final output. All of the inputs need to be ‘managed’ by means of requirements. These requirements also form the basis for performance measurements, which indicates whether or not the function is satisfied and to what extend. This is schematically represented in fig. 8.
9Arguably transportation is not needed—if all creation and refinement could be done in one’s back-yard—this is however, for an international company impossible and so I consider ‘transportation’ as a primary function. However Hans Veeke gave valuable input, saying that bringing products to the customers adds value to the product; it being available (where needed) is paramount.
Figure 7: An extended systems approach tool. The function transforms input to output; how-ever there is certain oversight required, this oversight is gained by imposed requirements and reported performance.
Figure 8: The basic systems approach tool. On the left the process performance (proper) model. It shows the basic elements of the DSA. It symbolises a system with a purpose. This illustrates that the inputs should be considered physical entities (denoted by thick arrows), whereas informa-tion, denoted by thin arrows, are part of the control. Right shows the inputs and corresponding outputs.
The supply chain within Unilever—judging from day to day life—functions, it does what it is suppose to do. Products are regularly delivered at customers, customer satisfaction is high and structural failures are limited as was concluded from internal conversations with quality management. So any change should only be for the better, we shall refer to these changes opportunities. How can we best identify these opportunities? By talking to to individual workers or team managers? Je ne pense pas. An unambiguous, unbiased and global strategy is needed.
I suggest to assess the the cost break-down of the internal logistics to find the biggest unbiased and unambiguous opportunities. But before I will explain the reasoning behind this, we will define a root definition and strip the supply chain down to see what the internal processes are.
3.3 Root Definition
Using the rich picture depicting all relations in the transport and logistics and the systems approach, the root definition can be formed which eventually serves to create a conceptual framework of the system later.
A root definition gives a complete overview of the problem—its features and behaviours—, it asks for the root, the foundation of the problem. It should include:
customers of the system, C ;
those who can perform the transformation, A; what the transformation, T, from input to output is;
those who own the system and those who change the nature of the transformation, O; and finally
the environmental constraints, E, should also be included.
This is all subjected to the investigators kantian weltanshauung, W, not wholly unlike a subject paradigm. Difference being that paradigms are more often unbeknownst to the reader and weltanschauung is not.
A root definition is thus: ‘a concise, verbal description of what the system does, or is supposed to do’ (Veeke, 2013) an aphorism if you will; which, for the supply chain within Unilever is:
Unilever is the direct customer (C) of the system, indirect Unilevers clientele (Ahold, Delhaize, Tesco) is the customers of the system. Labour, equipment, and energy, or more specific factories, warehouses, transporters, etcetera are the actors (A) enabling the transformation. The transformation (T) is all actions in-volved in transforming raw material into finished product and the transportation of the goods to and fro the right place.
The weltanschauung (W) is that of engineering practice and capitalistic dis-course. Employees and higher organizational layers (‘Unilever’ ultimately) are the owners (O) of the system—they can change its behaviour.
Finally the environmental (or system) constraints (E) are physical limitations, skills of labour employed, and legislation.
3.4 Supply Chain Processes
The general direction of the thesis should now dawn to the reader. However further elabo-ration of the supply chain is necessary to understand its breakdown. This, in turn, defines the cost posts within the supply chain? What do these costs consists of? This section aims at clearing this up.
In earlier chapters we have, for the sake of clarity, omitted some important items, it is now the time to fully describe the processes to a level considered important. In other words, what is in the black box? Which processes fulfil the supply chains functions.
Therefore we start up by giving a functional description of the supply chain, depicted in fig. 2. Note that all the individual functions in fig. 9 can, in turn, be subdivided in lower level processes, refer herefor to the subsections. Note that, again, the functions leave the specific interpretations open—transporation can be done via road, rail, or water; or even more specific, trucks, trains, and boats.
Figure 9: A functional description of the logistics chain from ‘raw materials’ to ‘processed materials’. Note that large weight is put on the end-to-end supply chain. The ‘product creation’ block could be the scope of complete thesis, a life work even. However that is not the goal here.
The figure shows the functional ‘flow’ in the supply chain. It starts with raw materials; bought or procured by procurement these are the building blocks of the supply chain. These are used to create the Unilever products; when ready it is packed and transported; it is thence (temporarily) stored and repacked when needed. It is then shipped to the customers and delivered at their (local) warehouse. Finally we are left with finished and delivered products.
Note that this is, by no means, the lowest level of functional description. The processing of a product is done by complete factories; one can imagine that the process can thus be a functional description of all different departments within the factory. Giving a description on this aggregation level would lead to askew descriptions. This defies the purpose of generality and end-to-end logistics.
Product Creation
Figure 10 gives a basic idea of product creation; raw materials enter and they are processed. Multiple ‘process’ actions can be performed on the products and whence this is the case they have to, intermediately, wait.
This function (of creating a product) can be done by, for example a Unilever owned sourcing unit, however it can also be made by a so-called co-packer or a leased sourcing unit. These are specific interpretations, and do not change the function.
The interpretation of product requirements comes from a customer request or a market research. By and large it is considered to be ‘correct’, that is, there is a demand for a specific product and this is correctly interpreted by Unilever, and the requirements are also correctly deduced and put into the process of products.
Figure 10: A lower level process for the creation of a product. Some process(es) are repeated a x number of times and there is intermediate waiting between the different processes. The finished product advances in the supply chain.
Shortly taking an advance of that is to come; let us show what the cost (regarding logistics) within a sourcing unit is based on. At any rate, as will be argued, it should be a ‘derivative’ of input. See appendix E, it shows the (estimate) cost-breakdown in the sourcing unit. Product specific cost-breakdown stems from raw materials, pack materials and the product requirements, situational break-down stems from the labour, equipment and product requirements. The cost for logistics in ‘creation of products’ in the supply chain depends on:
number of pallets; location country; product category; pallet type;
contract type (fixed, loose); and
sourcing unit type (manual, automatic).
Packing of Products
Whence products are created they need to be packed. Packaging, as concluded from the research assignment, is for logistical purposes (ease of handling) as well as a marketing purpose (product recognition). Figure 11 shows that either packaging is internally created or externally procured. Independent thereof produced goods are packed. This process is repeated for primary, secondary, and tertiary packaging. Intermediately the packed products have to wait.
Figure 11: The packaging is either created or procured and thence used to pack the product; this step is repeated a number of times, until the required collation is reached and then the products advance in the supply chain.
Packaging requirements are deduced from legislation. The same goes for the secondary and tertiary packaging, however here the the product (i.e. the customers and supply chains) requirements are also taken into account.
The cost for logistics in ‘packing of products’ in the supply chain depends on: number of pallets;
cases per pallet; location country; product category; storage type;
DC type (manual, automatic); contract type; and
product category. Transport of Products
All functions can be described on a lower aggregation layer. And this process description is by no means the final layer. The ‘entering of products into the transporter’ can be further defined. However; as explained, the focus is on the end-to-end and a constant aggregation level is required for maximum oversight. See fig. 12 for a process interpretation of the transportation of goods.
Transportation requirements range from pick-up and drop-off points to use of specific trucks. Some goods should conceivably receive different treatment. Aerosols have the danger of ‘spray-off’ (i.e. when products are stacked on top of one-another the pressure on the lowest layer can cause failure to the product and in case of aerosols this leads to the products to leak or ‘spray’ gas. This can potentially lead to explosion dangers; extra precautions should therefore be taken). Other goods, such as ice cream, require cooled transportation.
Figure 12: A lower aggregation layer functional description for the ‘transport products’ block. Again it lacks specific interpretations; ‘picking up products’ can be done by a multitude of machinery, remains that it has to be picked up and entered into the transporter. The pallet management is also shown on the same aggregation layer.
The cost for logistics in ‘transportation’ in the supply chain depends on:
pallet volume; product volume; pallet weight; distance travelled;
truck type (ambient, cooled; lanes (from-to); and
vendor country.
Storage and Repacking of Products
Products are, almost without exception, stored for some time. Although this might not be preferable; it is the status quo. When they enter the storing units they are internally logged and put on lower level storing unit—like a shelf. Here they remain, until the products called on to be repacked or shipped. These two processes are combined in fig. 13.
As described above, for storing the same requirements apply as for transportation, some goods are stored cooled and others in specialized sections of storage facilities.
Customer sometimes demand less product than are on a tertiary package, and small customers sometimes only require a few product. This, in turn, requires the storing unit to repack the incoming products and repack to suit customer demand.
If no such change is required the product can directly flow, upon customer request, from the storing unit to the transportation process.
Figure 13: Storage of products combined with the possible repack, some products are repacked and stored for sometime afterwards; however they can also skip repacking and advance straight into the supply chain.
The cost for logistics in ‘storage and repacking’ in the supply chain depends on: pallet volume;
product volume; pallet height;
number of items on a pallet; receiving country;
storage type (ambient, cooled); DC type (owned, leased); and product category.
Delivery
The delivery is reasonably easy. All processes after the delivery are part of the customers system, in includes repacking products to suit the individual store demands and company policy. For Unilever the delivery is the transportation to the customers storage facilities and unloading the goods there. What happens thereafter is of customers’ concern. In short it solely changes the transport process from ‘transported products’ to ‘delivered’ products’.
3.5 Requirements and Performance
Recall fig. 8; a functional interpretation for the function was described and the in- and outputs were denoted. This input is dependent on a certain set of requirements; on a certain product. This means that all the input should in some way be bounded by requirements (otherwise there is no oversight of what happens in the supply chain). Consequently, if the requirements are not monitored than there would be no way to see if system deviates from the requirements.
