2/6/18

Workshop: Quantitative Logistics

Introduction to quantitative logistics in
agri-food supply chains

Renzo Akkerman
Operations Research and Logistics group, Wageningen University

Outline

§ Example
§ Perspective: Transformation processes
§ Perspective: Quantitative Logistics methodology
§ Overview of food supply chains
§ Quality-controlled logistics
§ Supply chain management & hierarchical planning

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Introduction – Example

§ Let’s look at something that’s not food, but close…

No
shelf
life …

… but
vase
life

Introduction – Example

§ Trade flows of flower bulbs, cut flowers, cut foliage and

other living plants (excluding intra-EU):

(Rabobank, 2016)

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Introduction – Example

§ Transportation and distribution network within Europe?

● Traditionally everything through auctions in NL

● But: auctions virtualizing

● Why should the physical

product go through NL?

● Redesign network?

Introduction
in Agri‐Food Logistics – Example
Future Applications of Virtualization

§ Transportation and distribution network within Europe?

Emergence of Virtual Networks in Floriculture
Centralized vs. Decentralized
Where to Central Logistics Hub Virtual Orchestration

● Traditionally
locate the everything through auctions in NL
‘hubs’ for
storage and
● But: auctions virtualizing
processing?

Relation to
product
● Why should the physical
quality and
product go through NL?
vase life? 15
(Verdouw et al., 2013)

● Redesign network?

Objectives of DaVinc3i

• To strengthen the international leading competitive

position of the Dutch horticulture sector in a global,
virtualized trade network by researching
• the opportunities for new coordination, consolidation and
collaboration concepts in extended international tradepark
networks, and
• the possibilities for making chain information directly and
real-time available and usable to support decision making 3
of all partners in the horticultural network

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Logistics CIO Europe, Amsterdam, 22 May 2013
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Introduction – Example

“How many “Where should the

locations?” locations be?”

“From what location

do we deliver?”

“At what location

do we stock?”
“At what location
do we stock?”

“Where in the network “How do we actually pick up

do we do processing?” or deliver the products?”

Focus on transformation processes

§ Management of the transformation process that transforms

inputs such as raw material and labour into outputs in the
form of finished goods and services.

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Focus on transformation processes

§ Management of the transformation process that transforms

inputs such as raw material and labour into outputs in the
form of finished goods and services.

Transformation processes can be modelled on different

levels

Focus on transformation processes

§ Management of the transformation process that transforms

inputs such as raw material and labour into outputs in the
form of finished goods and services.

Transformation processes can be modelled on different

levels

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Focus on transformation processes

Example: Heineken supply chain

• Barley
• Hops

• Packaging material
• Labels
• Etc.

Focus on transformation processes

Example: Heineken supply chain

• Barley
• Hops

• Packaging material
• Labels
• Etc.

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Focus on transformation processes

Example: Heineken supply chain

• Barley
• Hops

• Packaging material
• Labels
• Etc. (inventory)

Focus on transformation processes

§ Management of the transformation process that transforms
inputs such as raw material and labour into outputs in the
form of finished goods and services.

Transformation processes can be modelled on different

levels

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Focus on transformation processes

Example: Heineken packaging line

M1 M2 .... M5 M6

• Six machines:
1. Destacker
2. Filler
3. Pasteurizer
4. Labeler
5. Packer
6. Palletizer

Focus on transformation processes

Example: Heineken packaging line

M1 M2 .... M5 M6

• Six machines:
1. Destacker
2. Filler
3. Pasteurizer
4. Labeler
5. Packer
6. Palletizer

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Focus on transformation processes

Example: Heineken packaging line

M1 M2 .... M5 M6

• Six machines:
1. Destacker
2. Filler
3. Pasteurizer
4. Labeler
5. Packer
6. Palletizer

(Here: conveyer belts à buffers)

Focus on transformation processes

§ Management of the transformation process that transforms

inputs such as raw material and labour into outputs in the
form of finished goods and services.

Transformation processes can be modelled on different

levels

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Focus on transformation processes

Transformation processes à Both products and services

Focus on transformation processes

Goal of Operations & Supply Chain Management

§ The essence of the operations function is to add
value during the transformation processes: Value-
added is the term used to describe the difference
between the cost of inputs and the revenue that is
created by outputs.
Inputs Transformation Outputs
Process

§ For most companies, profitability is a good measure

for this value creation: Profit = Revenue – Costs
§ Other performance measures of interest: service,
efficiency, and for food: quality, safety,
sustainability

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Quantitative logistics methodology
§ Different types of research approaches
Descriptive
• Creating a model that
adequately describes
Empirical causal relationships
(data-driven) • Understanding the
process that is modelled.
• Analyzing the
characteristics of the
Axiomatic model.
(model-driven) • Understanding the
process that is modelled
Quantitative logistics methodology
(Bertrand and Fransoo, 2002 ; Mitroff et al., 1974)
2/6/18
Prescriptive
• Often too many variables
to be practical.
• Developing policies,
strategies, and actions to
improve something
• Compare various
strategies for addressing
a specific problem
(Bertrand and Fransoo, 2002)
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Quantitative logistics methodology

§ Model-driven research
● Abstract representation of the decision problem
(conceptual model)
● Development of scientific model for the problem
§ Approaches
● Mathematical modelling & optimization
● Analysis mostly mathematical
● Exact and heuristic approaches (optimal and
near-optimal / ‘good enough’ solutions)
● Computer simulation
● Also requires solid experimental design and
statistical analysis (comparing alternatives)

(Bertrand and Fransoo, 2002)

Quantitative logistics methodology AT

1
FILL MACHINE 1

FILL MACHINE 2

UHT 1 FILL MACHINE 3

AT
2
FILL MACHINE 4

Example: Losses in UHT dairy production:

UHT 2 AT FILL MACHINE 5
3

FILL MACHINE 6
AT
UHT 3 4 FILL MACHINE 7

FILL MACHINE 8
AT
5
UHT 4 FILL MACHINE 9

AT FILL MACHINE 10
6

FILL MACHINE 11

Batch
sizing,
Sequencing,
Equipment
assignment,
etc.

(Akkerman and Van Donk, 2008)

(Bertrand and Fransoo, 2002 ; Mitroff et al., 1974)

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Quantitative logistics methodology

§ Significant focus on prescriptive modelling in current

developments with regards to business analytics

From demanding consumers …

Consumer demands
• Choice/assortment
• Product freshness
• No Stock-outs
• Acceptable price
• Ecological…etc.

The demands will differ for

each type of retail outlet

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… to demands on transport, …

such as …
• High delivery frequency
• Dependable lead time
• High speed
• Environmental friendly
• Low cost, ...

… demands on production, …

such as ..
• large assortiment
• small batch sizes
• short throughput times
• high quality products
• year-round delivery
•…

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… and demands on suppliers.

such as …
• High quality beef
• Animal welfare
• No hormons, pesticides
• Use of specific feed
• ….

So what is a Supply Chain?

§ All the stages involved in satisfying customer

demand

§ A supply chain is a network of (physical and

decision making) activities connected by material,
information and money flows that cross
organizational boundaries.

Farmer Producer Wholesaler Outlet

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Supply Chain Management

… is the integrated planning, co-ordination, and

control of all logistical business processes and
activities in the supply chain to deliver superior
consumer value at less cost to the chain as a whole
whilst satisfying the requirements of other
stakeholders in the network. (van der Vorst, 2000)

Farmer Producer Wholesaler Outlet

Topics in Supply Chain Management

Supplier Producer DC Retail Consumer

- Transportation (collection; routing; loading ...)

- Production (planning; blending; scheduling …)
- Inventory control (which products, amounts, where and when …)
- Location (factories; DC’s; Retailers), Allocation (machines; products)

- Integral aspects (SCM – coordinating the supply chain)

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Demand (market) side developments

§ More powerful well-informed customers
§ More stringent consumer demands
● Higher quality, safety and convenience
● Healthy, organic, … à transparency!
§ Increasing product variety
● Increase of fresh assortment & product variety
● More convenience (small ready to eat portions)
● Meet local demands and values
● Shorter product life cycle
§ Retail developments
● 24 - 7 retail services
● Battle between private and brand-label
● Differentiation in stores (retail outlets)

Supply (industrial) side developments

§ Internationalization
§ Consolidation
§ New distribution channels
§ Chain integration
§ Outsourcing; focus on core competences
§ Use of new technologies
§ Strong branding strategy
§ Focus on people, planet, and profit

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General agri-food developments

Period 1960s 1970s 1980s 1990s 2000s 2010s

Demands consumer Uniqueness
Variety Lead time

Sustainability
Quality
Price
Focus
of Efficient Quality Flexible Innovative
company
Efficiency Quality
Flexibility
Speed Innovation
Performance company
power
Focus : Company Bi-lateral Chain Chain Network

General agri-food developments

§ Cost reduction and increase of reliability/flexibility

● Price wars in the retail sector
● Demanding consumers à demand-driven supply chains
● Increase of supply chain flexibility and competency to manage partners
§ Food security and reduction of food losses
● Ensuring access to local markets and reduce losses
(30-40% of food lost!)
● Guarantees for product quality and safety
§ Request for traceability and sustainability
● Improved visibility & transparency to synchronize supply with demand
(partly enabled by digitalization)
● Search for sustainable supply chain strategies
(many foodmiles/CO2 emissions due to global sourcing)
● Closed-loop supply chains (valorisation of by-products)

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Food supply chain management

FSCM is about getting

§ the right product

§ in the right place
§ in the right quantity
§ at the right time
§ and at the right quality

... As cost efficient (and sustainable) as efficient as

possible with minimal product/quality losses!!

Supply chain management

§ Planning hierarchy:

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Supply chain management

§ Planning hierarchy

● Supply chain design

Long-term decisions on the physical supply chain structure.
This includes e.g. the number and sizes of production locations,
warehouses, cross-docking points, as well as the related
transportation links.
● Supply chain planning
Mid-term production and distribution planning decisions related
to fulfilling demand (or forecasts) on an aggregate level.

● Production and transportation planning

Short term planning of the production and distribution of actual
customer orders.

Supply chain management

§ Planning hierarchy
Planning Time repre- Objective function Frequency of Planning Run
horizon sentationa analysisb timec timed

Supply chain 1-5 years None, or Maximize net revenue Major studies 2 weeks - 2 5-60
design years or return on assets once a year; months minutes
special studies if
needed

Supply chain 1-12 Days, weeks, Minimize total costs of Once a month 2 - 4 days 20-120
planning months months meeting forecasted minutes
demand or maximize
net revenue by varying
product mix

Production and 1-30 days Minutes, Minimize myopic Once a day and 30 minutes 5-20
transportation hours, days distribution costs for emergencies minutes
planning
a Time representation: Type of periods incorporated in underlying models.
b Frequency of analysis: The number of times each year, month, week, or day that managers and planners use the planning system.

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References
§ Akkerman, R., Farahani, P., Grunow, M. (2010), Quality, safety and sustainability in food
distribution: A review of quantitative operations management approaches and challenges,
OR Spectrum, 32(4), 863-904.
§ Akkerman, R., & van Donk, D. P. (2008). Development and application of a decision
support tool for reduction of product losses in the food-processing industry. Journal of
Cleaner Production, 16(3), 335–342.
§ Chopra, S., Meindl, P. (2012), Supply Chain Management: Strategy, Planning, and
Operation, 5th edition, Pearson.
§ Bertrand, J. W. M., Fransoo, J. C. (2002). Operations management research
methodologies using quantitative modeling. International Journal of Operations &
Production Management, 22(2), 241–264.
§ Mitroff, I.I., Betz, F., Pondy, L.R., Sagasti, F. (1974), On managing science in the systems
age: Two schemas for the study of science as a whole systems phenomenon, Interfaces,
4(3), 46-58.
§ Stadtler, H., Kilger, C. (eds.) (2008), Supply Chain Management and Advanced Planning,
4th edition, Springer.

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