In memoriam to my friend and collegue Prof.

Paolo Inchingolo UniTs

Virtual logistics
Prof.dr.sc. Dragan i i

Logistics General perception

General perception in logistics that assets such as stock or vehicles need to exist physically, and need to be identifiable as discrete entities. By treating logistics systems in strict physical terms we impose constraints on them which can restrict their flexibility and can limit the utilisation of resources.

Virtual logistics
Assets are treated in terms of their availability, not their identity or their physical form. form. This provides much greater flexibility in how systems are designed, how resources are sourced, and how assets are utilised. utilised. Virtual logistics allows logistics resources to be treated as commodities, in a similar way to how currencies are treated by banks. banks. This means that resources can be lent, borrowed, or traded; and flexibly consolidated, apportioned, traded; and allocated. allocated. This creates many powerful new possibilities in the design of logistics systems, and means that major improvements in efficiency become possible. possible.

Financial system example

Once money in circulation was in the form of precious metals such as silver or gold. gold. By holding their own assets, they might have achieved greater security, but they incurred a high notional or actual cost due to the fact that they needed to store and guard their assets, and they risked losing them due to accidents, damage, or theft. theft. Then paper money was introduced and banks were, in effect, able to create money from nowhere, by lending more money than they had as reserves. reserves. Today, we rarely hold anything but modest sums of money physically, and the effectiveness of the banking system cannot be denied. denied.

Financial system example

What has happened is that money has become one stage removed from the physical assets it represents (i.e. gold or silver); this (i. silver); has led to immense increases in the efficiency of financial transactions, and has created numerous new possibilities for purchasing, sales, and finance. finance.

Virtual logistics systems

Virtual logistics resources may be traded in much the same way as shares and foreign currencies are traded by banks or individuals. individuals. Through the use of computer applications and the Internet, it becomes feasible to do this at a very low level in logistics operations. operations. Such resources could be purchased, utilised remotely, and lent or sold when surplus to requirements. requirements.

Design of virtual logistics systems

Treatment of assets in terms of function and availability, rather than as physical objects with particular identity and form, so they can be treated like commodities. commodities. Dissociation of ownership and control of assets from their physical location, so they can be utilised remotely. remotely. Dissociation of information movements from physical movements, so that change of ownership or change of application does not necessitate physical movement. movement

Design of virtual logistics systems

Dissociation of physical resources from specific operations or processes. processes. Shared, public, access to logistics resource information through Internet applications. applications. Computer based trading of logistics resources between suppliers and users. users. Integration of warehousing, transport, and production for the purposes of maintaining product availability and controlling stock. stock.

Concepts in virtual logistics systems

virtual stockholding; stockholding; virtual warehouses; warehouses; virtual supply chains; chains; virtual stock control; control; virtual trading; trading; virtual deliveries and the substitution of trading for transport; transport; virtual production; production; virtual logistics services; services; virtual markets; markets; virtual growth; growth; virtual organisations organisations.

Virtual stockholding
(1) Stockholding costs would be lower since less stock would need to be held. (2) Warehousing costs would be lower since less space would be required for storage. (3) Stock turnover would be higher. (4) Obsolescence cost would be reduced. (5) There would be opportunities for savings through increased centralisation, specialisation of storage and handling methods, increased warehouse space utilisation, and economies of scale.

Virtual stock

Virtual warehouses
(1) There is much more flexibility in the size of warehouses employed. The constraints that walls impose are, in effect, removed. (2) There is potential for much greater warehouse capacity since the constraint on capacity is total available warehouse resource, not just locally available warehouse resource. (3) There is potential to support a much larger catalogue size. (4) There is potential to support products with more diverse handling characteristics. (5) The geographically dispersed nature of the stockholding means there could be an improved chance of finding a stockholding point close to the point of demand. (6) There is potential for stock to reside at manufacturers sites and, thereby, increase supply chain efficiency by saving on handling and transport. (7) The risk associated with holding stock at only one site may be reduced.

Virtual supply chains

An alternative to holding stock as finished goods, however, would be to define the supply chain through which the stock can be made available, and to secure the required capacity and resources within that supply chain. chain. The stock could then be supplied through production rather than through stockholding and the need for safety stock could, thereby, be greatly reduced. reduced.

Virtual supply chains

(1) The shelf life of raw materials is generally greater than that of finished goods since, being in a more basic form, they are less prone to deterioration. deterioration. (2) Raw materials can generally be stored with a higher volumetric utilisation than finished goods as they tend to be held in a more compact form. form. (3) Raw materials generally have a lower obsolescence cost than finished goods as they tend to have a wider range of potential applications. applications. (4) Stock cover for raw materials can generally be lower than that for finished goods as they can normally be secured more quickly. quickly.

Virtual stock control

With conventional logistics stock control is quite a straightforward process If stock is in the warehouse it is considered to be available, if it is not, it is considered to be unavailable. Stock is held in the form of cycle stock for known demand and safety stock for unknown demand. If high levels of service are to be met then high levels of safety stock need to be retained since demand can be very variable. The cost of holding safety stock,however, can be very high, and some safety stock might never get used.

Virtual stock control

An alternative to holding safety stock, however, would be to hold virtual stock. stock. Some virtual stock could exist physically but at another location, and other virtual stock could be secured through a virtual supply chain, thereby better integrating stock control with production control. control.

Virtual deliveries

Virtual deliveries

Substitution of trading for transport

Virtual organisations
The assets of logistics organisations generally consist of distinct physical resources such as vehicles, warehouses, stock, factories, and machines. machines. Having the ownership of such resources provides the organisation with the means of ensuring their availability and also ensuring they can be accessed at an acceptable level of cost. cost.

Virtual organizations

Making virtual logistics a reality

Development of Internet applications which allow for shared public access to logistics resource information. There will need to be effective standardisation of logistics resources so there is a high degree of consistency among particular user groups, and so it becomes practical to make shared use of logistics resources among different organisations.

Making virtual logistics a reality

Systems will need to be put in place which monitor quality, control quality, and ensure the accuracy, reliability, and availability of logistics resources. Regulations will need to be put in place which limit the liability of users of logistics services. Regulations will need to be put in place which limit the liability of users of logistics services.

Making virtual logistics a reality

Standardization Modularization Globalisation and growth in the size of regional markets. Time phased synchronisation of logistics activities. activities

Virtual Logistics Medical applications

Virtual stockholding
Stocks in hospitals Medical stocks in a region Stockholding costs would be lower since less stock would need to be held Warehousing costs would be lower since less space would be required for storage Obsolescence cost would be reduced There would be opportunities for savings through increased centralisation, specialisation of storage and handling methods, increased warehouse space utilisation, and economies of scale.

Virtual stock controll

safety stock, virtual stock virtual stock could exist physically but at another location secured through a virtual supply chain, thereby better integrating stock control with production control. control.

Virtual organizations
Virtual hospitals