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The Physical Internet– New emerging supply chains

Patrick Van De Vyver | 19. Feb 2020
7 minutes read

The Physical Internet (PI) concept gets more and more traction within the logistics community. There is a strong belief that similar to the internet we know today, the Physical Internet will become a core element of our day to day lives in the future. Additionally, the physical supply chains lag far behind regarding the desired improvements needed to meet the  required “sustainability” targets, indicating that something has to change.

 

Greenhouse gas emissions from transport - EEA


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So, which characteristics would PI supply chains have?

1. Flexible access to new transportation networks: The current transportation networks are rather robust. A change in partners or volumes are cumbersome and take time and efforts.


2. Dynamic alternations of flows: Current transportation networks typically uses a fixed set of carriers, linehauls, hubs and brick and mortar facilities. Hardly any optimisation takes place based on the daily changing volumes or service requirements.

3. Cost effectiveness: Transportation costs usually vary between 3% and 10% of the cost of goods sold, which is a huge cost. But despite of this, the transportation resources are not used effectively. Loading levels of 30-40% have been the normality for the last decades and no structural improvements can be noted. Similar to the regular internet, the Physical Internet is believed to be much more cost effective compared to the current networks.

4. Capacity flexibility: Today, when a supply chain is setup, there is limited flexibility to cope with changing volumes or change in customer expectations. The constraints are often appearing in the warehouses (storage-, floorspace- and manpower constraints) and in the transportation networks (hubs, modes, drivers, etc).

 

There are, however, some distinct differences between the “data” internet and the “physical” internet.

The regular internet is appearing to be “free of charge” while in the Physical Internet the different services will be have to be paid for. However, logistics stakeholders are used to pay for services and with more streamlined operations and better utilisation of resources both cost and environmental profile would be improved.

The messages sent on the the networks today are assumed to have an operational value and do not directly represent capitalisation. The flows sent over the Physical Internet represent important assets of the participating companies and “valuation and accounting rules” will have to be applied.

 

What could an advanced PI supply chain actually look like?

 

  1. Closed network of Logistics Service Providers (LSP’s) focusing on a sector and/or product characteristics:
    A network of LSP’s will have to agree on common service levels and operational requirements. Shippers will hand over and trust their valuable goods to these networks. Strict control on the valuation of the goods, legal reporting and liability will have to be exercised.
  1. Collaboration between shippers:
    As the PI networks will focus on a sector or on certain product characteristics, the collaboration between shippers will become standardised. Shared facilities like warehouses and shared transport units will become the new reality. New participants will be able to participate in the networks after agreeing the standards and tariffs set by the PI network.
  1. Distribution planning based on Artificial Intelligence
    The distribution planning (which products and volumes are stored where in the PI network) is an integral part of the PI network. The shippers hand over their “production volume” to the PI network and the distribution planning is executed by the PI network itself. The distribution is taking into account customer requirements like short customer delivery lead times but also the transportation optimisation of the complete network over all participating LSP’s and shippers.
  1. Advanced capabilities of the PI network:
    - Merge in transit and ensure consolidated deliveries
    - Change in transit – as the ownership of the goods change, flows and the paperwork can be redirected.
    - Paperwork, tax requirements and legal reporting is flexible and electronic traceable.

 

In its simplest form, one could imagine such a PI network as the “Fulfilment service of Amazon” but then:

  • Executed by a network of LSP’s
  • Open to many shippers with common product characteristics
  • Cost effective
  • Multi-channel
  • Not limited to B2C

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