HELIX OF LOGISTICS. Prof. Dr. Klaus Spicher 1, Prof. Dr. Dianjun Fang 2 1 Fraunhofer Institute for Material Flow and Logistics, Dortmund, Germany

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1 HELIX OF LOGISTICS Prof. Dr. Klaus Spicher 1, Prof. Dr. Dianjun Fang 2 1 Fraunhofer Institute for Material Flow and Logistics, Dortmund, Germany 2 Corresponding author,cdhk of Tongji-University, Shanghai, China Abstract The paper describes the evolution of logistics and supply chain management in different business environments and identifies the structure of the driving forces. A cyclic development structure along technology improvements will be identified and illustrated as a 3D development cycle ( Helix of Logistics ). Keywords: Helix of Logistics, Development Cycle of Logistics 1 FOREWORD In business literature the term Helix was introduced by Charles H. Fine [1] in 1996 while analyzing Value Chain Dynamics and Rapid Response Capabilities of industries. In spite of utilizing the same visualization model (term) there are no concept tual similarities compared to the authors findings presented in this paper. 2 INTRODUCTION The Faces of Logistics Depending on the specific perspective, the role of logistics can be seen in different ways. For example, a logistics service provider (LSP) considers logistics as a product while a producer potentially considers logistics as a cost cutting tool or competitive factor. Moreover, an economist may regard logistics as a location attribute as part of a certain infrastructure. Logistics can even become an issue of added value between traders and producers. The following figure 1 illustrates the different faces of logistics. product and market requirements. Therefore, the logistical and SCM competence differs between industries. The pharmaceutical, automotive and FMCG industry ( fast moving consumer goods ) considered logistics as an important discipline the first. Nowadays, these industries are ahead in their logistical competence and serve as best practices for other industries. These industries are following and adapting logistical principles. As a consequence, each industry has its own logistical competence profile. Figure 2 illustrates the development Figure 2: Logistical Competence of Industries Figure 1: The Faces of Logistics According to this view, the meaning of logistical competence varies for the involved players. In this paper, production oriented companies are put in the focus so that the logistical competence is defined as the ability to organize the business processes efficiently in line with logistical principles. Logistics and supply chain management as part of the business structure In general, the role of logistics and supply chain management within a company is determined by specific In figure 2, each distribution represents an industry, consisting of all companies belonging to this industry. The companies of each industry are sorted according to their logistical competence. So, the high-end of each distribution represents the logistically most competent companies. The shapes of the distributions and the location along the competence axis differ due to productrelated logistical requirements and regional economy structure. As a matter of fact, the size of company also determines the logistical competence of a company. Due to the organizational structure and capacity restrictions (e. g. infrastructure and human resources), small and medium sized companies are limited in their attempts to drive logistical progress forward. The influence of a company s size in terms of employees on the logistical competence can be seen in figure 3.

2 Figure 3: Logistical- and SCM-Competence of Companies Levels of logistics and supply chain competence The logistics and supply chain competence of a company can be measured according to a five level approach. Companies that are not considering logistics as a relevant issue at all are part of Level 0. Level 1 describes companies that have a basic understanding of logistics and are at an initial phase of implementing logistical principles. Companies with some logistical know-how and standard cooperations with suppliers and customers are considered at level 2 of the competence scale. Level 3 describes companies that have supplier and customer cooperations supported by logistics service providers. Companies operating integrated supply networks with logistics service providers and logistical principles like LSP-based delivery services or vendor-managed inventory concepts are considered at level 4. Finally, production networks with integrated sourcing, planning, production and distribution are classified as level 5. Following figure 4 illustrates the levels of logistics and supply chain competence authors use the Helix model to describe the development of Logistics in a 30-year period of business trends. This Helix of Logistics, shown in Figure 5, provides a rough understanding of Logistics as a business trend. We start the description of the development of Logistics as a business trend in the year 1970 (a company in the centre of the helix). Following the arrows in clockwise direction, we find a sequence of business trends influenced the development of logistics. First organizational experiments and management principles emerged in the early seventies. Some examples for it are the Harzburger model and the Management by Objectives (MbO). Those were followed by the development of Direct Costing. Throughout the seventies, quantitative methods (Operations Research OR) became supportive tools for managerial decisions. The quality issue (also known as the Japanese challenge ) was mastered by further managerial activities. Figure 5: 30 Years Business-Trends Development of Logistics Figure 4: Levels of Logistics-/Supply Chain Competence In order to further classify the level of logistical competence, the authors have developed a methodology to classify small and medium sized production companies up to 400 employees according to their Supply Chain Fitness [3]. Based on this concept a methodology for measuring of the Supply Chain Fitness of small and medium sized production companies was developed by Koch [2]. 3 WHY DID LOGISTICS BECOME A LONG-TERM TREND? THE HELIX CYCLE OF LOGISTICS The Helix (spiral) has widely been used for the visualization of business development. In this article, the In the middle of the 1970ties traditional, departmental rationalization did not offer significant potentials any more. New rationalization conceptions were needed urgently. In- House Logistics was the answer. Savings and synergies could be realized by integrating business activities (processes). By the end of the seventies, the first computer integrated system like Computer Aided Design (CAD) or Computer Integrated Manufacturing (CIM) appeared. They opened the way for further system developments. In the following, Production Planning Systems (PPS) and MRP-Systems (Material Requirement Planning and Manufacturing Resource Planning) collected high attention. Taking a look at the development of information technologies, the Time Sharing Option (TSO) concept by IBM represented the standard of decentralized computing. The first ancestors of modern Personal Computers (PCs), Commodore, Amiga and Atari appeared on the market. Office computing in Germany was dominated by Midrange Computing (e.g. Nixdorf, Philips, Adler-Triumpf). Worldwide remote computing e.g. was offered by Honeywell-Bull timesharing. In Germany, comparable progress in information technology was prevented by the Post monopoly. Before what we now know as Logistics was called Logistics, the basic idea was called Cross departmental integration Approaches. This concept offered new synergy potentials: The Automotive Industry forced their suppliers to implement more efficient processes (e.g. telefax communication). The FMCG-Industry (especially food

3 companies) started the development of operational In- House logistics. It is interesting to mention that the big trade companies did not even think about Logistics at that time. Reducing costs was simply achieved by using their huge market power to put high pressure on purchasing price as long as suppliers could afford reducing the prices. This gave trade companies a rather easy living. The big trade companies focused their effort on extending their outlet network and testing shop concept improvements. At that time, the customizing of products became an issue. The foundation of the German Logistical Society (BVL) in 1978 finally represents the establishment of Logistics as an integral part of business and research activities. Thus, this event marks the beginning of the blue cloud in Figure 5 representing the growing impact of Logistics. The period of time from year 1980 to about 2000 can be seen as a first Helix Cycle of Logistics. A Helix Cycle is defined as a sequence of business trends along technology progress, business needs and supportive scientific methods. Diminishing returns will cap the Helix development. Therefore the capped (convergent) Helix structure represented by Trochus stellatus serves as a visualization instrument. Each turn represents one development cycle. The key words displayed in the four corners around the Helix of Logistics summarize the development: Rationalization: The early development was mostly affected by the rationalization trend. Ideas and concepts were based on Tayloristic approaches Methods for supporting internal Processes: The following development was highly influenced by the emergence of Operations Research methods and business process view IT-technology & New virtual (Internet-based) Business Concepts The use of IT and internet based business concepts led to new Logistics concepts IPO s (Initial Public Offerings): The development in the new millennium based on apparent new technology product opportunities ( New Economy ) Over time the role of logistics in business changed considerably. Starting in the late 1970 s as a rationalization approach, logistics became a competitive factor. In the next step of development the role of logistics turned into a strategic issue and supported the supply chain being the basis for exploiting additional synergies. One reason for making logistics an important business trend is given by the fact that marketing successfully utilized logistics as a competitive issue. All major business trends are based on marketing. In the late 80 s one marketing strategy was the offering of incentives to support sales. At that time ecology based on eco-balances became a short term dominating marketing issue. But delivery time and distribution services offered a better and a more simple USP. Finally, JiT (Justin-Time) and 24 hours Services or even shorter became dominant and thus time-oriented logistics became a major trend. The figure below visualizes the development cycle of logistics and supply chain management. Figure 6: Development Cycle of Logistics/ SCM After the first helix cycle of logistics (covering the period from the 1970s until the beginning of the millennium), the second helix cycle of logistics starts around the year Following figure 7 visualizes the second helix cycle Figure 7: Second Helix Cycle of Logistics/ SCM The red dotted arrow indicates recent developments in the second helix cycle until now. The comparison between the first and second helix cycle reveals significant similarities. The key similarities are: The first helix cycle (see figure 5) started integrating and synchronizing processes inside the companies (e. g. In-House Logistics). Quantitative methods (e. g. OR) were used to improve and optimize logistics, whereas data availability and quality was a problem. The traditional rationalization potentials seemed to be exploited. Quality and computer technologies were the dominating issues and logistics became the new key to rationalization. Now, in the second cycle, powerful IT-structures have been implemented and the lack of data quality is getting obvious. For instance, ERP-systems tend to produce junk results because of lacking consistent data maintenance, organizational changes and market requirements. Again, companies are facing a data problem now. In the first cycle new organizational structures (e. g. matrix or divisional organizations, profit- and cost centers) have been developed. Now, these company structures have to be reorganized due to developments like outsourcing or virtual company structures. Moreover, companies especially in western countries are facing

4 relevant problems at the recruitment of qualified staff at the same point in the cycle time. So, corporate identity again is problem initiating HRprograms for developing and ensuring expertise at least in Western Countries In the field of In-House logistics which is now called intralogistics OR-methods are used again for optimization problems. The application of basic methods that are integrated in most ERP- Systems are no longer sufficient. While ORmethods for optimizing single supply chains are under development there is a lack of adequate methods for supply nets. Simulation methods are the key tool for assessing supply net operations. Just at the same point in cycle-time, ecology became an issue in the second helix cycle again. While eco-balancing was discussed in cycle one, CO2-footprints and global warming are in focus now. After an incubation time of 15 years or more, RFID-Solutions now have become operational. Open-ID-Centers present many options for improvements for trade (e. g. GS1) and production companies. In the past, most SC-cooperations were set up as 1 1 relations. At the moment, cooperations are being based on 1 n relations. But data integration still suffers from managerial hesitations. Therefore, effective n n relations seem to be unrealistic (at least as long as Shareholder Value drives business). The implementation of In-House Logistics (Cycle 1) now compares with SCM/SC-Net cooperations. Following the same development, this process is swapping from the early birds (Trend Leaders) to the followers (SME s). Many technical, organizational and relational preconditions (like CRM) have been installed and paved the way for tighter co-operations. The early birds are starting optimization and tuning their systems, while the followers will apply standard methods and procedures. Obviously, the basic problems behind logistics and supply chain management in general do not change over time. The differences are based on the fact that now we are discussing supply chains with a much higher level of (IT-) technology instead of individual companies. This insight enables the development of future scenarios. Future of logistical Industry Profiles From an industry point of view there are two structured approaches for forecasting technology-based trends: 1. There are Lead Industries that apply more advance technologies due to product and market requirements which are also relevant for identifying benchmarking candidates 2. The Helix-Approach allows to forecast solutions based on revolving similar problem structures in the past as the same problems require the same or similar remedies. It is to be noted that in this case the rotational speed of the Helix has to be considered. Figure 8: Business-Future of Logistics Figure 6 demonstrates the idea of leading industries. Each coloured sector represents the logistical / SCM competence of all companies belonging to the sector. For instance FMCG and Automotive represent the leading Industries for the Electronic Branch. Future of Internet Key future trend will be Internet of ( physical ) Things (IoT). Main idea is to create self-organizing material flow. Moreover, the Internet of Things will be the driver for multidimensional communication processes and has a high potential for becoming an important part of business strategies. In connection with advanced RFID-Technology IoT offers great business chances. As SC-Implementations require a new level of scientific methods, research in involved divisions is required and its importance for practical solution increases. Systems that are able to adapt dynamically will set a future standard. Therefore it might be necessary to develop new simulation programming languages for Supply Net simulations. In current business a trend towards advanced optimization and simulation methodologies can be extinguished There is a high correlation between the current publicity of IoT and the correspondent occurrences during the New Economy era. Based on the aforementioned the authors forecast a new drive for the next product generation relying on IoT technology that will lead to a second New Economy as maturity of IoT-related products increases. The learning that can be extracted from the New Economy experience (in 2000/2001) tend to be limited. The blue cloud of Helix Cycle 1 states lean, EDI and Sourcing as development principles. In future the LEAN- Approach will be applied to the Management of Supply Chains. The so called ubiquitous computing (as part of the Internet of Things) might represent the EDI in B2C- Business, linking Consumers with all kinds of companies. While Marketing tries to identify real time consumer behaviour, the future of technology enables to link companies with home equipment. An example could be an RFID-Chip in the refrigerator that selects the suppliers and orders missing products The structures and social impact of Internet 3.0 goes beyond of the scope of this paper. Therefore this aspect is omitted.

5 4 SUMMARY Logistics and of course SCM can be understood in various ways. The paper presents an overview about different perceptions and describes basic intuitive relations between logistical competence and company size as well as affiliation to industries. The relevant business trends over the last 30 years then are analyzed and the drivers are scrutinized. The question why logistics and SCM became a mega trends are answered. The result of analysis provides some insight in the structures of business development, which can be used for general business trend forecasting. 5 REFERENCES [1] Fine, Ch., H., 1998, Clockspeed: Winning Industry Control in the age of Temporary Advantages, Basic Books [2] Koch, D., 2010, Supply Chain Fitness, VDM [3] Spicher, K., 2009, Supply Chain Fitness, Research Project, Lo-NET-Co-Institute, Business & Information Technology School, Iserlohn, unpublished