The logistics of operations management

By René de Koster

There are many trade-offs in logistics management. For example, you cannot have the best quality and the lowest costs. You cannot be the most flexible company whilst being the most efficient. Businesses continually face the complexities of trying to strike a balance between multiple processes and factors in order to create an optimal scenario.

Much of our work in the Business Process, Logistics and Information Systems research programme at ERIM draws its inspiration directly from these types of challenges and we seek to develop, improve and implement real models that can provide solutions, increase efficiencies, and ultimately aid the financial bottom line. It is by a direct contribution to the understanding of the problems faced by business that our research helps fulfil the ‘dual impact’ criterion of creating scientific knowledge that also has resonance with the business community-at-large.

One specific area of logistics – terminals – offers many challenges and provides researchers with abundant opportunity to put the ‘dual impact’ philosophy into practice. Broadly speaking, a terminal is any facility where goods and materials are handled or stored – ports, container docks, logistics depots, warehouses, etc.

People are especially important in facility logistics, as it is they who really drive performance. One of the key questions therefore, is how can people be motivated in such a way that they maximise company performance? Whilst behavioural research has been carried out on many aspects of organisations, such studies in the field of operations are relatively new.

One of the prime objectives for organizational effectiveness in a warehouse is order picking. This needs to be done efficiently, accurately and in a timely way. Although typically there is much in the way of mechanisation and computerisation, people ultimately have to do the work and it is essential that their productivity rates are sufficiently high.

The received wisdom is that you have to locate products in a warehouse in such a way that those in greatest demand require the least travel distance for the order picker, thus increasing productivity. However, our research indicates that this is just one aspect and that ergonomics is equally as important. If people do not like the ergonomics of the work – they have to bend down too much to reach products, or strain to retrieve items from high shelves – then they become physically uncomfortable and demotivated. This leads directly to drops in productivity and higher turnover of staff.

The application of performance targets, and how they can increase productivity without impacting on quality, is another area of research being developed that will have obvious benefits for industry. In laboratory scenarios, we have shown that by setting the right objectives, and by providing personalised feedback, it is possible to measure a sustained increase in productivity of as much as 13%. Such an improvement is very significant for managers.

Safety is another important area of research, and understandably so when you look at the statistics for a small country like the Netherlands and find that annually there are around 1,700 injuries involving forklift trucks. Reducing those numbers and improving safety awareness is critical for all. (For more information on these safety issues, read the article 'Ongevallenreductie in het magazijn. Wat helpt echt?' at Logistiek.nl [in Dutch])

The second research field seeks to find solutions to one of the biggest problems facing the logistics industry today. To illustrate, probably the biggest sector of business in the Netherlands is logistics. Latest figures estimate its contribution to GDP at 40 billion euros annually. However, warehousing space, which typically takes up 40% of operational costs, is at a premium.

One solution could be very high-density storage. Think along the lines of automated parking garages where cars are stacked just 5cm from one another. For warehouses, this means that the same volume of goods could be stored in just one third of the space. If warehouses can be made smaller then operating overheads will be reduced. Another significant benefit is that compact warehouses need to be fully automated, thus yielding high productivity levels.

Our third area of research is in what we call terminal optimisation, specifically container terminals. Ports are incredibly time sensitive businesses, especially so when you consider that the large cargo ships sailing today carry up to 15,000 containers.

One of the key challenges in relation to this is stacking within a container yard. Four-high stacks of containers are not uncommon. That increases the likelihood of having to dig to find the right container with the right shipment – a time-consuming and costly problem that managers are eager to see alleviated.

The optimisation of layouts, storage and order picking in general is another growing area of study. Here, algorithms aid in determining the specific positioning of products within a warehouse, and at specific times, with the purpose of reducing the lead-time for orders. Understandably, bearing in mind the costs involved and the possible savings that can be made, our professional services will continue to be in demand.

Another significant challenge is the huge shortage of motivated workers, which has primarily come about because the logistics industry suffers from a lack of appeal.

As companies increasingly seek to profile themselves as being ‘environmentally friendly’, so those involved in terminals and warehouses need to reduce their carbon footprint. This is a fresh challenge on an unprecedented scale, and essentially uncharted territory for researchers.

Each of the research areas mentioned offer significant challenges both now and in the future. Looking at the bigger picture, there is much innovation happening, and that needs to continue. What we need to do is analyse these innovations, develop models, and then see how these innovations can be optimally applied inbusiness or to develop them further with other ideas. For researchers in the areas of logistics there may never have been a better time to take up the gauntlet and help tackle head-on the challenges that lie ahead.

<link people rene-de-koster _self>René de Koster is Professor of Logistics and Operations Management at RSM, and a Member of ERIM. His research interests are warehousing, material handling, supply chain management, retail operations and reverse logistics.

Article adapted from RSM Outlook Summer 2010.