Stations in the warehouse

An inside look at a storage facility

Modern warehouses are equipped with all sorts of technical equipment that enables goods to be efficiently stored. This equipment includes operator-less conveyor systems that move through various warehouse zones as though they were guided by an invisible force or stock pickers who select products from the pick locations in racks based upon instructions they receive on headsets from a central computer. The following graphic and detailed explanations provide insights into the most important processes in a warehouse.

Stations in the warehouse

From receiving to shipping

Goods that arrive in the warehouse are accepted by receiving and prepared for storage. This includes unloading and identifying incoming goods. Identification is usually done by scanning a barcode attached to the good. However, new innovative technologies like RFID (Radio frequency identification) allow for contactless scanning of goods. As a result, the contents of a whole pallet can be read at once by the radio signal emitted by RFID chips as soon as the shipment passes a gate or similar checkpoint. But this method of identification is relatively more expensive than the barcode and is less used.
After being inspected at receiving, the goods are prepared for storage. In this process, they may be placed onto the appropriate load-carrying device such as pallets or into parts containers or repacked. The time the goods spend at receiving should be as short as possible. The receiving area for incoming shipments where goods that will be stored are processed is often called the I Point, or information point.
In theory, there are two types of warehouses: single-line stores and order-picking warehouses – but in reality, many warehouses combine these two activities.
Single-line stores are designed to store and retrieve identical units of the same type of good. For instance, a pallet of goods will be placed in storage, and the complete pallet will be retrieved again. Due to the great similarity of activities, single-line stores can be highly automated. Since movement processes are greatly simplified, space can be used very efficiently. The single-line store is also called a reserve warehouse if units are not sent directly to shipping but are placed in an order-picking warehouse instead. Reserve warehouses are used to store large volumes and units of goods for a relatively long time.
In general, small quantities and units of goods are stored for shorter periods in the order-picking warehouse. This warehouse area carries out movement processes that are used to consolidate or break down the flow of goods, the picking. This means the goods do not leave the storage area in the state in which they were stored. To keep the time required for manual picking to a minimum, efficient picking procedures and short transport routes must be considered in the organization of the order-picking warehouse. Order-picking warehouses also frequently rely on modern technologies such as pick-by-light and pick-by-voice, which not only make the order picker’s job easier but also increase productivity and accuracy.
In the packing station, the picked order is consolidated into a unit for shipment, which can also involve a transfer to another internal station.
Shipping involves both the dispatch of goods to the recipient and delivery-related activities. This includes receipt of the goods from the packing station, set-up of interim storage sites that extend back to pick-up, arrangements for pick-up vehicles and loading. Transport-related processes are the primary job of shipping. Goods stay in shipping for lengthy transition periods only in extraordinary cases.
In addition, warehousing and means of conveyance used in the warehouse must be directed and coordinated. This is the job of the warehouse management, which forms the interface between the logistics subsystem warehouse and the logistics subsystem order processing.

Warehouse technology

Business trends have a strong impact on intralogistics, i.e., the material flow within a business operation and, thus, the technology associated with the warehouse. These trends include the accelerating pace of innovation, the increasing individual nature of customers’ requirements, the growing diversity of product variations and the extreme volatility of the order inflow.
The main task of conveyor technology is to transport, store, pick and handle goods. Increasingly, discussions are centering on solutions that can combine all conveyor equipment and systems in an efficient way that uses a minimum amount of time. This will enable conveyor technology to be flexibly adapted to different types of shipped goods.
Ground conveyors are used today in many industries. Their flexibility allows them to be adjusted to the appropriate job with little effort. They are much easier to adapt to configuration changes or system expansion than automated conveyors.
But the basis for these systems remains the warehouse technology with its storage racks, means of conveyance and picking systems.

Storage racks

Products can be stored in all sorts of ways in modern warehouses. Key criteria that apply here are not only which product is to be stored but also how quickly it must be available again. Shelf-type racks and space-saving storage carousels are frequently used for such things as non-palletized small parts, while pallet-racking systems are particularly suited for large quantities of items.
Here, just like drive-in racks and drive-through racks, transport-related processes for storing heavy, bulky goods are used. A distinction is also drawn among drive-through racks that are primarily used for picking. Push-back racks are designed for infrequently needed products, and high-bay racks are frequently employed by industrial and retail companies.

Rackings
Rackings are frequently used to store non-palletized goods, small parts or bulky items. Generally speaking, they are suited for storing small to medium quantities of goods involving a large number and wide array of items.

Pallet racks

Pallet racks store pallets or stillages. They are used to store small to large quantities involving a large number of goods or assortments of goods.

 Drive-in racks
Drive-in racks are used to store large quantities involving a small number of heavy items. They are also suited for fragile goods and non-stackable load units.

Drive-through racks Just like drive-in racks, drive-through racks are used to store large quantities involving a small number of heavy items - as well as fragile goods and non-stackable load units.

Flow-through racks
Flow-through racks are frequently used for picking in distribution warehouses. Medium quantities involving small and intermediate-range numbers of items are stored on the racks.

Push-back racks Push-back racks are primarily used to store items that are infrequently needed. Special areas of use are archiving records, documents or electronic data carriers. Medium quantities involving intermediate-range and large numbers of items are stored in push-back racks. They are also frequently used in freezer warehouses.

Storage carousels Storage carousels are frequently used for small-parts storage systems, replacement-parts storage, tool storage, pharmaceuticals storage or document storage. Small to medium quantities involving intermediate-range to large numbers of items are stored in storage carousels for picking purposes.

High-bay racks High-bay racks are most frequently found at industrial and retail companies. They store small to large quantities involving large numbers of items or assortments.



Means of conveyance

Various work-saving means of conveyance can be used to efficiently move products in the warehouse as well as to store and retrieve products. On one hand, these means of conveyance include permanently installed systems such as overhead conveyor systems, cranes [cran], wheel conveyors [Wheel conveyor] and electric trolley conveyors [Electric trolley conveyor]. On the other hand, they encompass such unattached means of conveyance as forklift trucks, forklifts and automatic-guided transport systems [Automatic-guided transport system]. Special storage and retrieval equipment is also available. It simplifies warehousing and retrieval in things like pallet-rack, high-bay-rack or tank-rack storage.

Overhead conveyor system Overhead conveyor systems are frequently used in machinery and installation manufacture and in fashion warehouses. They transport items between production segments and can perform jobs in the manufacturing process as well - including cooling and drying. They can also be used as safety stocks.

Wheel conveyor Wheel conveyors are used widely because of their simple design, their robustness, and their low investment and operating costs. They are only suited for the transport of goods that have a solid, even surface. Otherwise, operations cannot be carried out smoothly. Wheel conveyors are frequently used at the front end of the warehouse, and in production for jobs related to the loading and unloading of road vehicles, rail cars, ships and airplanes.

Crane Cranes are used to serve warehouses and to supply and dispose of equipment and facilities used in production. Typical tasks are warehouse operations and transport of goods.

Electric trolley conveyor
Electric trolley conveyors can be used in all areas of a company, from the receiving area, warehouse and picking area to shipping. Their main area of use is for short trips requiring little to mid-range throughput that can be covered quickly. They are frequently used in the electronic, textile and food industries as well as in vehicle-body assembly in the automotive industry.

Forklift trucks
Forklift trucks facilitate ground transport of horizontally stacked goods throughout a business operation. They are particularly suited for short trips and mid-range transport frequency. Favored areas of use are between workstations and in confined spaces - including the loading and unloading of containers, trucks and rail cars.

Forklifts
Forklifts combine the horizontal transport of goods with stacking jobs. They are used to move goods onto load-carrying devices like pallets, wire-mesh boxes or individual parts. Favored areas of use are storing and retrieving pallets in rack storage.

Operatorless transport system
Operatorless transport systems are frequently used to move large loads and trailing loads with a low to medium throughput over short to medium distances. In such facilities as production operations and product distribution centers, they are used in irregular horizontal and vertical transports in the areas of receiving, production, warehousing, the front end of the warehouse and shipping.

Storage and retrieval system
Storage and retrieval systems are used in pallet-rack, high-bay-rack or tank-rack warehouses to store and retrieve goods placed on load-carrying devices that have been standardized to the largest extent possible, including pallets, wire-mesh boxes and containers.


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Warehouse

Warehouses serve as vital hubs in the flow of goods within a logistics system. They are responsible for efficient storage and supply as well as rerouting of goods.

From storage site to modern hub
Even in the Stone Age, caves served as places to temporarily store goods. Warehouses still fulfill this function today. But they also do much more. A warehouse, for example, can also be used to redirect goods to other routes within the network - even without having to store any goods at all. Depending on the function, various types of warehouses have been developed to perform the job.

Warehouse functions

Generally speaking, a warehouse is a hub in a logistics network where goods are temporarily stored or rerouted to a different channel in the network.
A basic distinction can be made among supply, handling and distribution warehouses. However, mixed forms may also be used.

Supply warehouse
Supply warehouses are usually part of the production operation and are used to store raw materials, auxiliary supplies and other resources needed for production as well as semi-finished products and finished goods used during particular seasons.

Transshipment warehouse
Transshipment warehouses house goods for short periods between their transfer from one means of transportation to another. They are frequently operated by logistics providers and retail companies.
With so-called cross-docking, manufacturers send goods that have been pre-picked for particular retail outlets to the retailer’s warehouse. Here, shipments from various manufacturers for the respective retail outlet are batched and then delivered together. This dispenses with the need to pick goods bound for separate retail outlets in the retailer’s central warehouse. All or most of the inventory is eliminated as well.

Distribution warehouse
The composition of the flow of goods is changed in the distribution warehouse. Distribution warehouses are classified into central, regional and local distribution warehouses depending on the area they serve. Central distribution warehouses are generally referred to as central warehouses, while decentralized regional or local distribution warehouses are called supply or delivery warehouses. In supply warehouses, goods from various suppliers are collected and distributed to one or more production or retail operations. In delivery warehouses, goods from production are stored before being delivered to customers.

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Order-processing system

An overview of the order procedures

As soon as a customer places an order with a company, numerous processes are set in motion to fill it. For example, the completeness of the order must be checked, and the creditworthiness of the customer must be examined. It must also be determined whether the ordered product is in stock or must be produced. The following graphic shows the paperwork and transmission processes associated with order processing at a company.

Paperwork and transmission processes in order processing

Key indicators of efficient order processing

The duration of order processing is included in the delivery time for a good. Quick, accurate processing has a favorable effect on the entire flow of goods. As a result, a company should always pay special attention to efficient processing. The capability and efficiency of order processing must be evaluated regularly using indicators that track the reliability and flexibility of order handling.

The crucial factors of efficient order processing

Key indicators in order processing

The efficiency of the order-processing subsystem is shown through a comparison of performance and cost contained in a system of key indicators. Efficiency is considered to be the number of orders processed in a handling period, a cycle that can vary by company. The connection to the order-processing costs is made with the productivity indicator called “average processing cost per order”.

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Order processing

Order processing, with the support of various procedures, forms the basis of all logistics activities at a company. This makes it a crucial factor in logistics operations.

Information flow from the order to delivery

An order forms the basis for the information flow in a logistics system. It has three principal functions - it creates a flow of information that precedes the goods, accompanies them and follows them. The tasks of order processing are divided into six phases: order transmission, preparation, routing, picking, shipment and invoicing.

Order processing tasks

The order and its impact

The transmission of the customer’s order triggers the logistics processes within the company. On the information-flow level, order processing addresses the handling and monitoring of an order - from the time it is placed by the customer to the delivery of the shipment documents and invoice to the customer. The time required for order processing makes up a substantial amount of the total delivery time.

Order transmission

Order transmission can be done by mail, fax, telephone, e-mail or electronic data exchange (web-)EDI Electronic data interchange . To avoid uneven capacity use of a logistics system, the appropriate means of transmission should be selected in each case.

Preparation

Preparation adjusts the order to meet internal company requirements and integrates the order into the logistics system’s planning. This includes obtaining missing information, and checking pricing conditions, delivery conditions and customer creditworthiness as well as the availability of the material in the warehouse.

Routing

Order preparation is usually followed by order routing, a process that includes order confirmation and the generation of internal job orders - manually, mechanically or electronically. For example, a delivery notification containing all related shipping documents is prepared and tells the storage point to process the shipment. As the integration of electronic data processing expands, the routing process is becoming increasingly automated, reducing paperwork associated with the information flow.

Picking

Based on prepared and processed orders, goods are picked in the warehouse. Picking is organized according to factors such as order size, urgency and orders that have to be delivered simultaneously. In this phase, order processing provides information to the warehouse and inventories that can be used for tasks such as management of storage and retrieval equipment or for inventory book keeping.

Shipment

Picking is followed by preparation of shipping documents. When options are available, this phase includes selecting the optimal means of transport and route for delivery. This information is closely linked to transportation because both loading and movement of goods are initiated in this phase.

Invoicing

Invoicing of orders may be done at various points - either as post-invoicing after shipping has been arranged or as pre-invoicing before or while compilation and shipping are being done. The strength of post-invoicing is that an order can smoothly proceed to the warehouse. The strength of pre-invoicing is that as much paperwork as possible can be completed in one phase.

Functions of order processing

Order processing serves to plan, manage and monitor the flow of goods. This requires an information flow that precedes, accompanies and follows the flow of goods.

Advance information flow

Once the customer has placed his order, the manufacturer or retailer sends the customer an order confirmation specifying the scheduled delivery time. All parties involved in the flow of goods also receive prompt notification about the scheduled delivery. As a result, these parties have the time they need to plan and schedule, two necessary conditions for optimally executing the flow of goods in terms of costs and services.

Accompanying information flow

The information flow that accompanies the flow of goods is designed to provide all parties with operational information needed on site to carry out transport, handling and storage activities. This information includes proper handling of hazardous goods. In addition, tracking of the flow of goods through the logistics network is to be supported.
An RFID Radio frequency identification tag, for example, can be used in the information flow accompanying the flow of goods. A special sensor monitors and documents the temperature of the shipment throughout the transport. The measured data are available at each monitoring point, a feature that enables the shipper, recipient and controller to continually check the condition of the products. This is especially important for pharmaceutical products like vaccines whose effectiveness can be harmed by temperature fluctuations outside the recommended range.

Follow-up information flow

The information flow that follows the flow of goods consists of information that is available only after the flow of goods has been completed. A case in point is an invoice that the recipient receives a few days after a delivery.
However, information can also flow in the opposite direction of the flow of goods. This involves a status report on the execution of the order - including information that is reported to the dispatching point about matters such as the time when the flow of goods passed critical stations in the transport chain. These stations can include borders in international shipments. This information is also part of the follow-up information flow.

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Event logistics

Polished concepts for major events
Huge events watched around the world, such as the World Cup or Formula 1, require elaborate logistics support that ensures that the event runs smoothly and efficiently. This requires, most of all, speed and perfection - just like on the racetracks of the world. The work of logisticians begins long before the checkered flag is waved and ends long afterward - 24/7.

The special characteristics of event logistics
Event logistics is considered logistics related to major public events like concerts, sporting contests and trade fairs.
The major challenges include providing the necessary equipment and material and erecting it on time. This requires demanding management of large numbers of movements of material, vehicles and people in a short period of time.
Increasing numbers of logistics-service providers offer tailored solutions for major events. DHL Global Forwarding, for instance, has developed a concept for racing that integrates all parties who play a role at a racing series or event. No matter whether it is a race car, motor home, kitchen, VIP tents, rain tires or TV equipment - everything is transported punctually and reliably to the destination by a single source.
The range of services for event logistics also includes comprehensive logistics consultation in the planning phase. In order to ensure a smooth, on-time event, individual transport and packing concepts must also be developed. Finally, the logistics-service provider’s workers must be at the site before, during and after the event.

Services offered by event logistics:

Consultation

Planning

Concept creation

Packing

Transport by air, sea and road

Customs clearance

Distribution 

Material administration

On-site assistance

IT solutions

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Hazardous-goods logistics

High requirements on hazardous goods
Paint, rubber and matches cannot be produced without sulfur. For this reason, sulfur is an important base material of modern chemistry, one that major chemical companies frequently need and regularly order. But, the transport, storage and transshipping of hazardous goods like sulfur pose major logistics challenges. For instance, short-term scheduling changes, rapid provision of material after order receipt and nighttime transports over distances of more than 100 kilometers are not unusual. The correct handling of hazardous material must be observed by all companies involved in the work.

The special characteristics of hazardous-goods logistics
Because chemical products have very particular characteristics, they require special treatment. As a result, they may have to be stored in different warehouses specifically for radioactive materials, hazardous goods or temperature-controlled items. In addition, restrictions governing the warehousing or combined storage of chemical products must be observed to prevent chemical reactions like explosions.
A decision concerning whether a material can be warehoused together with another material in a storage site can be made on the basis of warehouse classifications and hazardous-goods classes. There are two varieties of storage:

• Partitioned storage: Only certain materials may be stored in a warehouse section that is separated from other warehouse sections by fireproof walls and ceilings. The same principle applies for storage out of doors.
• Separate storage: Certain materials do not require partitioned storage and can be stored in a warehouse section. But they must be physically stored in a separate manner within the section.

Jobs performed by logistics-service providers in the chemical industry
There are three different development steps for the use of logistics services in the chemical industry.

The delivery and sale of chemicals : The traditional area where service providers perform jobs for companies in the chemical industry is the delivery and sale of chemicals on behalf of chemical producers. They operate as suppliers of chemicals on their own account. Chemical companies use the marketing services of logistics providers for purposes that include expansion into new markets or countries where they are not represented. They can simply draw on the service providers’ established sales network.
In addition, service providers are contracted to sell products to B and C customers in order to reduce the sales-based complexity at the chemical company. The companies themselves can then concentrate on supplying bulk shipments to strategically important A customers. As a result of bottlenecks at the chemical company, technically complicated products can be sold by an external service provider that has the necessary niche know-how.
The purchasing of chemical products: Outsourcing tendencies can be seen in the purchase of chemical products as well. Within the context of single sourcing concepts, the conventional purchasing approach to B and C products is altered in order to reduce procurement complexity. Provider models such as vendor-managed inventory (VMI) can reduce the complexity and, ultimately, lower capital costs. In VMI, the supplier handles inventory management in the warehouse for the customer. As a result, he has insights into the customer’s inventories and replenishes supplies when they fall below a minimum level.
The assumption of pre- and post-production processes: In addition to purchasing and sales, a service provider can also perform processes that are close to production. For instance, external service providers can take over activities that have no significance to core skills - e.g., mixing, filling and packaging. In the process, parts of the value chain are transferred to the service providers and bought from them.

Producers and logistics-service providers as partners
The activities that have just been described show that logistics-service providers who handle chemical products and particularly hazardous goods increasingly need product-technical and chemical know-how to go along with their logistics skills.
In addition, logistics-service providers are being increasingly integrated into their customers’ processes. Optimization is focused not just on the provider’s own company. Increasingly, cross-company objectives are being pursued. Chemical companies and logistics-service providers are evolving into partners, and supply-chain orientation is expanding.

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Special logistics

Special logistics offers particular logistics services for certain circumstances. These services include fresh-food, hazardous-cargo and event logistics.

Perishable-goods logistics

Perishable-food ideas for products from around the world
Every resident of Germany eats an average of 12 kilograms of bananas each year. With an annual import total of more than 1 million bananas, Germany is Europe’s biggest importer of the fruit. Bananas must be loaded onto a ship no later than 24 hours after being picked in South America. A journey lasting 12 to 14 days brings the cargo to a transshipping port in Bremerhaven or Hamburg. From there, the fruit is taken to a depot where it ripens from green to yellow. Then, the bananas are transported from distribution centers to retail stores. Complex and exacting logistics is required to transport perishable goods around the world. New technologies and central transshipping terminals support these transports.

An integrated cold chain is the biggest challenge
To ensure that consumers obtain ripe fruit, an integrated cold chain is required. This is particularly important at every location where the goods are passed from one hand to another. New technologies such as RFID Radio frequency identification can help simplify the logistics processes. For instance, the use-by date no longer has to be checked. Companies know exactly which goods must be removed first from the warehouse. First in, first out is a secondary issue for perishable goods. For instance, strawberries that are harvested today could have better storability characteristics than strawberries that are harvested tomorrow. RFID tags can store this information. This use of RFID is attractive on the pallet level right now because it is currently too expensive to equip every individual unit with an RFID tag.

Airports serve as central transshipment points for perishable goods
The increasing desire to travel that is shared by people in the West has spurred demand for more and more exotic products. As a result, many perishable goods like fruit are imported from faraway countries by air freight. Airports see growth opportunities being created by the creation of transshipping infrastructures for perishable goods. In response to this expectation, so-called “perishable centers” where these goods will be transshipped are going up at many international airports - Germany’s second-largest perishable center is being built at the Munich Airport. It will rank only behind the one at the Frankfurt Airport.
In 2006, 140,000 tons of perishable goods were transshipped at the Frankfurt Airport. Twenty percent was fish. Such centers are being built at airports around the world as well. The “Dubai Flower Center” opened in 2006. Here, perishable goods can be stored on 30,000 square meters of space at various temperatures and processed. India, too, is investing in a “center for perishable cargo”.

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Mail services in action

Skillfully packaged services for all customers

Generally speaking, the level of mail service in Europe is very high. For instance, up to 19 of 20 letters reach their destinations on the next day. Postal companies draw a distinction between services for business and private customers. Because business customers generate the most revenue by far, they are particularly attractive to postal companies.

Business customers are the main customers

Current estimates show that 85 percent of revenue in mail communication is generated with business customers. A particularly lucrative group in this segment is small companies that receive extra services.
The services offered by postal companies in this area cover a broad spectrum. They range from pick-up and consolidation of all outgoing shipments to stamping and the outsourcing of a company’s entire mail-room operation.
In addition, postal companies offer direct-marketing services to business customers. Direct marketing includes all market-focused activities involving direct communication and direct sales in order to conduct a personal conversation with the target groups.
Other service possibilities exist in the area of external and internal communications by companies - e.g., for electronic printing, document and correspondence management.
A characteristic feature of the business-customer market is the various demands that customers place on service providers. Some customers may want late pick-up and next-day delivery. Others, on the other hand, want their service provider to offer a creative mailing. A customer-focused company must be able to respond to these diverse requirements.

Additional services for private customers

Additional services that complement traditional mail carrying and stamp sales are offered to private customers. For instance, customers can design their own letterhead or use assistants to help compose official letters.

Field post for soldiers serving in international missions

A third, smaller area of service is the field post that is delivered to soldiers serving in international missions. Something that is an everyday part of life is the highlight of the day for soldiers serving abroad. After all, field post is frequently the only contact soldiers have with their homes. It forms a bridge between soldiers in crisis regions and their families and friends. It is important for them to know that birthday cards will reach their spouses on time at home and that Christmas cookies will reach military outposts in time for Christmas Eve.

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The future of mail services

The opportunities and challenges of the future

The shrinking mail market is probably the biggest challenge facing companies in the postal market. In Germany, for instance, the market decreased by 3 percent in 2006. The reason: Electronic forms of communication like e-mails and text messages are increasingly replacing the traditional letter. In addition, the companies will face increasing liberalization in the years ahead. This will fuel internationalization and intense competition on the market for business customers.

The liberalization of the mail market

Since January 1, 2008, the German mail market is fully liberalized. Still, Deutsche Post must provide an adequate number of postal retail outlets and mailboxes. Certain quality requirements also apply to services.
As part of the incremental opening of the market, many companies have entered the mail market: there were up to 750 postal companies in the market. In future years, a wave of consolidation is expected as a result of distinct economies of scale on the deliverers’ side, falling rates and customers’ desire for full-service providers. In the long term, only two to three major providers are expected to operate in this market. Two factors viewed as essential for a postal company’s survival are a national presence and its own network.
It can also make sense for the service provider to offer some services in production - e.g., delivery, sorting or mailbox emptying.

The internationalization of the mail market

Another postal-market trend is internationalization: Major postal companies launch subsidiaries globally. In a reflection of this, Deutsche Post already has subsidiaries in the United Kingdom, Japan, Australia and the Netherlands. Because many postal markets are similarly structured around the world, the option of expanding abroad to minimize reliance on the domestic market will remain attractive for postal companies. It can also make sense to invest in countries where liberalization of the postal market is about to occur so that a company can be well positioned for the opening.

Tailor-made products for business customers

The postal market for business customers is expected to remain intensely contested in years to come. To compete successfully on the market in the future, it will become increasingly important for a company to know its target group well in order to offer tailor-made products to it. Of course, the quality of service will play a critical role as well.
Given that rates are expected to fall, success factors like order volume, flexibility and personnel costs will move to the forefront.
Additional services such as shipment of letters including lettershop jobs and stamp-rate optimization continue to gain significance. Other increasingly used options for creating competitive edges could also be special services such as shipment monitoring.

Innovative mail products for private customers

The market for private customers plays a minor role for postal companies at the moment. This is because private customers were primarily acting as passive recipients. Postal companies are expected to increase their investments in this area in the future in order to sidestep the intensely competitive market for business customers. A first step in this trend is the personalized post card, which can be individually designed by the customer. After all, modern sorting equipment has become so flexible that it can sort and transport non-standard formats. Plans are also being drawn up to expand local presence for the private customer. In a reflection of this effort, Deutsche Post is expanding its retail-outlet network to more than 13,000 points that offer customers a wide variety of letter and parcel services.
Integrating the Internet into business with private customers is becoming increasingly important as well.

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Principles of mail services

Reaching worldwide destinations with the latest technology

Much has happened since the postal service was created during the time of Thurn and Taxis. The traditional form of mail delivery between the southernmost and northernmost parts of Germany has undergone tremendous change in recent years. Today, letters quickly reach every part of the world thanks to modern logistics processes and technologies.

The process of mail delivery

The activities of postal companies are traditionally broken down into collection, sorting, transport and delivery.

Process of mail delivery

Collection
When private customers think about the mail service, they imagine the collection of letters from mail boxes. But this practice applies to less than 20 percent of all letters. The major share is sent directly to post offices or sorting centers by senders. In many cases, this service is provided by so-called consolidators who pick up the shipments and deliver them to a postal company. They also offer other services such as printing, enveloping and addressing.

Sorting
In the place of origin of each mail shipment, the letters are sorted with the help of fast, highly automated equipment according to destination. There are four mail types based on format and weight. Germany has 82 mail sorting centers. The larger centers process more than 1 million letters a day. Here, three shifts frequently work almost around the clock. Letters with machine-readable addresses are read automatically and are coded for the mail-sorting equipment. Letters that cannot be automatically read or processed are handled manually. Once the transport has been completed or the destination reached, a second sorting process based on delivery basis or delivery route is performed.

Transport
After being sorted at the source, the mail is transported to the sorting location of the destination. Nationally, the transport usually is done by van or truck on the basis of a multi-stop or depot network. Internationally, it is done by plane. A notable exception is the European market: within Europe, even international mail transport is often performed in the form of road transport. In national delivery, the letters usually reach their target region overnight.

Delivery
Letters are delivered by carriers who are assigned routes or are made available to the recipient. For this purpose, a second sorting process to arrange the mail by delivery basis or delivery route is necessary. The deliveries are generally made with small vehicles or bicycles. In some countries and regions, mail is even delivered to customers by mail boat, moped or row boat. Delivery generates nearly 50 percent of total costs.

References
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Mail services

A mature logistics system is necessary to provide the smooth transport of mail today. Mail services also include direct marketing and newspaper delivery.

High-performance companies with added services
Something is happening in the mail market. Carriers clad in uniforms of yellow, green and orange can be seen bicycling down the sidewalks and streets of downtown areas in Germany. In addition to traditional letter communications, postal companies offer other services such as direct marketing and delivery of newspapers and magazines. As competition intensifies, the role of added services is becoming increasingly important.

Duties and extent of mail services
17,000,000,000 letters weighing up to 1,000 grams were sent in Germany during 2005.
€10,000,000,000 was the total revenue for the German mail market during 2006.
263 letters are sent on average by each resident of Germany during the year.
95 percent of letters mailed in Germany arrive the next day - compared with only 76 percent in 1991.

Letters are addressed, written forms of communication. The market can be broken down into three broad segments: mail, direct marketing and distribution of printed media.
In the mail segment, letter products for private and business customers are transported - from standard letters to products. A letter can also be national or international. Other services include cash on delivery and registered letters.
With the traditional instruments of direct marketing, many postal companies enable business customers to speak directly to their customers. In addition, addressed and unaddressed informational letters, catalogues and brochures are sent. As one other service, postal companies carry out advertising campaigns for their business customers.
The delivery of newspapers and magazines is another service offered by postal companies - it is called press distribution. The delivery must be provided over a wide area and on the exact day, even though just a few hours separate the printing and delivery times of the publication. Today, press-distribution services are used primarily by companies conducting advertising campaigns. These companies publish customer magazines and distribute them in this manner - but publishers also use these services to deliver newspapers and magazines to subscribers.
Given the changes sweeping through the mail market, postal companies must remain innovative, and offer their private and business customers special added value and services. For this reason, postal companies do not limit themselves to the transport of letters from Point A to Point B. Rather, they must address customers’ growing needs by offering new services.

The market for mail services
The mail market of many countries remains a monopoly. An exception is Germany with its completely liberalized mail market (since 1st of January, 2008). In many other countries, postal companies have a monopoly - e.g., “PPT La Poste” in France, “An Post” in Ireland, “Poste Italiane” in Italy, “Österreichische Post AG” in Austria, “Schweizerische Post” in Switzerland, “Posta Romana” in Romania and “Potschta Rossii” in Russia. In cross-border mail shipments, DPWN and UPS were the leading providers in 2005, offering direct connections to more than 200 countries.
Over the long term, volume is expected to decrease 3 percent annually as electronic forms of communication such as e-mail and text messages increasingly replace the letter.

References

Deutsche Post World Net (DPWN)
dhl - discover logistics

The future of CEP services

The opportunities and challenges of the future
Even if the growth rates - like those in the 1990s - are no longer double digits, the CEP sector is continuing to grow. This rise is related to the positive development of Internet retailing and the reduction of warehouse space as a result of supply-chain optimization and the expansion of just-in-time production. In addition, the demand for fast CEP services is rising, driven by globalization and the integration of markets. But, CEP services are also affected by macroeconomic factors. An economic slowdown could apply the brakes to the CEP sector.

CEP services for private customers
For most CEP (courier, express and parcel) service providers, the share of B2B (Business to Business)customers is about 90 percent at the moment. Placing the focus on private customers creates major opportunities as well as new challenges for CEP service providers. For instance, service to private customers generally involves delivering one package per stop. Furthermore, routes that previously concentrated on commercial areas have to be expanded to other places like residential neighborhoods. Another factor is that private customers are more difficult to reach - this means that, under certain circumstances, an attempted delivery must be made several times, resulting in higher costs. For this reason, innovative solutions like the national introduction of parcel stations are required. Such options allow round-the-clock pick-up.
With the expansion of e-commerce, business with private customers is expected to continue growing. Current estimates show that every fourth parcel results from Internet retailing. Returns management is also becoming increasingly important as a result of the consumer-goods service provided to private customers. For clothing, the return rate is about 40 percent.

Globalization as a challenge
The CEP (courier, express and parcel) sector is being shaped by powerful and rapid change. One major job faced by the sector’s companies is creating extensive networks and carrying out international expansion. The need for internationalization is arising because shipment volume is growing faster in European countries than it is domestically.
The CEP (courier, express and parcel) service providers are responding to this need through steps such as creation of their own air fleets that provide regular service to other countries and continents. At the same time, they are trying to provide a high level of reliability, quality and predictability in as many countries as possible. This requires the use of instruments for shipment monitoring.
The creation of international networks has also triggered a wave of consolidation in the express and parcel market. Acquisitions made as part of this trend have resulted in integration problems at some providers in recent years. Not all of these issues have been resolved yet.
The trend of globalization and faster shipments faces a challenge created by growing security inspections that can slow the speed-conscious CEP (courier, express and parcel) sector. Just about every parcel bound for the United States is x-rayed before it may be transported any farther - certain parcels must even be stored for 24 hours. To retain their time edge over providers of traditional services, CEP companies have developed a close working relationship with customs officials. For instance, important processing information is sent to customs officials by system integrators before shipments arrive in the country of destination.

Competitive edges created by additional services
Individual CEP (courier, express and parcel) companies try to develop competitive edges by creating differentiation, focusing on the customer and offering new value-added services. One part of this approach is tapping new markets and conquering market niches. This results in increased customer service and individualized production for customers. Innovations like package shops, parcel stations and delivery on Saturdays are used in an attempt to increasingly address customers’ needs.
Business customers are primarily interested in services provided from a single source. They frequently want integrated, all-around service with a continuous transport chain from door to door. Value-added services such as proactive shipment information provided by text message or e-mail, identity checks or department delivery are additional trends in the CEP (courier, express and parcel) sector. At the same time, the line between transport services and contract logistics is disappearing.
A problem that all CEP (courier, express and parcel) providers face is their services’ strong link to the state of the economy. Shipping volume rises and falls tremendously as the economy climbs and dips. For instance, when the media industry in Germany suffered a major setback in 2001, courier services lost about 30 percent of their business.

Recommended reading

Logistik | Vahrenkamp 2007

References

Revolution im KEP Markt | Fluri 2007.
Der Markt für Paket- und Expressdienste | Helmke 2005
dhl - discover logistics

CEP services in action

Differentiated services based on time and space
Today, a customer can choose from a variety of offers and providers of courier, express and parcel services. These services can be broken down into physical range of coverage - for instance, a CEP supplier can restrict his services to a section of a city or perform worldwide shipments. In addition, the customer can determine the time when his shipment is delivered to the recipient. Depending on the distance to the destination and the transport costs related to it, the delivery might be made on the same day or several days later.

Differentiation based on transit times
Usually, transit times of parcel-service providers are provided with a high degree of certainty, but not guaranteed. In north-south parcel service in Germany, for instance, overnight delivery or delivery within 24 hours cannot be provided. A transit time of 48 hours is usually the case. A European-wide delivery can take up to 96 hours. Courier service and express services provide faster transit times - but they are more pricey.
Many companies break down their CEP (courier, express and parcel) products by transit time:

• Immediate: This fastest-possible form of delivery service is widely used by city couriers.
• Same day: This express service is the fastest form of delivery service within a country. National couriers achieve transit times of four to six hours.
• Next day: This service makes deliveries within the next 24 hours. Frequently, customers are given time windows within which the good must be handed to the service provider in order for him to guarantee deliver by noon of the following day.
• Second day: This service guarantees a transit time of no more than 48 hours. Frequently, this form of delivery is offered by parcel and express services for European and international shipments to selected countries.
• Overnight: In overnight service, emergency shipments are sent overnight with fixed transit times and rates. The shipments are picked up in the evening and delivered between 10 a.m. and noon on the following day at the latest. Overnight service is frequently offered by mid-sized courier companies.
• Innight: Innight service is provided during the night. This form of delivery is particularly demanding. In some concepts, deliveries are made to secure drop boxes or lockable containers that have been set up in places such as filling stations. This service has proven particularly valuable in replacement-parts supply and the after-sales area.

Differentiation based on physical range of coverage
Services can also be broken down into physical range of coverage:

• Local services: Local services are offered by city or bicycle couriers within a pre-determined region - in a city, for instance. They are generally offered as immediate or same-day service.
• Regional servicess: These services focus on a certain region where the provider can offer individual services to customers. The service providers know their customers, and the customers know the service providers. Because the drivers are not constantly changed, the customer’s trust rises. This is particularly important for higher-value goods and sensitive shipments. Frequently, various regional service providers are allied in a national network.
• National and European-wide services: In the area of express and parcel, national and European-wide services put a premium on the largest possible form of standardization, enabling consistent transit times and low rates to be guaranteed. Unlike the United States, where a uniform market has evolved over the past 30 years, individual markets in European countries form interfaces with other markets in individual European countries.
• Intercontinental services: For intercontinental services, the sending and receiving countries are the critical factors that go into determining transit times and costs. For a remote country, a longer delivery time transit time or a higher rate must be expected. Shipments to industrial countries, on the other hand, are comparable to European-wide shipments. Large CEP companies offer their customers shipping services in every country of the world, be it to the southern African nation of Malawi or to New Caledonia in the Pacific. For intercontinental shipments, they also handle all import-related tasks, including customs clearance.

References
Logistik | Vahrenkamp 2007
dhl - discover logistics

Principles of CEP services {courier, express and parcel services}

Networks as keys to success
Since their market introduction in the middle of the 1970s, courier, express and parcel services have successfully grown. Two reasons for this development are the clearly structured processes used in the transport services and modern information processing. Another reason is the special services that are provided to customers. By offering these innovations, CEP service providers have established themselves around the world in the logistics-services market.
The types of networks in the CEP market
The basis of CEP services (Courier, express and parcel services) is distinct networks. These networks can be designed to suit the form of product. As a result, various types of networks have arisen in the CEP market. These networks are the direct-service network, the multi-stop network, the depot network and the hub-and-spoke network.

Direct-service network The direct-service network is the simplest form of network. This point-to-point network is used particularly by city couriers. But national and international courier services also frequently employ this concept, particularly for shipments of time-critical or valuable goods.

Multi-stop network
In multi-stop networks, pick-up and delivery points are linked. These networks - also known as “milk runs” - employ consolidation to increase the utilization rate of vehicles. But, this type of network places higher demands on transport and route planning. Multi-stop networks are used in traditional postal services and in the transport of general cargo. But they are employed rarely in CEP logistics.

Depot network
A depot network is typically used by parcel services. In this network, a depot for pick-up and delivery runs is erected in a region. Shipments between the individual depots are carried out. Planners of a depot network must keep in mind that drivers have to be able to maintain their allowed travel times even for maximum distances. A depot’s primary functions are transshipping and consolidation. High shipping volumes are required to achieve efficient use.

Hub-and-spoke networks
A hub-and-spoke network consists of a central hub and distant warehouses. A single connection exists between the individual warehouses and the hub. This type of network minimizes the necessary number of transport connections. For parcel distribution, hub-and-spoke networks are frequently combined with depot networks. Here, transports on busy connections are performed with direct service shipments (as in depot networks). In planning a hub-and-spoke network, one consideration must be that all depots can be reached from the hub in approximately the same driving time. This is why a hub is usually located in the central part of a country.

Hub-and-spoke networks with sub-hubs
A hub-and-spoke network can be expanded through the use of sub-hubs. In busy regions - e.g., the Ruhr region in western Germany or in the economically strong region of southern Germany - shipments that have the same target region are pre-sorted in regional hubs. This takes pressure off transports to the central hubs and reduces transport procedures. As a result of Germany’s toll on trucks, transports have become more expensive. To reduce the number of driven kilometers, increasing numbers of regional hubs are being built.

Pioneer in information processing
In the area of information processing, parcel services have proven to be pacesetters in the introduction of innovative concepts for the entire logistics industry. CEP services have used advances such as barcode technology to ensure a high level of process security and delivery service. A parcel’s Barcode is scanned at all important stations of the entire distribution process and logged as a timestamp in a computer system. This applies to stations like pick-up, arrivals in a regional and central hub, and deliveries to recipients. As a result, information about transported goods is available throughout the entire transport chain.
To further improve processes, CEP service providers are reviewing the possibility of using innovative communication and identification technologies like RFID (Radio frequency identification).

Customer-service innovations
Parcel-service providers were one of the first groups to offer their customers “track and trace”. This online service serves as an interface that enables people to check on the status of their shipments. In marketing, this option is seen as an important instrument to promote customer loyalty.
In addition, the rate system of CEP services is usually very straightforward and transparent for customers. It includes price lists that are based only on weight, size and time of delivery for domestic service. Price calculations can also be done when the order is placed.

References
Logistik| Vahrenkamp 2007
dhl - discover logistics - course - cep - principles


CEP services

By offering fast and reliable solutions, CEP services have given an enormous innovative boost to logistics. As a result, concepts like hub and spoke and distinct customer service are now extensively used.

Small parcels delivered quickly

The concept of CEP services has caught on globally. No matter whether a person is in Sydney, Shanghai, Istanbul, Paris or New York - the streets are filled with yellow, brown or orange vehicles bearing familiar lettering. Customers around the world can use the fast CEP services and send their shipment anywhere in a very short time.

Duties and extent of CEP services

1,760,000,000 shipments are made in Germany each year.
6,000 to 8,000 companies offer CEP services in Germany.
320,000 people work in the CEP sector in Germany.

The business model of the courier, express and parcel sector

The CEP sector has arisen over the past 20 years from the traditional transport of less than truckload general cargo weighing up to two tons. The starting point of the development was the decision by parcel services to concentrate on the share that was easy to standardize and to establish this area as a separate market for parcel shipments.
A characteristic feature of CEP services is high shipping volume with relatively low weights per parcel. The transported goods usually weigh no more than 31.5 kilograms. This limit ensures that a single person can pick up or deliver the parcel. In the United States, the weight of 31.5 kilograms, or 70 pounds, marks the limit for goods transport subject to approval.
The offer of CEP services is based on sophisticated networks that enable fast shipments and exact commitments for delivery times. The networks generally consist of a first leg and subsequent leg, main leg and subsequent leg.

Hub networks of a courier, express and parcel service

Personal supervision with courier services

Courier services transport spontaneously sent shipments that are highly valuable - e.g., watches, jewelry and high-quality replacement parts. Characteristic features are permanent personal supervision of the shipment and the courier’s access to the shipment at any time in order to make arrangements. Another criterion is that couriers provide seamless transport and delivery documentation. The shipments weigh an average of 1.5 kilograms. For national shipments, delivery is usually made on the same day or by 10 a.m. on the following day. The market consists of many small companies. Courier services are available both nationally and internationally.

Fast transports with express services

Express services quickly and reliably transport parcels that are usually of high value. Unlike courier services, the transport is not done in an exclusive and personal manner. But the express transport is performed by “a single source.” This is done within the service provider’s own networks, some of which may span the entire globe. Fixed delivery times like 8 a.m., 9 a.m., or 10 a.m. are part of the express service provider’s offer.

Shipment of standardized packages by parcel services

Parcel services concentrate on national, regular and sometimes scheduled transports of largely standardized, lightweight packages. Deliveries are usually made overnight. The parcel companies design their services for individual shipments. They are much more concerned about quantities and use a high degree of systemization. The transports done by parcel services are easier to handle as a result of their standardized sizes compared with the transport of general cargo that has various forms and sizes. Processes using mechanical conveyor systems such as rollers, running belts and slides are widely used. This allows operations and IT processes to be highly standardized.

Service from a single source with system integrators

The traditional breakdown into separate courier, express and parcel services is becoming increasingly difficult to make. The line between the individual segments in the CEP area is disappearing because customers increasingly want all transport services to be provided from “a single source,” and CEP service providers are responding to this request. They offer service along the entire transport chain within a closed system.
All services are independently performed door to door with all the service's components in regional and global networks. For this reason, CEP service providers offering this service are called system integrators. This approach offers customers one benefit over traditional forwarding services: No interface problems occur.
The CEP market in Asia has developed rapidly in recent years. Asia’s international express market, the core market of many CEP providers, has a market volume of €4 billion. In the Asian market, DHL is the market leader by far. The market for CEP services is expected to continue growing, propelled by anticipated economic development in the Asian region.
The CEP market in the so-called emerging markets - which DHL defines as Turkey, Greece, Saudi Arabia, Russia, South Africa and the United Arab Emirates - has a market volume of €1.5 billion. The product called “import Express” plays a major role here because these countries are strong import markets. This market of the international express business has a volume of €464 million, 47 percent of which belongs to DHL.

References

Market Research Service Center in Zusammenarbeit mit Colography Group 2006
Market Research Service Center in Zusammenarbeit mit Crescendo Partners / L.E.K. Consulting 2006
dhl - discover logistics - course - cep _ definition

The future of contract logistics

The opportunities and challenges of the future

The global economy is being shaped by increased outsourcing of services that can be separated from a core business. Specialized and flexible contract logistics-service providers can profit from this trend. They must offer specialized, sector-focused solutions and operate near customers in order to respond as quickly and as flexibly as possible to their needs.

The outsourcing trend as a driving force

In the global economy, service and individualization are playing increasingly large roles - specialization is continuously growing. More and more companies are hiring third parties to perform services and are fueling the trend toward outsourcing in the process. Amid this change, shorter technology and production cycles and the overall acceleration of business activities require new organizational structures. Modern, successful companies focus on holistic management of the value chain or supply chain that optimizes the structure and process organization of the entire value chain.
The trend toward outsourcing [outsourcing] and integrated, cross-company management (facilitated by up-to-date IT solutions) is the driving force behind the growing importance of contract logistics.

Opportunities for small and mid-sized companies

By concentrating on certain sectors and niches, small and mid-sized logistics companies can achieve larger market shares particularly in the contract-logistics sector. In contract logistics with consumer goods, for instance, both available capital and, to a greater degree, direct and good relations with customers play a decisive role. Small and mid-sized companies are expected to have promising development opportunities by orientating communication instruments on these demands.

High flexibility for consumer goods

In contract logistics with consumer goods, tough demands are being placed on service providers as a result of constantly intensifying competition. So-called “fast-moving goods,” that is, everyday products, must be constantly distributed at very high speeds and in large quantities. To achieve these high delivery speeds, it is frequently necessary to erect central or regional warehouses. This involves adherence to extensive perishable-food, hygiene and cleanliness requirements that can be assured only through high levels of equipment and personnel quality. The complex IT infrastructures typically found in retailing also create special challenges. The contract-service provider must adapt these infrastructures to a certain extent and frequently integrate his own IT systems into the existing IT landscape.

Nearness for industrial goods

For industrial contract logistics, closeness between the shipper and the service provider is a key criterion. This leads to a location-based contract award, but also forces the logistics provider to follow the customer when production is moved to low-wage countries. At the local site, delivery and provisioning systems are designed according to the customer’s individual needs - e.g., for replacement parts in the automotive industry. This requires extensive knowledge about products and sectors, extensive skills in IT, process management and personnel leadership as well as a high level of individualization ability. Special demands on the individual organization are also placed by certain material-flow concepts as well as “on-demand" or “just in time”. Other tasks in this area include the performance of light assembly and dispatch-preparation jobs that are not part of the classic logistics portfolio of services.
The probably most interesting and most developed sectors of industrial contract logistics are the vehicle-making and supply industry; iron, steel and metal processing; and the electronics industry. Among consumer goods, health care and hospital logistics are becoming increasingly important along with retail.
In addition, companies are increasingly transferring their logistics activities to stand-alone subsidiaries, which, in turn, offer their services to third parties.

References

Top 100 der Logistik | Klaus / Kille 2006
dhl - discover logistics - course - contract - future

Contract logistics in action

The many features of contract logistics

The services of contract logistics are tailored to each individual customer’s needs. For this reason, the features of contract logistics are just as varied as the customer needs are. They range from precisely timed deliveries of supplier parts to assembly lines in the automotive industry and the operation of logistics centers to the placement of red sombreros on those well-known tequila bottles. In the following section, selected logistics services will show the variety offered by this segment.

Precise delivery to the line

Just in time and just in sequence are terms that are closely associated with the automotive industry. In these concepts, materials needed for the production process are delivered to the site at the exact time and in the correct sequence. This eliminates the costly storage of the diverse types of parts that are needed to produce the countless variety of cars that come with all sorts of colors, equipment and seat covers.
Through the implementation of production-synchronized delivery of entire component sets like car seats, leaner, flow-based structures can be introduced. But if the production process is disrupted by a lack of parts, the resulting costs will be extremely high. The shipper or the automotive manufacturer and the contract-service provider have a close, trusting working relationship to ensure the reliable delivery of supplies. Contract-logistics providers assume the responsibility of delivering supplier parts directly to the assembly line.

Delivery parks

Today, so-called industry or delivery parks are being increasingly used to ensure reliable, high-level supply services. Here, several delivery companies establish a base near the customer and form a location-linked alliance. Contract-service providers then deliver the parts of all suppliers at the exact time that they are needed by the customer.
Frequently, contract-service providers even perform simple assembly jobs. For instance, they put together instrument panels or assemble entire cockpits, and these components are delivered to the line at the precise second they are needed. Through the use of delivery parks, logistics-service providers become the interface between the automotive manufacturer and their parts suppliers.

Global transport of knocked-down vehicles

High customs duties for finished products in international markets frequently prompt companies to pre-make individual components of parts needed for the end product. These components are shipped abroad and then undergo final assembly there. This practice is called completely knocked down Completely knocked down (CKD) or semi-knocked down [Semi knocked down] (SKD). It places high demands on logistics, particularly in terms of packaging and monitoring expenses. In addition, high demands are placed on delivery reliability - as a result of the close link to the production schedules of the receiving plant. For this reason, numerous companies outsource these responsibilities to logistics specialists as contract-logistics services.

White eventually adds color

Textile production in Asia is inexpensive - but it takes several weeks to ship goods to Europe. As a result, the fast-paced textile sector needs solutions that address this problem. To take advantage of the low production costs, many textile companies produce mass products like white T-shirts and do not dye them until they reach Europe. This enables the T-shirts to be easily and quickly adapted to the latest trends. This principle of postponement is designed to hold a product in a neutral state for as long as possible at the start of the logistics channel without its being assigned to a customer or a submarket. In this process, the individual features of the product - such as the dyeing - are added at a late stage.
Postponement is a good idea when the number of product variations is large and the customers are widely scattered. In this case, it is very difficult to forecast the time and the quantity of various product variations that will be needed by a certain customer. Contract-logistics providers frequently perform the last production step that precedes delivery to the customer. This responsibility goes far beyond the simple transport of a good from Point A to Point B.

Additional services in the warehouse

The fact that contract logistics is more than transport is illustrated by those well-known Sierra tequila bottles. In a first step, a logistics-service provider warehouses these bottles minus their hats.
In a second step performed sometime later, employees of the logistics-service provider slip on the bottles’ trademark - the red sombrero - and then package them for shipment to individual supermarkets.

Logistics centers for after-sales service

Machinery and installations consist of countless parts. When a part breaks, no customer wants to wait a long time for a replacement. This requirement places high demands on replacement parts or after-sales logistics. After all, the replacement parts must be stored if a high level of service for repairs and returns is to be ensured.
In after-sales logistics, contract-logistics providers operate facilities like distribution centers. In this work, they assume responsibility for replacement-part operations on behalf of their customers. In addition to storage, replacement parts are also inspected at receiving and placed in the repair cycle. Repackaging and redelivery to the customer follow.

References:

dhl - discover logistics - course - services - contract_action

Principles of contract logistics

Concentration on the core business

By hiring a contract-logistics provider, a company can focus on its core business and increase its logistics efficiency through the use of economies of scale and learning-curve effects. In using such contracted services, the needs of personnel who used to work in logistics must be taken into consideration. For instance, strategies under which entire departments, including employees, are transferred to the service provider have been developed.

From outsourcing to contract logistics

The offer of tailored services to suit the exact needs of the shipper allows industrial and retail companies to concentrate on their core skills.
Through outsourcing, economies of scale and learning-curve effects that boost efficiency in the outsourced departments are exploited. Empirical studies have shown that companies appreciate the reduced logistics costs, the increased flexibility, the improved services and the opportunity to concentrate on core skills. One potential drawback is considered to be the loss of control over logistics because this service is a significant factor in customer satisfaction.
These fears can be countered by forming a long-range, strategic partnership between the customer and the logistics-service provider. Contract logistics can be seen as an expression of such a partnership.

Dealings with employees

One issue involving the provision of contract-logistics services that has been inadequately addressed is the way to approach the shipper’s employees. The employees who once were responsible for the services that are being outsourced must be assigned to other departments or laid off. Both options are extremely expensive. As a result, the outsourcing companies have developed a strategy of transferring entire departments, including the employees, to a service provider within the framework of a hand over of operations. This, however, harbors cost and personnel-structure risks. In addition, employee resistance can create extensive problems. For this reason, strict and comprehensive project management must be undertaken. This work must address not only the technical and financial aspects of the transfer but also the personal concerns of the employees.

Contract logistics and supply chain management

Generally speaking, supply chain management is the integration of all important business processes along a supply chain. At the same time, synergies are achieved both in the individual companies and between companies in the supply chain. The central goal is delighting the end customer with a managed cost.
A partnership develops between companies in the supply chain. Within the context of supply chain management, all steps of logistics services within a supply chain are to be improved by holistically examining the flows of goods, information, finances and legal data. The ultimate goal is to always increase efficiency in the entire supply chain to the benefit of the end customer whilst maximing the profit made by all participating parties.
All of this shows that the concepts of contract logistics and supply chain management overlap in several areas. The hiring of a contract-service provider to perform logistics services enables the flows of goods, information, finances and legal data to be optimized along the entire value chain - from the raw-material suppliers through the suppliers to the producers and the retailers, and then through to the end customer.

The operational models in contract logistics

Operational models regulate how and to what extent services are handed from a customer to a third party - e.g., from an automotive manufacturer to a logistics-service provider. The operational models used in contract logistics primarily address the financial aspects of supply chain management.
Companies are increasingly asking themselves whether it makes sense to own and operate fixed assets like logistics property. One option is “off-balance-sheet” financing. Here, the logistics-service provider finances the operation of a warehouse. If necessary, a financial-service provider serves as an investor in the construction of the facility. Upon completion, the warehouse can then be flexibly leased to others.
One typical operations model is pay-on production. The operator assumes responsibility for planning and financing as well as construction and operation of the installation. At a manufacturing company, this can be a production facility. In the logistics sector, transshipping centers are a possibility. The payment by the customer is linked to the services that are used - e.g., from the units produced by a machine. Pay-on production is frequently found in the automotive industry. Here, logistics-service providers perform individual steps in the production of vehicles or components and provide the necessary equipment within the framework of the pay-on-production model.

References:

• Supply Chain Management. Implementation issues and research opportunities | Lambert / Copper / Pagh 1998. In: The International Journal of Logistics Management 9(1998)2.
• dhl - discover logistics - course - services - contract_principles