Guidebook for Understanding Urban Goods Movement (2012)

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Four of the 12 urban supply chains examined for this guidebook were discussed in Chapter 3. The remaining eight are presented in this appendix. They are • In the Industrial Production channel: pharmaceuticals and biotechnology; • In the Retail Distribution channel: food service, urban wholesale food, supermarkets, big box retail, and retail drug stores; and • In the Service Provision channel: hospitals, and waste and recyclables. Comparisons of all 12 supply chains can be found in Exhibit 3-5 and accompanying discus- sion that concludes Chapter 3. Case Illustration 5: Pharmaceutical and Biotechnology Supply Chain Overview Pharmaceutical and biotechnology drugs travel a complex, multi-step supply chain path, from the ingredient manufacturing process through delivery to the consumer (patient). The supply chain starts with the manufacturing of active pharmaceutical ingredients (APIs). APIs are ware- housed until transported to another manufacturing facility where they are used in the production of specific pharmaceuticals. There, the formulation and finish manufacturing of pharmaceuticals occurs, resulting in a semi-finished product. After storage and perhaps transport between facilities, this is packaged into a finished product, and then held at a DC until shipment to customers. For example, an API may originate in China, be shipped frozen to the United States where it is thawed, further processed, and filled into larger aliquots (portions), then flown on cargo aircraft to Europe for filtration and the addition of excipients (inactive substance used as a carrier for the active ingre- dients of a drug), then airlifted back to the United States for filling into pre-filled syringes and final package assembly. Only at this point is the drug ready for in-country distribution. This process can take weeks or months and at each step of the process it involves manufacturing, processing, ware- housing, packaging, and transport. In many instances throughout the process, temperatures and humidity must be tightly controlled. At the beginning of the process, the shipment size may only be a few liter-sized bottles, but by the time it reaches the DC in the United States, it may have grown into several pallet-sized containers containing 30,000 syringes in their final packaging and having a value of $20 million. Delivery for retail dispensing and institutional use is handled chiefly by wholesalers operating from DCs over multi-stop truck routes. See Exhibit A-1. Performance Pharmaceutical and biotechnology companies depend on the expediency of air transport to minimize risk and view it as relatively low-cost insurance against potential product loss from 95 A P P E N D I X A Additional Supply Chain Case Illustrations

mishandling, delay, or extended exposure. It is a means of protecting brand equity and the man- ufacturing pipeline for their high-value goods. Trucks often supplement air transport to deliver active product ingredients and pharmaceutical products from plant to plant or plant to distri- bution center. Pharmaceutical plants and DCs are typically located in exurban regions of met- ropolitan areas where parking facilities, areas for maneuvering, and docking facilities are almost always adequate. Trucks also are used to transport finished products to facilities, such as hospitals or drug stores, located in dense urban areas. Getting goods from an airport or DC to metropolitan destinations is slow; this portion of the trip is measured in stem time or stem miles because of the prolonged tran- sit times. Per mile costs are much greater in this “last mile” segment of the product journey because of traffic congestion, the chief inhibitor of the transport operation. In general, congestion is great- est at such choke points such as tunnels, bridges, and points where lanes are reduced. Another com- mon issue in urban environments is the need to change truck equipment for city operations. Smaller truck cabs (day cabs) and shorter semitrailers (i.e., transloading from one 53-foot trailer to twin 28-foot or two single-unit trucks) are often required to negotiate narrow urban streets, alley ways, and parking areas. Transloading requires an extra step in labor and time as workers manu- ally transfer trailer contents from one type of equipment to another. Case Illustration 6: Food Services Supply Chain Overview The company portrayed in this supply chain illustration distributes essentially anything needed in a restaurant, whether it is independently owned, a restaurant chain, or an institution provid- ing food service. This company manufactures nothing, but offers many goods under its private 96 Guidebook for Understanding Urban Goods Movement Exhibit A-1. Pharmaceutical/biotechnology flowchart.

label, alongside commercial brands. Its warehouse facilities are identified as either broadline, which supply a comprehensive line of products, or specialized distribution, which supply meat and produce or give dedicated service to certain restaurant chains. The majority of products inbound to distribution facilities moves from suppliers directly to the warehouse, under the company’s control and mostly via refrigerated truck. A minority of products travel first to a regional distribution center where they are staged for truck movement onward to the warehouse; this will become the prevalent pattern in the future because it promises greater efficiencies. Ware- houses handle both dry and temperature-controlled product; company trucks operating from the warehouses deliver both, using compartmentalized trailers. Customer orders are placed through a sales force and delivery routing plans developed using logistics software. Delivery truck route patterns are loaded stems out to one or more pockets via intermediate stems, then empty return to the warehouse. The average truck delivers 10 to 12 stops over a round trip of 130 to 140 miles, and the vast majority of product is unloaded by the driver by hand. See Exhibit A-2. Performance Routing and scheduling of trucks is a daily challenge, and achievement of a 1 to 2 percent cost savings is significant. The company uses order history to rationalize delivery frequency, and then negotiates a schedule with its customers. Most facilities deliver weekdays, and Tuesday and Fri- day volumes are the heaviest for restaurant clients. Two key measures of routing consistency are off-date deliveries, which are deliveries not on scheduled days, and unused delivery days, which are scheduled days without deliveries. There are seasonal volume variations as well that vary by region. The company schedules arrival times with a 3- to 4-hour window to allow for delay. In everyday management, company drivers work with clients to have delayed deliveries accepted the same day, and to bring nothing back to the warehouse. Drivers are not sales people per se but Appendix A 97 Exhibit A-2. Food services flowchart.

their pay is based on activity—by the mile, case, and stop. Therefore, drivers have an incentive to move product, nurture customer relationships, and monitor competitor activity. Traffic conditions can have a major effect on performance, and warehouses in heavily con- gested regions seek ways to mitigate it. Early-morning departures are one method, because the influence of congestion is less once the stem is complete and the driver is in the delivery pocket, with short distances between stops. After-hours deliveries are a second way, and satellite yards are a third. The company maintains nearly a dozen satellites within 50 miles of the warehouse in one prominently congested city. Parking is a further performance hurdle; to maintain schedules, drivers may opt to park illegally but close to the customer and risk getting a parking ticket, rather than walking the load over from a legal spot at a greater distance. (The company regards park- ing fines as a necessary cost of doing business.) Utility, or city, trucks parked in commercial load- ing zones are a further obstacle cited by drivers. Although these units are nominally commercial vehicles, they are not managing the heavy pickup and delivery volumes of freight delivery trucks. Case Illustration 7: Urban Wholesale Food Supply Chain (Produce) Overview The nodal points for the staging of food products to populations are distribution centers, of which there are two main types: (1) public wholesale or terminal markets and (2) private-sector DCs. This supply chain illustration portrays a public urban wholesale produce market in the United States. Public wholesale food markets serve the function of receiving food from regional, national, and global sources, and staging and recombining the incoming food for delivery to metropolitan areas. Produce from international or distant domestic origins arrives in the region by air or rail and is then transferred to the terminal market facility by full truckload. Regionally grown produce is delivered directly from suppliers to the facility, also typically by the truckload. There is some rail access to the terminal market and some product is transported in this man- ner. Very little on-site processing occurs and storage is difficult because of the perishability of the product. Buyers will come directly to the facility each evening to select produce for purchase and will either arrange transport directly for immediate delivery or have this managed by the wholesaler. Wholesaler delivery trips start in the early morning and trucks can make two to three trips a day, each with several customer drops and sometimes as many as four deliveries on one city block. See Exhibit A-3. Performance Performance expectations are linked to the perishability of the product—in the words of one market participant, “perishability runs our lives.” It necessitates on-time delivery of inbound produce, careful monitoring and storage of product, and prompt delivery of outbound produce to customers. Sustainability is an increasing concern: many trucks used to collect purchased pro- duce are old and have poor emission profiles. Unfortunately, these tend to belong to market cus- tomers, over whom the wholesalers have no direct influence. Given that the product is so time-sensitive, traffic- and weather-related delays can severely affect on-time performance. Poor signage and pavement conditions can create additional delays for inbound deliveries. Inbound delays can cause vendors to miss opportunities to sell product; unsold products stress limited storage capacity and inventory management capabilities. Out- bound delivery delays result in two potential consequences: (1) customers may shift business away from the terminal market and (2) delivery drivers complete fewer trips. For older facilities, 98 Guidebook for Understanding Urban Goods Movement

outdated terminal designs may constrain access and pose a further risk to performance. Turn- ing radii for trucks may be inadequate, rail deliveries may face a lack of physical capacity, and trains themselves may block traffic from the loading docks. Case Illustration 8: Supermarket Grocery Supply Chain Overview This illustration portrays the supply chain of a national grocery chain operating both as a retailer and a wholesaler. It is a large-scale distribution business serving independent retailers in addition to supplying its own stores. The company specializes in distributing both dry grocery products and frozen foods. Products are received from suppliers at one of the company’s regional facilities and then transported by truck to company DCs. The DCs provide products to both the company’s retail stores and the wholesale customers. Most movements throughout the supply chain are handled by truck, although a small fraction of inbound deliveries from suppliers are carried by rail. Trucks handling store deliveries may make a single stop for large recipients, or make several stops in sequence for smaller outlets. Stores also receive a certain amount of prod- uct directly from local and regional vendors. See Exhibit A-4. Performance The company continuously seeks new technologies to boost fleet performance. All fleet trucks are equipped with satellite devices to record arrival and departure times, travel speed, idle time, and other critical information. So far, the technology has lead to a 30 percent reduction in idle run time Appendix A 99 Exhibit A-3. Wholesale produce market flowchart.

across the fleet. Another example of the company’s adoption of technology is the recent installa- tion of newly designed truck mud flaps, which simultaneously channel rain water more efficiently and reduce air drag. This simple change is expected to diminish fuel consumption by 2 percent. There are many external barriers to optimal fleet performance over which the company has less control. General traffic congestion in many metropolitan areas causes delays for delivery drivers. Lane closures, ramp closures, and merging lanes on major corridors cause numerous delays and additional truck miles. Also, since access to delivery destinations can be restricted by ordinance during certain time periods, drivers may be forced to make deliveries under less effi- cient traffic conditions. Additional performance hindrances are associated with physical access to the delivery locations, which may be impeded because of utility poles, medians, or other phys- ical structures. Finally, the commonplace lack of truck stops makes it hard for drivers to find convenient places to take needed rest breaks. Case Illustration 9: Big Box Retail Supply Chain Overview Although it handles a diverse selection of goods, the supply chain for a large chain of big box retail stores is based on a relatively simple model. Most goods are delivered directly from prod- uct vendors to one of the company’s regional DCs or to a consolidation/deconsolidation center and then to the regional DC. This inbound transport stage is often arranged and controlled by the retailer, but some suppliers prefer to handle shipments themselves. Products can move from the vendor to the DC or between DCs by truck, rail direct—siding to siding—or via intermodal 100 Guidebook for Understanding Urban Goods Movement Exhibit A-4. Supermarket flowchart.

containers. After products are sorted at the regional DCs, trucks, either for-hire or the company’s private fleet, transport goods to specific stores in an extensive retail network. Generally, a truck trip entails a single delivery to a single store (but each store can receive multiple deliveries). The duration of most store delivery trips is limited to allow the roundtrip to be completed within a single work day. Whenever possible, the company will arrange for an empty delivery truck to pick up a vendor shipment on its return trip to the regional DC. See Exhibit A-5. Performance Minimizing vehicle miles traveled is a critical performance target for this company’s fleet. In recent years, routing improvements, fully loading trailers, and packaging initiatives have allowed the company to eliminate hundreds of millions of miles while still increasing store deliveries by hundreds of millions of cases. Reducing product packaging cuts transportation costs for the vendor shipping to DCs, and for the retailer delivering to stores; the combination produces a double-digit percent reduction in truck volume. The company uses satellite tracking to improve truck routing and manage congestion, and voice-controlled onboard navigation for safety. The company is experimenting with truck engines operating on natural gas, waste oil, and electric- ity to improve energy efficiency. All trucks in the fleet have been supplied with energy saving technologies like auxiliary power units (APUs) to reduce the need to idle diesel engines for cool- ing or other power needs. Traffic congestion is a significant barrier to efficient operations and afflicts most of the largest cities. The company pays an extra stipend to drivers who work in highly congested conditions; in some areas, the company splits city distribution into two smaller DC service areas. This enables store deliveries to be approached from two separate directions and eliminates the need Appendix A 101 Exhibit A-5. Big box retail flowchart.

for stem travel to traverse the entire metropolitan district. The greatest external performance barriers, both within the urban context and outside it, are inconsistent laws and regulations including bridge limits, size and weight restrictions, and noise ordinances. Many stores are in areas where there are noise abatement ordinances in effect during specific time periods. Although nighttime deliveries are generally preferable from a traffic and store requirement point of view, these ordinances can force trucks to avoid store deliveries during otherwise optimal hours. Case Illustration 10: Retail Drug Store Supply Chain Overview The retail drug store supply chain is a relatively simple system that moves product from various vendors to the company’s regional DCs and from there to specific retail stores. Given the diversity of goods available for purchase at contemporary drug stores, products can originate essentially any- where domestically or may be imported from overseas. Regardless of origin and type, the vast majority of goods pass through a regional DC that uniquely serves a specific set of retail stores in a surrounding territory. Most inbound goods are trucked to DCs from locations 1 or 2 days away; a minority is shipped by rail intermodal. Products not stocked by the serving DC are supplied by truck from another but are cross-docked (sorted and transloaded, but not stored) through the serv- ing facility. Store deliveries are handled either by the company’s private truck fleet, or by a third party providing dedicated truck service. With the exception of a handful of vendor-direct products like bread and milk, everything in the store (including pharmaceuticals) arrives in a single, usually weekly shipment from one DC. The DC serves a radius of several hundred miles, and delivery trucks working within it make three to four stops per trip. See Exhibit A-6. 102 Guidebook for Understanding Urban Goods Movement Exhibit A-6. Retail drug store flowchart.

Performance Delivery performance is carefully monitored, both for goods inbound to DCs and outbound deliveries to retail outlets. Ship-to-arrive dates are indicated on purchase orders for vendor sup- plies, set plus or minus 2 days, and inbound trailers are permitted a 30-minute delivery window once shipped. DC inbound service is 97.5 percent on time to appointments. On the outbound trips, delivery service to stores must occur within 15-minute delivery windows, and is tracked in trucks with onboard computers. Store delivery performance is 99 percent on time to the first delivery, which is the end of the initial stem and the beginning of a multi-stop sequence. DCs typically are 30 minutes from cities and trucks depart in the early morning, allowing stem travel to begin before rush hour. The biggest liabilities to the company are significant oversupply or undersupply of products at a retail location. The company closely tracks trends and forecasts, and buyers know every day what sales have been. Most stores have very little space for excess inventory, but stores also should not run out of specific items. Although DCs are servicing store demand, they don’t replenish based on point-of-sale volume, but rather on stock draw from the DC. Vendors are allowed 7 to 10 days lead time on orders to supply products to the regional DC, and the company keeps 1 week of safety stock; thus, DCs need to keep 3 weeks’ total inventory. Pharmaceutical inven- tories are less because they turn quickly, and the company keeps close watch on stocks; pharma- ceutical deliveries generally are not performed against urgent deadlines, because the company keeps abreast of demand. Case Illustration 11: Hospital Supply Chain Overview Supplies to this full-service hospital come through four principal channels: general medical care supplies, pharmaceuticals, food, and a miscellaneous group of which laundry is a major component. All supplies are delivered to the hospital by truck, and most from facilities within 30 to 50 miles. General supplies and pharmaceuticals are staged to the facility from regional DCs operated by 3PL providers, contracted by a multi-hospital organization of which the one illus- trated is a member. These DCs receive and consolidate products purchased by this hospital and others, or by the 3PL for sale to these entities. Goods come from vendor plants and distribution points all over the country, arriving to the DCs by truck and occasionally by rail for certain high- volume general supplies. Consolidated hospital deliveries take place daily—for this facility with a single truck, and for larger facilities with multiple trucks—emergency deliveries are accommo- dated by vans from the DC as needed. Goods are unloaded at the receiving dock, presorted and marked for distribution to care wards by hospital personnel, or for stock in the onsite warehouse. Incidental volume, unique or emergency supplies not stocked by the DC may be procured by the hospital directly from vendors and delivered by parcel carriers. Food products are supplied by multiple vendors, food service providers, and distributors, and are staged by truck from regional plants and DCs. Laundry is handled by a national service with a local facility that delivers fresh linens and collects soiled materials by truck daily. See Exhibit A-7. Performance The hospital sets a main performance target of a 97.5 percent fill rate for medical supplies, implying that it should almost never be out of stock. Its 3PLs periodically examine the hospital’s handling process and inventory procedures, resulting in recommendations that help both the hospital and its suppliers to improve and hit the target fill rate. The criticality of requirements Appendix A 103

for some materials, and the risks associated with failure of even simple things like clean linens, mean that supplies must be highly reliable and disruptions rapidly remediable. Nevertheless, the volume and routine use of many items allows dependable systems to be established without reg- ular resort to urgent and expedited replenishment. The supply chains of the hospital and its 3PL partners are designed around these factors. Deliveries of essential supplies are made daily on fixed schedules. To avoid traffic congestion and because of the narrow streets surrounding many city hospitals, these are generally set early in the morning. Urban neighborhood lobbies often oppose the presence of trucks during the day, and do not want their noise at night, so that balancing the needs of hospitals with physical and political factors is a common challenge to supply chain logistics. Case Illustration 12: Waste & Recyclables Supply Chain Overview The waste and recyclables supply chain can be viewed as the reverse of a typical goods deliv- ery supply chain. Rather than distributing products from a central location, waste vehicles trans- port materials from dispersed locations to central disposal facilities. The collection and disposal of solid waste and recycling materials is managed by both public- and private-sector service providers. Private-sector waste companies and municipal waste departments operate in much the same way. Both solid waste and recycling waste is collected by special vehicles directly from residential and commercial generator locations. Frequently, these vehicles bring the waste directly to disposal locations such as municipal solid waste landfills, construction and demoli- 104 Guidebook for Understanding Urban Goods Movement Exhibit A-7. Hospital flowchart.

tion debris landfills, recycling facilities or mixed-waste recycling facilities, and waste-to-energy facilities. However, if such destination facilities are far away, the waste may first be brought to a waste transfer facility for consolidation and loading onto lighter weight container trucks, trains, or barges. See Exhibit A-8. Performance Weight restrictions are often the largest barriers to the efficient movement of waste. For instance, packer trucks are designed to carry up to 65,000 pounds, but weight restrictions on bridges and elsewhere generally prevent this. If it happens to rain, waste can actually absorb so much water that weight violations occur inadvertently. It is important for trucks to keep moving along routes and onward through the disposal process, especially for the private-sector collection companies. However, there are many barriers to this in the urban environment. Blocked access to collection bins or alleyways, traffic conges- tion, and long waits at disposal facilities can cause schedule delays. It is unsafe for collection and transfer staff to rush their own work to compensate for such delays. For most waste haulers, a pre- ferred solution to some of these delay problems would be nighttime waste collection, ideally between 10 P.M. and 6 A.M. Some cities, such as Jersey City and San Francisco, have permitted this. However, nighttime waste collection is a politicized issue. Even when operating during the day, there are complaints about waste collection truck noise, particularly in denser urban areas. Appendix A 105 Exhibit A-8. Waste and recyclables flowchart.