What is the “Physical Internet”? And is it remotely practical from a logistics practitioner’s point of view? Lastly, should we not rename the “Physical Internet” the “Supply Chain of Things”?
Every once in a while one is humbled when a new buzz word is being discussed and you have not heard the term before. This happened to me at ProMat Show this week at McCormick Place. It is marketing show for material handling equipment, software, and assorted supporting industries. This year it was back in Chicago where it is based in every other year. I attended a 45 minute seminar hosted by Professor Kimberly Ellis of Virginia Tech and Professor William Ferrell of Clemson. The “Physical Internet” received significant attention in their presentation.
The Physical Internet is ultimately about busting yet another silo, but first a more formal definition. Most formal definitions such as this one from the Center of Excellence in Logistics and Distribution (CELDi) are fairly similar.
“The Physical Internet (PI) is an open global logistics system founded on
physical, digital and operational interconnectivity through encapsulation, interfaces and protocols.”
Since the 1980’s, supply chain thought has been about busting the walls between functional areas in the firm, with outside suppliers and with customers, so that the process is optimized. The ultimate goal is the highest profitability of the total process. Silos sub- optimized the process, with each budget center more concerned about looking great rather than make the process efficient on the whole.
The silo to be busted in the Physical Internet is the firm itself. It is taking advantage of working with other shippers to get advantages of scale. In a Physical Internet operation, the truck would have multiple shippers, warehousing would serve multiple accounts and last mile delivery services are shared. Packaging would be standardized (A blog on this concept next week). Software would be standardized and shared.
Dr. Ellis quoted statistics that of the truck moves made today, the average loaded utilization is 42.6%. What the Physical Internet is doing increasing the load utilization of the vehicles by multiple shippers sharing the truckload space, making packaging process overall more efficient, and using data to help optimize the process.
So is any of this remotely possible in an American market? The standardization of the Physical Internet would have the effect of commoditizing the supply chain. With any silo be busted, there is some loss of direct control and one’s own empire in the process. So where is the market need for such a process? If there is a need, what type of organization might put its resources to start and sustain the physical internet?
At the presentation I attended, Professor Ferrell noted the changes foreseen in the Material Handling and Logistics US Roadmap found at www.mhlusroadmap.org. Without going into any detail, these are the bullet points of the change in the supply market place anticipated in that document.
- The growth of e-commerce
- Relentless competition
- Mass personalization
- Urbanization
- Mobile and wearable computing
- Robotics and automation
- Sensors and the Internet of Things
- Big Data and predictive analytics
- The changing workforce
- Sustainability
So if you are Walmart, Amazon, Proctor Gamble, Dow Chemical, or any other large organization, your organization will have the resources to deal with the changes described above. They probably would find no business reason to invest their resources into this process.
Would any organization have a business reason to invest in this process? Medium and smaller firms who need to have the competitive supply chain abilities of larger organizations to market their products but don’t have the talent and financial resources of a big firm would be candidates to use Physical Internet as a way to be competitive in the business world.
By combining the resources of many firms, warehouses, and carriers smaller and medium size firms can be competitive with the large entities and our able to afford a higher level of capabilities. Though if established, the bigger entities might find the Physical Internet useful for the “B” and “C” customers also.
So who has the resources and the energy to put something like this together? 3PL’s are a logistical candidates as they already use multiple carriers and warehouses and have software capabilities. These organizations by being successful are used to changing market place conditions and responding to them. It will take an imaginative mindset to through this. Likely to start it will need to be done in a regional market such as Midwest where there are lots shipments going each way and there can be some balance of shipments in the market.
As a side note. Governments in Europe have been providing research funding to explore the Physical Internet. In Europe, governments are perceived as part of the process, and may be the proactive agent to start this process. That probably would not work on this side of the pond. So we may see Physical Internet work their first before coming to North America.
Lastly, the words “Physical Internet” really do not convey which this really is. Maybe a term like the “Supply Chain of Things (SCOT)” might better explain the interconnectivity of the proposed network. The “internet of things” is about communication, capabilities and information. “SCOT” would be about connecting multiple supply chains for the common good.