Demand Driven Distribution:

The Logistical Challenges and Opportunities

J. Ashayeri, R.P. Kampstra
Department of Econometrics and Operations Research
Tilburg University
P.O. Box 90153
5000 LE Tilburg, The Netherlands

Abstract
Recent business and technological trends have transformed the structure and
performance requirements of distribution channels in many business sectors. Higher
service level expectations of retail customers, distribution outsourcing by suppliers or
manufacturers presenting new problems in supply chain management. Therefore, most
companies must face the complex challenge of reconfiguring their distribution chains.
Few companies, however, properly and comprehensively assess the entire value chain
which serves end consumers.

Through undertaking a research project with three of the top exporters of flower/plant at
the largest Dutch flower/plant auction in Aalsmeer, this paper addresses some of these
newly emerging distribution issues in supply chain management, characterized by volatile
supply and demand, and short life cycle times. Over the past years, exports of this
industry have grown rapidly, while at the same time customers’ order sizes have
decreased and these same customers demand faster delivery. These dynamics have led
to the creation of complex buying, selling, sorting, truck loading and dispatching
operations. To cope with these operational complexities, the distribution centers require
real-time decisions making tools and operational concepts. Macroeconomic forces
suggest that in general business-to-business and business-to-customers deliveries are
required faster than ever, while the entire supply and demand processes are getting
more uncertain.

This paper outlines steps to resolve important challenges in distribution chains/ networks.
A step-by-step strategic and tactical approach to study, re-design business processes,
and implement Demand Driven Distribution (DDD) concept is herewith presented. In
addition, related issues that are necessary to successfully operate such a system are
identified.

Résumé
Dans beaucoup de secteurs, les évolutions récentes des entreprises et de la
technologie ont transformé les exigences concernant les structures et les résultats
des circuits de distribution. Les attentes élevées de la clientèle des particuliers,
l’externalisation de la distribution par les fournisseurs ou les fabricants, font naître de
nouveaux problèmes dans la gestion de la supply chain. La plupart des entreprises
sont de ce fait confrontées au défi complexe de la reconfiguration de leurs circuits
de distribution. Peu d’entre elles pourtant évaluent correctement et complètement
toute la chaîne de valeur jusqu’au consommateur final. S’appuyant sur un projet de
recherche impliquant trois des exportateurs les plus importants de fleurs et de
plantes du plus grand marché d’enchères néerlandais d’Alalsmeer, ce texte traite de
quelques uns des nouveaux problèmes de distribution dans la gestion de la supply
chain, qui se caractérise par la volatitlité de l’offre et de la demande ainsi que par un
cycle de vie des produits très court. Ces dernières années, les exportations de ce
secteur ont fortement augmenté, alors que dans le même temps les clients
diminuaient la taille de leurs ordres et exigeaient des délais de livraison plus courts.
Un tel mouvement a fait naître des opérations complexes d’achat, de vente, de

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sélection, de chargement et d’expédition. Pour faire face à cette complexité, les
centres de distribution doivent disposer d’outils de prise de décision en temps réel et
de concepts opérationnels. Les forces à l’oeuvre à l’échelle macroéconomique
semblent indiquer que les livraisons d’entreprise à entreprise et d’entreprise à client
se doivent d’être plus rapides que jamais, alors que l’ensemble des processus d’offre
et de demande deviennent plus incertains. Cette communication donne un aperçu
des mesures à prendre pour répondre aux défis importants auxquels sont soumis les
chaînes et réseaux de distribution. Une approche stratégique et tactique graduelle
est ici présentée pour l’étude, la redéfinition des processus commerciaux et la mise
en œuvre du concept de Distribution Pilotée par la Demande (DPD). Les questions
connexes à régler pour faire fonctionner avec succès un tel système sont également
identifiées.

1) Introduction
Distribution is a key function that adds value across the supply chain and plays a
strategic role. The importance of distribution’s role to the supply chain can be seen in the
classical example of supply chains like Wal-Mart, FedEx, and UPS. The cornerstones of
such operations are a vast array of warehousing facilities, information networks and
transportation assets. Despite the success story of such examples, new trends are
emerging in the market. The two most dominant being: a shift from the Buy-Hold-Sell
(BHS) to the Sell-Source-Ship (S3) model of distribution; new value-adding roles; and in
the continued globalization of distribution business.

A shift in distribution model. The dynamic nature of markets, technological developments

and demanding customers have caused distributors to adjust their way of doing
business. Traditionally, distributors buy goods, hold them in warehouses until they are
required, then sell them to retail level customers. This model is being challenged by a
more cost effective, time-phased delivery of goods model, which reduces cost associated
with inventory, and responds more quickly to customer demands. “Sell-Source-Ship (S3)
is displacing the Buy-Hold-Sell (BHS) model of distribution” (Girard (1999)). Some
examples are: e-businesses (e.g. Amazon), mail-order companies (e.g. Neckermann),
parcel express services (e.g. UPS), fresh distribution (e.g. flower exporter), etc. Under
the S3 model, a distributor buys to stock as little as possible or buy as they sell. And
choose instead to quickly source, pick, add value, sort, and deliver products on the date
promised, which is usually short. S3 is being adopted because of the drive towards e-
commerce, more direct delivery programs, and multi-distributor buying groups. This new
model has placed the distribution systems in highly dynamic and volatile environment
due to both demand and supply uncertainties.

Continued globalization of distribution business. Distribution is a large, growing part of

the world economy. With the continued growth in the globalization of business,
distribution is an indispensable entity of global business operations. The distribution
industry has showed continual growth over the past ten years parallel to that of business
globalization. This growth has not only resulted in larger volume of transactions and
larger number of SKUs to be handled but also has brought new value adding dimensions
into distribution center and therefore increased the distribution center operations
complexities.

Given the above trends, distribution centers (DCs) are facing a highly dynamic, uncertain,
and complex environment. Currently, distribution centers are able to monitor and control
their logistics operations through very limited planning, communications technologies,
and reliance on highly trained field personnel. The monitoring and control system of
yesterday, however, is inadequate to manage distribution systems tomorrow, and in
some cases even today, and still meet the customers’ demands. As the supply chain

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system response time decreases, the number of uncertain events will be increasingly
more tangible, yet acceptable levels of flexibility must be maintained. In the coming years
for any distribution system facing these changes it is uneconomical to have more
employees to rely on in order to ensure maximum response. To create a more lean or
agile DC, a twofold types of process intervention is necessary: a) internal intervention, b)
external intervention (see Figure 1). The objective of the earlier is to optimize and
synchronize internal processes in order to reduce inventory, maximize operational
capabilities, and increase speed. The objective of the latter is to synchronize activities
with customers and suppliers through different formats of collaboration.

Physical Distribution Processes

Supplier Logistics Customer

uncertainty Purchase Sales uncertainty
uncertainty

External Internal External

Figure 1: Physical Distribution processes

Most distribution centers are aware of internal and external process interventions.
However, the scope is limited to process optimization. Activities are designed such that a
desired balance between costs, efficiency, and quality is achieved. Typical investments
for optimization are mechanization or automation that speeds up processing of products
or information. What is often forgotten is the synchronization of processes. Synchronizing
only the physical processes will not lead to the desired physical distribution flexibility
increase. Especially when distribution faces high uncertainties in demand and supply, it is
of outmost importance that sales, purchasing, and logistics activities are synchronized.
Elimination of uncertainties goes one step further, for that chain collaboration with
external parties is required.

Demand Driven Distribution (DDD) is a vision for leveraging management decision

support system and automation technology that improves the wholesalers and
distributors business. The idea is to redesign the distribution system activities such that
based on the customers’ requests and purchase information, activities within a
distribution center are reorganized to reduce the lead-time needed to load trucks and
balance the workload of order picking/sorting operations. Leverage is obtained through
an intelligent decision support system that can capture the information generated by
purchase and sales departments, process them, and make the most use of available
order picking resources throughout a distribution center. Additional leverage is also
obtained from automation technologies such as automated sorting system, automated
mini-load or carrousel systems, and other related technologies such bar-coding, track
and tracing systems. These allow support to tie together and coordinate in most efficient
way, activities from point of purchase to point of shipment and to improve both quality
and efficiency, and scale the business, while effectively managing costs and resources.

The effective coordination and collaboration of purchasing, sales, order picking, sorting
and truck loading, can be achieved through a well designed technological and
management system. This system provides the infrastructure, processes, and
organizational support necessary to capture, create, and deliver solutions to drive the
business. An effective solution achieves the following benefits:
• Improved customer satisfaction. Customers receive faster, more accurate, and with
better quality their needs, as the flower and plant distributors want to continuously
improve in response to customer requirements and trends.

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• Improved efficiency and responsiveness. Demand driven distribution minimizes time
to fulfill customer orders, improves accuracy and consistency of response for the
related issues like picking, sorting and truck loading operations, and reduces
unnecessary escalation of workload within a distribution center or late dispatch of
loaded trucks.
• Improved resources use. Through a well designed technological and management
system, relevant expertise and experience is captured and shared in a decision
support system to promote rapid response and improve the use of resources.
This paper discusses innovative ways required to improve distribution activities of
wholesalers and distributors of flower/pot plant at the Aalsmeer flower auction house in
the Netherlands. The wholesalers and distributors are faced with multiple concurrent
challenges: to improve efficiency and control costs, while at the same time expanding to
meet increased diversified customers’ demand. Customer satisfaction must be retained
within the context of cost efficiency and growth.

The paper provides an overview of the typical real-life distribution problems to be dealt
with and addresses the two key issues; the need for a collaborative management
decision support system and the need for automated (mechanized) technological
solutions. In this paper we will present our analysis of the current situation, demonstrate
how the issues are related and impact the system performance. The intention of this
paper is to resolve:
1. To what extent is it possible to develop a generic Demand Driven Distribution
concept for the flower/plant distribution industry? By articulating the current
definitions and relating them to issues and realities of flower/plant distribution
activities we explore this issue.
2. How can such a concept be implemented and easily incorporated in the current
system (technical and information)? For this purpose, a study framework is
presented outlining the necessary steps to be taken.
3. What areas of the distribution business should be first mechanized, automated, or
more computerized? This question is addressed by a) addressing the challenges
and opportunities and b) by discussing a decision support system concept
developed for the logistical transformations.
The above questions are addressed in sections 2, 3, 4 and 5 respectively. Finally in
section 6 conclusions are presented.

2) Demand Driven Distribution Concept

Companies and chains of companies are often labeled as either supply or demand
driven. As the title of this paper suggest wholesalers of flowers and plants should focus
on demand driven distribution. In practice demand driven is vaguely described as
“focusing on customers”, “adjusting business to demand”, etc. In this section we give a
detailed definition of supply and demand driven companies and chains. Moreover, the
wholesalers of both flowers and plants are matched with these definitions and as will turn
out have different outcomes.

In the supply chain management, supply and demand driven are most often pointed to as
push and pull respectively. For consistency we use the terms push and pull when
referring to the other research. In fact there is quite some literature available on push and
pull systems. However, the interpretations on push and pull differ much and sometimes
even contradict each other. Below, the most prominent definitions are outlined

Simchi-Levi et al. (2003) describe a push-based supply chain with the example of a
manufacturer that makes forecasts based on the history of orders placed by the retailer.
In a pull-based supply chain the production would be coordinated by actual customer
demand. In the latter case Simchi-Levi et al. explain, “the supply chain should use fast
information flow mechanisms to transfer information about customer demand”.

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Bonney et al. (1999) present an interesting collection of definitions of push and pull
systems. Among the authors that they referred to is Toni et al. Toni et al. simply state
push as taking action in anticipation of a need and pull as taking action on request.
Another author that is referred to is Venkatesh. He describes push and pull as
operational paradigms. “In a push system, a preceding machine produces parts without
waiting from the succeeding machine. On the other hand in a pull system the preceding
machine only produces after it receives request”. Bonney et al. final conclusion is that
push and pull are distinguished by the direction of respectively control information flows
and goods flows. Push means control information and goods flow have the same
direction and in the pull system these flows are in opposite to each other.

Finally the following definition follows from De Kok (2001). He states that in the pull
concept order release decisions are made upon past orders and present stock levels. In
the push concept decisions are made with the same knowledge including forecasts on
future demand. And therefore De Kok concludes that pull system is always inferior to
forecast driven or push concept.

In short these definitions are clearly not the same and sometimes contradict. An example
of such a conflict is shown in Figure 2. In this simple supply chain a manufacturer
receives detailed order information, i.e. point-of-sales information, and makes the order
planning. In fact this is an example of vendor-managed inventories (VMI). The vendor,
manufacturer, is responsible for the inventories of the retailers and intermediate node(s).

According the definition of Simci-Levi et al. this case is pull. The manufacturer receives
detailed POS data and adopts this to demand driven meanings. However, since control
information and goods flow in the same direction, the conclusion of Bonney et al. would
be: push. Manufacturer is in control of the order planning; he decides what the next node
has to be processed. Other definitions do not expose the consequences of push and pull,
they tell about produce immediately, make forecasts. This kind of information is unknown
in the example.

This example is rather delicate. On the one hand the manufacturer decides on the orders
and pushes them through the chain, while on the other hand it possesses real accurate
demand data and accordingly it can make just what the consumer needs. The detailed
information and subtle way of leading goods to the consumer appear as a demand driven
distribution; however it is just a more accurate forecasting.

Manufacturer DC Retailer Consumer

Goods flow
Control information flow
Order information flow

Figure 2: Does the manufacturer push or pull?

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Current research does not provide full insight into the meaning of push vs. pull and
supply driven vs. demand driven. Therefore, this paper first provides a more complete
definition.

PUSH – Node performs order planning for succeeding node. Like stated by Bonney et al.
(1999) control information flow is in the same direction of goods flow.

SEMI PUSH or PUSH-PULL – Succeeding node makes order request for preceding
node. Preceding node reacts by replenishing from stock that is rebuilt every fixed period.

PULL – Succeeding node makes order request for preceding node. Preceding node
reacts by producing the order, which involves all internal operations, and replenishes
when finished.

SEMI-PULL or PULL-PUSH – Succeeding node makes order request for preceding node.
Preceding node reacts by replenishing from stock that is rebuilt immediately.
Note that there are several levels of semi-pull systems as the node can have stock at
several layers in the organization.

With these new definitions for push and pull systems, the wholesalers of flowers and
plants can be classified as such.

Flower supply chain: the wholesaler

• Largest part of this business is semi-push.
Flowers are bought at the auction and kept in stock. Customer or wholesaler contact
each other and an order is jointly derived. Although the wholesaler has a limited
range of flowers available, the real order request (i.e. composition of flowers) comes
from the customer. The order is then retrieved from stock and pulled through the DC.
The flower stock is rebuilt the next auction-day.
• Small part of this business is pull.
An order is placed. And the purchaser buys at the auction the needed flowers. When
this order arrives at the wholesaler’s DC, the flowers can be immediately handled for
shipment, i.e. the order is pulled through all primary processes of the wholesaler.

Plant supply chain: the wholesaler

• Largest part of this business is pull.
Retailers are contacted or call themselves. The same order is immediately placed at
the grower. As soon as the order arrives at the DC, it is handled for shipment.
• Small part of the business is push.
The flowers are bought at the auction or large quantities are pushed by growers and
subsequently sold or pushed to the retailers.

So, the flower and plant supply chains differ much. The flower wholesaler typically works
right at the dividing line between push and pull in the chain. This means products are
pushed through the chain from upstream, but are requested by the retailers. Plants,
however, are pulled through the chain from consumer to grower. This difference in push
and pull system has great consequences how flower and plant wholesaler will design
their logistics processes respectively.

The purchasing (supply) process nature is different in flower wholesaler and plant
wholesaler. First, plant wholesalers typically buy most quantities direct from growers and
minor quantities at the auction; say 75% vs. 25%. Plants are mostly not traded on the
auction. This is due to the longer lifetimes of plants. If a grower is unsatisfied with current
price (for instance the clock price), he holds his plants for a longer time. Growers of
flowers do not have this choice, and face a narrow harvest period. So, plant wholesalers
buy mainly at growers instead of the auction. This means a shift from the traditional

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semi-push approach in the flower wholesaling distribution is required. Such a change
demands improving the flow of information and efficiencies along the whole value chain.
Effective market research will be vital to this process, to create knowledge and
opportunities for growers to become active and well-connected links in value chains.

With the notion of demand-driven supply chain, the framework is extended to the
satisfied customer. Achieving customer satisfaction begins to unveil itself as a process,
and one whereby Efficient Customer Response (ECR) systems have faceted Customer
Relationship Management (CRM) tools to exploit an approach for supporting both
customer and distribution-related issues. Few companies have expanded ECR, further to
Collaborative Planning, Forecasting and Replenishment (CPFR). All these concepts have
one thing in common: smooth business processes towards a Demand Driven Chain and
discuss about three things - people, process (logistical & procedural), and (information)
technology. The first two, people and process, are paramount. They are key to the
profitability equation, and should not give way to technology. It is extremely important to
focus CRM, ECR, CPFR initiatives on the business issues, the customer relationship
model, and the specific customer interactions within that model like collaborative
forecasting, before choosing any (information) technology for implementation.

The Study Framework

As already established DDD is a system concept that supports customer satisfaction
oriented processes aiming at optimizing the flow of flowers and plants from the point of
purchase to the point of shipment to delivery. A DDD providing just in time deliveries,
value added distribution logistics and sales driven operations will bring closer all the
entities involved in such a dynamic network (e.g. auction, customer, purchasing
department, sales department, DC operations, vehicle, etc.), thus improving the
performance of the overall supply chain logistics. Based on an existing situation, a step-
by-step approach is proposed for the analysis and redesign of distribution chain (see
Figure 3). This framework facilitate the process of developing a management decision
support system (for Picking, Sorting, Loading) that integrates ECR, CRM, CPFR along
with automated handling equipment in order to make timely and efficient shipment of the
customer orders.

In essence, Steps 1 through 5 are a gap analysis for system selection. In determining
what level of automation, what type of tools, and information systems are needed, an
accurate assessment of the strengths and weaknesses of the flower/plant supply chain,
the processes, strategies, and fundamentals are needed. Once this is done and mapped
against the market requirements, a gap analysis should be performed to determine
where needs exist. This will help determine if the gap is created by a policy problem, by a
process problem, or perhaps even the capabilities (resources, processes, people,
information) may simply not exist. Where the capabilities do not exist, is the solution to be
found in training, in technology, or in outsourcing? Which level of automation or tools
might provide a solution, as opposed to tools that automate what we already do?

Step 1: Business Category Definition

The approach starts with the joint definition of the boundaries of the flower/plant
distribution industry to be investigated based on their sales volume (turnover) and the
objectives of the study. This step helps identify the different categories of business
operations.

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 Measuring Up Demand Driven Distribution

Step 5. Matching Business system category definitions

Resulting in 3 pilot (structural processes, level of automation, etc.)
research projects
Deliverables:
a) Business categories
b) Customer relationship management (purchasing / marketing /
forecasting / channel models)
c) Dynamic loading & order picking / sorting (Logistics Planning &
Step 4. Within / Cross Control concept)
Industry Benchmarking d) CPFR (Collaborative Planning, Forecasting, and Replenishment)
Framework
• Automation e) Technical benchmarks
• Information system & infrastructure

Step 1. Business Category Definition

Step 3. Requirements Definition Turnover %

in auction
• Key process priorities
• Key Performance Indicators
(Processes, Market / Sales)
A B C

Step 2. Mapping
• Processes (goods, information, fund) % (number) of
• Decision Making (organization structure) companies in auction

Figure 3: The Study Framework

Step 2: Process Mapping

For the case companies a detailed process (goods flow & information flow) and
organization (decision making) mapping (Step 2) is considered. The goal here is to
assess the current processes (value chain, strategies, trading partner relationships, etc.),
describe the distribution processes in detail and identify all sources of uncertainties.
Assessing current process can be extensive and involves the following:
• Assessment of current process;
• Development of process maps;
• Identification of current and anticipated problems and bottlenecks;
• Analysis of root cause;
• Inventory of current decision making activities; and
• Mapping of work, goods, and information flows.

For the mapping process we use both Business Structural Re-engineering (BSR) method
and Open Systems Task Analysis (OSTA), which is a method used within the framework
of Concurrent Engineering.

Step 3: Requirements Definition

Using the information gathered in Step 2, the key processes and priorities can be
identified. Horticultural quality specialist will control these mappings from quality point of
view, in order to identify the sources of flower/plant quality problems and make necessary
recommendations. Then, the redundant processes can be eliminated and when feasible,
processes can be combined or performed in parallel. This information together with the
long objectives allows us to define the key performance indicators (KPIs).

Step 4: Within / Cross Industry Benchmarking

By linking the main sources of uncertainty found in Step 2 with the list of potential
solutions (both technical and managerial) found through the benchmarking study,

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effective alternative redesign scenarios can be identified. The idea of the benchmarking
study is to learn from within the flower/plant industry as well as from other industries that
have significantly improved the two main attributes of responsiveness and efficiency in
their chain (e.g. the electronics industry).

In the development of alternative redesign scenarios, concepts such as Efficient

Customer Response (ECR), Customer Relationship Management (CRM) will be taken
into account since these are the new challenges to be faced by sellers and buyers.
Therefore, the CRM cycle: (1) Marketing (2) Commerce (3) Fulfillment (4) Customer Care
will be will central for the reengineering of the current processes.

Step 5: Matching
The potential scenarios are evaluated quantitatively and qualitatively, and matched with
different category of the flower/plant business. Figure 2 illustrates the framework that
would be used to apply to each distribution value chain element. Through a strategic
assessment and an economic assessment, recommendations will be produced regarding
different flower/plant business categories. The result of this step would suggest the “best
practice” or a new system specification and concept, from both technical and managerial
points of view.

System specifications are not limited to the technical system; specifications for a high-
performance process are included as well, which means that system specifications may
include specifications for a reengineered business process (such as workflow), upgraded
workers’ skills, redesigned jobs (e.g., “jobs should carry attributable responsibility for
outcomes”, “jobs should provide for a variety of tasks”), and redesigned reporting
hierarchies and coordination procedures.

While the Steps 1 through 5 aims at business system category definitions (structural
processes, level of automation, etc.) and each on its own merit is an extensive research,
the mapping and matching process (Steps 2 and 5) can also help identify five challenging
activities, namely:
• Business categories
• Customer relationship management (purchasing / marketing / forecasting /
channel models)
• Dynamic loading & order picking / sorting (Logistics Planning & Control concept)
• CPFR (Collaborative Planning, Forecasting, and Replenishment) Framework
• Technical benchmarks

The main building block to increase the tactical and operational effectiveness and
efficiency is of the Logistics Planning & Control concept, which is explained in the next
section. However, we cannot underestimate the importance of Customer relationship
management (purchasing/marketing/forecasting/ channel models), and CPFR
(collaborative Planning, Forecasting, and Replenishment).

Given the fact that the literature on ECR, CRM, and CPFR is very rich and covers a lot, in
the following section of this paper we discuss only the main logistical & procedural issues
and challenges for distribution of flowers, with most uncertain supply and demand. The
complete report detailing the whole study including the distribution of plants and
addressing implementation issues can be found at: www.klict.org/docs/ERvr187d.pdf

3) Logistical Challenges and Opportunities in Flower Wholesalers

In this section the current issues, challenges, and opportunities for implementing the
DDD concept in flower wholesalers and distributors are articulated. To do so, we take a
closer look at the internal logistical processes and procedures within the wholesalers’

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distribution centers. Furthermore relevant literature are as well reviewed and discussed.
The operational planning (pick, sort, and loading decisions) and tactical planning
(throughput, layout, etc.) differ much between wholesalers of cut flowers and wholesalers
of plants. This section reviews only the internal logistical processes and procedures
within flower wholesalers.

Schneible (1983) sums all generic problems that each manufacturer or wholesaler faces
while distributing their products to the customer (see Table 1a). In the case of a
wholesaler of flowers, the sequence is somewhat different. Previous section discussed
the sequence of replenishing before or after order request. In case of flowers, the
wholesaler builds stock, sells from stock and refills the next auction day (the semi-push
system). So, activity four comes first.

Furthermore, Schneible’s activity one and activity two are swapped in time. While whole
morning flowers are bought at the auction, simultaneously the selling process starts. In
general the flowers first come in and then are selected for shipment. The reverse is also
possible.

Table 1: Schneible’s and flower sequence of wholesalers” problems

Table 1a.
Schneible’s sequence
1. Process the customer’s order
2. Receive and store product
3. Select customer orders
4. Replenish pick orders
5. Ship orders
Table 1b.
Flower wholesaler’s sequence
(4) Buy at auction
(2) Receive and store product
(1) Process the customer’s order
(3) Select customer orders
(5) Ship orders

Prime internal logistical process in a distribution center is the order collection (activity 4 in
Table 1b). The other internal logistical processes in the DC, receiving and loading flowers
(respectively activity 2 and 5), nonetheless have great influence on the planning of the
order collection. We will discuss the principles of order collection. Also, the interaction
with the other processes and procedures in flower wholesaling is analyzed.

Prime internal process: Order collection

In warehouses and distribution centers, products have to be picked from specified
storage locations. This process, known as order picking process, is driven by customer
orders each consisting of a number of orderlines. Each orderline represents one product
or article code that has to be shipped to the customer in a certain quantity, the orderline
quantity. A major question is how the order picking process should be carried out. (De
Koster et al., 1999)

There are numerous ways to collect orders.

• Per order
The easiest way is to collect order per order (single-order-pick). The collector
makes its route and retrieves all line items of the order. When the order is
completed, the next order is collected.
• Per batch
When there are lots of small orders it can be more efficient to collect orders in
batches. Batching is one of most frequently used strategies for the pick process.
The idea is to reduce average travel time per order by sharing a pick tour with
other orders. Batching has the drawback, however, that the grouped orders need
to be sorted after the picking process. The way to handle this sorting
distinguishes two types of batching: pick-and-sort and sort-while-pick.
o Pick-and-sort
The orderline quantities of all orders at a certain moment are cumulated or
batched per product. The total product batch quantity is then picked and
sorted afterwards. In the case of large number of consolidation group (i.e.

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 individual order) the sorting process is not a simple job, and may even require
an expensive sorting machine (De Koster et al., 1999)
o Sort-while-pick
An intermediate form of batching is sort-while-pick. This is in fact a mix
between pick-and-sort and single-order-pick. Multiple orders are collected
during one route and immediately sorted by the collector.
• Per zone
Closely related to batching is zoning, although it can be implemented with or
without batching. Zoning divides the entire picking area into several zones with
each picker dedicated to select the line items only in his or her zone. Also here
there are two types to be classified: progressive zoning and synchronized zoning.
(Choe and Sharp, 1991)
o Progressive zoning
Each batch (possibly one order) is processed only one zone at a time. Hence,
the batch is finished only after it sequentially visits all the zones containing its
line items.
o Synchronized zoning
All zones are working on the same batch at the same time. There may be
some idle times of zone pickers to wait until all the zone pickers finish the
current batch (again, possibly one order).

It is known that certain flower wholesaler collect their orders by zoning. However, few
others set the trend to batch and sort. Now, every large-size flower wholesaler wants a
sorting conveyor and therefore implicitly chooses for batching. For more information on
sorting, automated versus manual, we refer to Russell (2001) and Hinojosa (1996).

Relating internal processes

Regardless of the order picking strategy other internal (logistical) processes exert great
influence on the picking planning. Relating processes are:
A. Receiving of the flowers (Inbound Logistics)
B. Customer order specific operations (Sales / Marketing and Operations)
C. Vehicle loading (Outbound Logistics)

A. Inbound Logistics
Purchased flowers travel from the auction clock to the receiving dock of the wholesaler.
Average delivery time is two hours for flowers from Aalsmeer and three and a half hours
for Naaldwijk. Delivery time depends on the order size of the purchased flowers. Full
trolleys composed of one type of flower take less processing time at the auction. The
more different types of flowers there are on a trolley, the longer the delivery time. Further
there are external factors that influence the delivery time, such as crowdedness in the
auction building and amount of trolleys ready for delivery (delivery needs at least ten
trolleys with same area destination).
So, the arrival rate of purchased orders is quite unpredictable. A new automatic transport
system will change this. Finished trolleys can be sent immediately. This means that
purchase orders will arrive more spread over time at the wholesaler. There will be no
more big peaks at the arriving section of the wholesaler. Also the arrival time of
purchased orders can be predicted more accurately. This is important for the part of
input-load that is already sold before being received. These orders can be dispatched
immediately at arrival. More importantly, these orders can be scheduled forward in the
order collection process.

B. Sales / Marketing and Operations

Customer orders are created by the Sales / Marketing department. Each order has its
specific compilation of flowers, amounts requested and maybe specific value-adding
activities may be needed. Proper information management between Sales / Marketing
department and Operations department is essential.

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Operations department receives all detailed order information that is needed. If an order
requires specific operational handling, this is provided. Specific operational handling can
occur in two ways: specific quantity and specific value-added services. Specific order
quantities hint at dissimilarity between purchased order quantity and sold order quantity.
When an order is picked from stock, only part of the trolley or collie may be retrieved.
This is called less than full case picking. It is highly important to maintain accurate
information on stock levels (stock is then measured on flower level instead of collie level).
There are numerous value-adding services. First, the customer destination may require
that the flowers be packaged in boxes (for example flight destinations like the US).
Second, customers may want the flowers to be rolled in plastic foil. This particularly
occurs with roses. Third, some customers (like supermarkets) want their orders to be
specified with little colored stickers, indicating the price class of the flowers. Fourth
service and most time-consuming service is the making of bouquets.
Shortly, customer specific operations have much impact on the picking process and
therefore the operational picking planning. Questions that arise are when to plan the
value-adding services: before or after picking, before or after order placement?
Moreover, a good functioning information system is required to have a smooth interaction
between Sales / Marketing and Operations, and to perform accurate planning of the
picking process.

C. Outbound Logistics
When the customer order finally is collected, these one or more trolleys are put on the
loading docks. The trolleys undergo a quick count check and are sealed for
transportation. Before the trolleys being loaded into the truck, a final count is made. As
soon as all trolleys are loaded, the truck departs.
Above described outbound logistics activities do not need complex planning. However,
vehicle loading also interacts with the picking process. Below, we describe the dynamic
interaction between the vehicle loading and the picking process.
First factor is the composition of trolleys in the truck. Each order stands for a customer
destination. The collection of distinct destinations determines costs of transport.
Transport cost structure may for instance depend on the furthest destination, amount of
stops and total amount of miles.
Second factor is the waiting time on the loading docks. Cut flowers need more specific
care compared with plants. One important quality aspect is the temperature. Each flower
knows its own optimal temperature, but in general this temperature is a close to zero as
possible. This means that the customer orders cannot wait long times at the loading
docks (with an average temperature of 15o C). The time that a customer order spends
outside the cold storage room and outside the refrigerated truck has negative influence
on the quality of cut flowers. Therefore, wholesalers are motivated to reduce all process
and wait times that a customer order goes through. Orders have to wait on the loading
docks or in the trailer until the truck is ready to set off1. Long waiting times on loading
docks are not only bad for the flowers, also with respect to lack of space it may be an
important issue.

In short, wholesalers want to minimize waiting times on loading docks and also want to
minimize transportation costs. Just pushing orders through the DC and waiting for a full
truck is not beneficial. So, the picking planning is dependent on the vehicle loading
planning. Wholesalers dealing with cut flowers have to balance the picking and sorting
processes given the outgoing orders. This requires a complex way of handling orders.

Third factor is real-time nature of the process. Orders arrive over time and are unknown
beforehand. Making vehicle loading plans beforehand and matching this with the order
picking process is not possible. Operational planning of order picking and vehicle loading
should occur concurrently and dynamically, i.e. over time.

1
A truck leaves when it is either full or the latest departure time is reached.

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In case the wholesaler has a private fleet the interaction between vehicle loading and
order picking is even more important. The wholesaler determines the routes of its trucks
and therefore completely manages the transportation costs. Dynamic routing, or
optimizing the assignment of outbound orders to trucks so as to minimize shipping costs,
is highly important for wholesalers that operate a private fleet and have dynamic shipping
schedules.

In case the wholesaler cooperates with a third party logistics (3PL), the wholesaler has
minor influence on the transportation costs. Still there may be a negotiation position for
the wholesaler that makes routing optimization beneficial. Nonetheless, even if the
wholesaler does not transport the flowers itself, the interaction of vehicle loading with
order picking remains important. From a quality perspective orders must be planned such
that they face minimal waiting times at the loading docks. So, the set of orders that
together form a truckload has to be picked closely in time. Dynamic routing searches for
a set of orders that have optimal or economical transportation costs. In case of 3PL the
set of orders will have less demanding claims on transportation costs, which makes it
easier to collect a full truckload. In any case the picking process must be scheduled such
that sets of orders (matching full truck loads) follow up close in time, and thus face
minimal waiting times.

The Challenge
The combination of random customer order arrivals, variable purchase order arrivals,
order collection problems and other internal logistical processes, including vehicle
loading especially mentioned, makes the operational planning at the flower wholesaler
rather difficult. A new problem formulation may more specifically address the planning of
internal logistical processes and procedures.

“Determine the timing and sizes of order batches handled for shipment such that the
orders do not stay too long on the loading and sorting docks, customer orders arrive on
time and costs are minimized.”

Automated handling system speeds up the process, however a management decision

support is needed to address this challenging problem. The decision support system
links purchasing, prime internal logistical processes, and the sales activities.

4) Synchronized Logistics Planning and Control (SLPC) System

Concept
We explained that distribution center logistics operations often deal with high
uncertainties in demand and/or supply. In order to present the concept, we elaborate on
the case of flower exporters, where orderlines need to come from both suppliers and
stock and where there is high uncertainty in both supply and demand.

The transformation of distribution to Sell-Source-Ship results in a shift from traditional

inventory keeping to quick forwarding products from suppliers. Inventory levels are
lowered for all products, and inventory turnover is high. The ways in which distribution
logistics planning and control can be re-designed are:

Share information: Nowadays information technology makes it possible to share

information in the whole company, and outside the company with transporters (track-and-
trace), customers demand (POS data), and suppliers.

Integrate decision making with involved processes: As mentioned in the introduction, we

do need to change the rules of the game. External intervention can be postponed to a
later stage. But it is important to integrate processes within the firm. Sharing information
is the first step of integrating processes. However, we should resolve the conflicting

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objectives and strive for the common goal: a better performance for the whole firm. This
is what we call synchronization of the business decision-making activities.

Change the rules: For instance increase the delivery time window and let customer wait
longer for their orders. Changing the rules of the game means a shift in business
strategy. Often this is not really feasible. However, in case of a large frequent ordering
customer, one could imagine cooperation between the both. Increased visibility means
lower demand uncertainty. We call this Customer Relationship Management, a case of
external intervention, which we explained to disregard.

Avoiding overloading the DC: Crisis decision-making is necessary when orders approach
maximum capacity of the system. This might occur every day, during peak moments. The
bottleneck of the DC can be the capacity of the packers at the sorter lanes, or the
capacity of the order pickers. Typically when the picking/sorting system is highly utilized,
the quality of operations comes down, and with it the order processing time increases. A
first action would be to avoid overshoots in the system. This could be captured in
“change the rules of the game”. Trying to spread workload in the DC, requires close
interaction with either supplier or customers. A second action is to maintain quality of
operations. Even when the pressure is high, try not to rush. Correcting errors cost a lot
more time. Third action is to respond better or quicker on required capacity. Foreseeing
future bottlenecks in the picking/sorting system, allows early response such as shifting
capacity, or adding capacity.

The SLPC-system concept proposed described here takes many of these issues into
consideration. We want a framework that can handle short processing windows, adding
of new orders, and unreliable arrival time from suppliers. What is needed is robustness in
planning and control decisions, providing the required level of flexibility in operations.

The framework coordinates decision making activities across three functional areas;
Purchasing, Logistics, and Sales (see Figure 4). Four layers of planning and control are
introduced that should deal with uncertainties of both demand and supply. Full-detail
description can be found in Ashayeri and Kampstera (2004).

Purchasing Logistics Sales

Resources planning

System supervision

Operational plan
ILPC-system©
Input
Real-time response
Input &
Output

Figure 4: Four decision levels in SLPC-system.

Forward planning of logistics activities depends on the level of uncertainties. Statistical

information on possible combinations of orderlines that a customer would buy is
unrealistic. Nonetheless, it is possible to use statistical learning on total expected
quantities and plan the workforce size for the main three DC operations. Scheduling of
activities in advance for whole day is not really possible, as changes will constantly
interrupt the plan. To obtain some efficiency in internal processes scheduled periods are
short and frequently updated. Therefore, the framework is a mix of hierarchical and
heterachical decision-making.

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As is shown in Figure 4, the layers are in order of decision level: resources planning,
system supervision, operational plan, and real-time response. Higher control layer has a
higher level of decision-making. With it the frequency of decision-making declines. So,
resources’ planning is done on daily basis, system supervision hourly, short-term
scheduling every 15-minutes and real-time response occurs real-time.

These frequencies are chosen deliberately small. Especially the scheduling control layer
is executed very frequent. It is this short-term scheduling in combination with tight
interaction with real-time response enables SLPC-system to handle situations under high
uncertainty. When the level of uncertainties reduced through external collaboration, the
time window can be longer than 15 minutes for the case of cut flowers.

5) Conclusions
With so much economic value put at risk by business and technology changes in the
distribution channel, we conclude that distribution logistics operations synchronization
with purchasing and sales represents a significant opportunity for enterprise and supply
chain improvement. “Business leaders are continually focused on increasing shareholder
value by reducing operating costs while increasing revenues. Firms that invest in superb
distribution operations can strongly influence their performance-reducing cost, increasing
revenues and raising customer satisfaction” (Gattorna 2003). To take advantage of the
changing distribution market, distributors must adapt to the current trends occurring
within the dynamic marketplace.

Today the distribution facilities are fully linked to the supply chain. It serves a strategic
role as a transfer point of both product and information as well as a vehicle to provide
value-added services. Depending on customer needs, distribution facilities are required
to fulfill various roles in the supply chain. In order to better manage DCs operations we
proposed a concept that addresses the dynamic and uncertain nature of business
environment of tomorrows and in some cases even today.

The reported research here is on-going endower and is being now in a test phase. The
ultimate goal is to integrate such a system within the current Warehouse Management
Systems. Such integration allows picking, VAS, and sorting activities to be coordinated
with those of purchasing and sales. This shall result in a better utilization of distribution
facilities providing the capabilities to respond to the new realities elaborated in this paper.

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