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One researcher has a radical answer to the supply chain management problem.karam miri/Getty Images/iStockphoto

Southshore Furniture, a Quebec company that ships directly to consumers and to big retailers alike, has seen its dot-com business grow to more than half of sales in the past five years.

Like other suppliers adapting fast to digital commerce, the Sainte-Croix, Queb.-based manufacturer is under pressure to deliver its home furniture to market as cheaply and efficiently as possible.

But how best to do that? Freight charges add up when a truck heads out full and returns home empty and delivery times slow when a distribution centre is far from a new customer.

Finding fresh answers to familiar supply chain questions – and on a global basis, no less – is the ambitious goal of Laval University professor Benoit Montreuil, a Canada Research Chair in Enterprise Engineering.

For the past five years, with researchers in the United States and Europe, Prof. Montreuil has been trying to re-imagine every stage of how goods get from the shop floor to the retail check-out counter, with a view to making the process cheaper, faster, more environmentally-friendly and less onerous on truck drivers and warehouse workers.

"It really is a game-changer," says Jean Fortin, vice-president of supply chain and logistics for Southshore Furniture, of the potential to rethink the whole process.

Intrigued by the possibilities, Southshore has provided data for Dr. Montreuil and his researchers to simulate what a better way might look like. So far, Dr. Montreuil has raised $500,000 in research funds from industry and government to see what might pan out from his work.

He's looking at a big idea – what he calls the 'physical Internet' – that's best understood using the metaphor of the digital Internet.

Just as small bits of data travel virtually over the Internet using multiple routes to reach their destination, the 'physical Internet' would package goods differently so they travel in standardized, eco-friendly containers to optimize available space on a truck or rail car.

And just as the virtual Internet makes global connections between networks, the 'physical Internet' would establish a sophisticated system of hubs – in effect a new generation of warehouses and distribution centres technologically equipped to handle and track goods, cutting time spent in inventory. Dr. Montreuil even imagines that erstwhile competitors could collaborate with each other, sharing under-used warehouses or distribution centres in a more open system of freight movement, generating savings for their respective bottom lines.

"The way we move products, store products, make them and use them in the world is no longer efficient or sustainable," declares Dr. Montreuil who, with colleagues, won the Academic Global Cup at the 2011 Global Business Creation Games in Finland for examining the implications of the 'physical Internet' for business innovation. "The cost and economic burden of logistics and transportation is high, accounting for between 5 and 16 per cent of most countries' GDP, and growing faster than world trade."

He concedes that "technologically, it may sound like science fiction," but contends the real bottleneck is a business mindset.

"The problem is the mental model of decision makers and the way they have been trained to think about how this should look," he says. "They are looking at the small picture and an old paradigm. We are coming at it with a new paradigm."

Some pieces of what Dr. Montreuil has in mind for the future already exist. Decades ago, 40-foot containers transformed ports and the movement of cars and other large goods on and off ships. Similarly, business innovators turned small-parcel delivery into an international business by standardizing parcel formats and promising fast service.

Between these two extremes lies the problem, says Dr. Montreuil. "We ship all kinds of things in all kinds of formats and nothing is standard," he says. "We want to exploit the fact that, like in the digital Internet that uses data packs, we could use physical packs that are smart and eco-friendly."

With more uniform packaging and less wasted space, companies could cut costs and reduce greenhouse gas emissions.

He also imagines deploying truck drivers differently, so they travel shorter distances to drop off and pick up goods at hubs, reducing the incidence of empty return trips. By Prof. Montreuil's calculation, it takes one driver 120 hours to deliver a truckload from Quebec City to Los Angeles, but the same trip could be completed in half the time with a relay-system of drivers travelling shorter systems but carrying full loads each way. The change, he argues, would mean less wear and tear on drivers in an industry known for high employee turnover.

Dr. Montreuil's estimates the 'physical Internet' could take a decade or more to unfold, but his research has caught the eye of several interested parties.

The Material Handling Industry of America, an 800-member trade association representing all players in the supply chain, put up $56,000 in seed money and in-kind support in 2010 for Dr. Montreuil and researchers at the University of Arkansas. They are working with government agencies and businesses in Europe using actual data from big retailers to simulate how the 'physical Internet' would operate in practice.

"What is being proposed is pretty much a fundamental rethinking of how you are able to flow goods throughout the country," says Mike Ogle, vice-president of educational and technical services for the U.S. association. He adds "whether it turns into a game-changer or not, it is the type of thinking our association should encourage."

He likens Dr. Montreuil's research to a 'man-on-the-moon' type project. "What that ended up doing was getting people to think about all kinds of problems they had never thought about before," says Mr. Ogle.

Though Dr. Montreuil is excited over the possibilities of the 'physical Internet', he is audibly frustrated at the slow pace of signing up businesses and governments in Canada for pilot projects to test his supply-chain theories.

"We have a chance of really helping change the world standards on this," he says. "We can take the lead in developing the know-how and being at the top of what is happening."

Special to The Globe and Mail

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