In‐transit distribution strategy: solution for European factory competitiveness?

Research work describes in‐transit distribution strategy by determining and analyzing key principles of it as well as by illustrating its application in practice. Emphasis on in‐transit distribution strategy is to turn transportation pipeline as a mobile inventory holding place, and actively dispatching goods to a destination, where there is a predicted demand before any customer orders are actually received. The use of this strategy is supported by current trade flows: emerging market trade has increased considerably, but simultaneously Swedish export prices, for example, have significantly decreased. The paper aims to address this issue.

In‐transit strategy is examined through a multiple case study from industrial companies having main factory operations in Sweden as well as using a system dynamics simulation model, and Monte Carlo analysis. These are supported by the second hand data of trade flows between Sweden, and India and China.

In order to be successful with in‐transit strategy, the case studies show that excellent planning, working closely with customers, first‐class market knowledge, and an enterprise resource planning (ERP) system that is able to support the process sufficiently are required. Other highlighted requirements of this strategy are low variation in demand, and predictable distribution lead‐time. Simulation study of one hypothetical product group verified case study findings, but the authors find it interesting that manufacturing output variance especially is very sensitive regarding to the overall results. If variation increases, then in‐transit strategy is not able to deliver for customers with the necessary accuracy. Also increasing average customer demand, and longer transportation delays lead to undesired outcomes (e.g. too much inventory or out of stock situations).

The case study and second hand analysis is limited to one country, and further evidence is needed from other European, and possibly North American companies, to verify these findings.

There has been a rather limited amount of research works completed from the use of in‐transit strategy, even if increased trade activity and lower price of exported items is that of the old west in their exports to emerging markets, and continues to be so in the future (was even strong to China during credit crunch year 2009). Our research is seminal in terms of a developed system dynamics simulation model.