MMRCDISCUSSION PAPER SERIES
No. 500

Logistics Innovation in the Industry 4.0 Environment:
A Typological Approach
Getulio Kazue Akabane
Manufacturing Process Master Program, Brazil
Sao Paulo State Faculty of Technology
June 2017

東京大学ものづくり経営研究センター
Manufacturing Management Research Center (MMRC)
Discussion papers are in draft form distributed for purposes of comment and discussion. Contact the author for
permission when reproducing or citing any part of this paper. Copyright is held by the author.
http://merc.e.u-tokyo.ac.jp/mmrc/dp/index.html

Logistics Innovation in the Industry 4.0 Environment:
A Typological Approach
Getulio Kazue Akabane
Manufacturing Process Master Program, Brazil
Sao Paulo State Faculty of Technology
Email: getulio@akabane.adm.br
Abstract:
This paper discusses the nature of logistics and their evolution based on technologicalinnovation in industry 4.0 environment and seeks to relate to the future logistics transition
models. It proposes a typology for logistics operations based on technological innovation in
five dimensions. The objective is to show how this typological development can provide a
useful approach for the integration of the various aspects of technology as a pillar ofsustainability in a company operation.
Key Words: Industry 4.0, Global logistics, Internet of things, Cyber-physical systems
本稿は、筆者が 2016 年 12 月 26 日から 2017 年 2 月 20 日まで、東京大学大学院経済学研究科の客員研究員として滞在しながら進めた研究の成果をまとめたものである。

1

1. Introduction
At a time in which the synchrony between production and consumption of products andservices was overtaken by the geographic question, availability at different times and locations
became preponderant along with information in time and space within the logistic chain.
Logistics therefore provides a connection between the subsequent stages of the supply chain
consisting of links from the supply of the raw materials to the point of consumption of the final
customers as well as the reverse flow of products, enabling the reuse of the materials or thecomponents themselves (closed loop reverse chain).
However, this process is not necessarily performed by just one industry, but it encompasses anumber of separate companies that are distributed to organizations that operate together acrossthe business network.
Current supply chains are generally globalized and involve organizations that provide, produce,
market, distribute and deliver logistics services around the world.
Thus, this paper seeks to analyze the way in which trade, production and logistics services
have become a global business and its future transition based on technological innovation.
It also seeks to argue that, in the face of today’s challenges, the need for a fundamental
repositioning of the business model and the way in which production and logistics can beorganized as well as the management of the corresponding information based on newtechnologies, which can contribute to the sustainability of operations in this constantly changing
environment.
Zijm and Klumpp (2015) highlight the interconnection of three well-known development
systems formed by social, ecological and economic sustainability (people, planet, profit) andother trends such as the individualization of the process (peer-to-peer, customization, andpersonalized services) and business automation/scanning (artificial intelligence, cyber-physicalsystems and the Internet of Things-IoT).

2. Typologies
As noted by Doty and Glick (1994), typologies are a unique form of theory based on a set ofideal types. Typologies have proved to be very popular in research management with manywell-known examples, such as those of Porter (1980, 1985), Miles and Snow (1978) and
Mintzberg (1979, 1983). They are also popular in the field of research with well-known
examples that are the ones that propose different types of services (CHASE, 1978, 1981,
CHASE and TANSIK, 1983).
In this way, the present work does not aim to develop a set of ideal types, but to suggest how
typologies can help educators, researchers and managers interested in logistics operations, their
management concepts, models and applications.
As such, this article follows the standards of Adam Jr. (1983) who in discussing organizational
issues and methods notes that limiting any typology in production/operations where it does notprovide an integrative theory for the discipline itself.
Therefore, the objective of this research is modest in typology, but it aims at bringing together
the various aspects of logistics innovation in the industry 4.0 environment insofar as the
propositions can be developed from the formation of the theory and then tested in the field(Adam Jr., 1983).

3. Business process digitalization
For Demil and Lecocq (2010), a business model is a tool where it is up to companies to adapt
to an innovation and suggest two different views according to research.
The first is a "static approach", where the business model within an industry is characterizedby e-business. The other is called the "transformational approach" and requires progressive
improvements to create internal consistency and/or to adapt to the environment. It includes
technological innovations where they often require new business models in order to be
successful in the market.
Therefore, Teece (2010) complements that the new business models can properly represent aform of innovation. This means that innovative companies should stand out not only in the2

development of products or technologies, but also to discover appropriate business model for
innovation. In other words, Chesbrough (2010) argues that the innovation process and thebusiness model are complementary to the success of a new product or service.
Digitalization has enabled the combination of these features and functions of industries andtraditional products in a myriad of new paths.
COST (Cooperation in the Field of Science and Technology Research – Europe) stresses thatthe direct consequence of the digitalization of business processes in the instantaneouscommunication era is that the workflow of the production system can be installed in a location
in a significantly profitable way.
It points to multiple implications in general, since both society and the production system must
be rebuilt in this "Lego" world in which new forms of thinking are uncovered based on the
distributed instantaneous communication system (relationship forums and virtual games).
In this way, new business models – many unexpectedly – will be invented. The most visible
impact of the Digital Revolution is that of instant virtual communications around the world
where distances are greatly reduced. Thus, the business life cycle, processes including products
and services have also been increasingly shortened.
Therefore, flexibility has been the most appropriate new password – the flexibility of skills,
technology itself, the labor market and trade regulations and agreements, and labor relations.
At the corporate level, the digitalization of business processes is one of the factors that
contribute to the operationalization of strategic efforts aimed at the innovation of processes atlower costs. Moreover, digitalization involves both the incorporation of new technologies into
the organization as well as its integration with existing processes, forming a convergence
between the product and its processes (ORLIKOWSKI, 1992, ROBERS and GRABOWSKI,
1996, WEICK, 1990).
Prahalad and Venkatram (2003) identified new competitive spaces for innovation that offer
new opportunities for sustainable growth and value creation.
They presented competency spaces in addition to the company comprised of an extensive
network including suppliers, business entities and partners and consumer communities. They
remember that companies can differentiate themselves not only through the quality and cost of
their products and services, but also through their ability to co-create unique experienceenvironments with consumers, called the solutions space.
They emphasize innovation based on solutions beyond the physical product, resources andfunctions incorporated in hardware, but in knowledge accumulated by the company, that is,based on "soft knowledge". In this way, a vendor solution may involve responsibilities for oneof the subsystems of a customer or for the entire business environment as a business portal
highlighted in the following figure.

3

LOCUS OF COMPETENCENEW COMPETITIVE SPACE FOR INNOVATIONENHANCED
NETWORK OFCOMPETENCEINCLUDINGCONSUMERCOMMUNITIESEXTENDED
ENTERPRISE

THE FIRM AND
ITS SUPPLY
BASE

experience
networks
experience
personalization

supplynetwork

experience
integration

systems
integration

supplychainssolutionsinnovation

product
innovation

Solutions
space

Product
spaceexperienceinnovation

Experiences
space

LOCUS OF INNOVATION
Source: PRAHALAD and VENKATRAM, 2003, p.16

4. Interconnection of processes
Machines, devices, sensors and people are connected through IoT (Giusto, 2010) and IoP –Internet of People (Vilarinho, 2013) forming IoE – Internet of Everything (SANTOS andVILLALONGA, 2015).
Wireless technologies play a prominent role in the increasing interaction of business processes
as they allow ubiquitous access to Internet. Objects and people interconnected via IoE are able
to share information as the basis of collaboration to achieve common goals (GIUSTO, 2010).
Schuh (2013) cites three types of collaboration within IoE: human-human; human-machine;
and machine-machine collaboration.
In order to connect machines, devices, sensors and people to each other, it is of great
importance to establish a standard communication that is common to all. These standards allow
the flexible combination between modular machines from different suppliers (ZUEHLKE,
2010). This modularization enables industry-smart 4.0 plants to adapt to the fluctuating
demands of the market or small batch of custom orders.
The convergence of industrial production and information and communication technology
known as Industry 4.0 is currently one of the most frequent discussion topics among
practitioners and academics in the area of operations (DRAT and HORCH, 2014).
The term Industry 4.0 was first used at the Hannover Fair in 2011 following the first Industrial
Revolution by "Mechanization" as a result of the invention of the steam engine, the second withthe "mass production" with the help of electricity and the third through the use of
microelectronics and IT (Information Technology) (DAIS, 2014).
The promoters of this idea as an association of representatives of business, politics andacademy, supported the initiative as an approach to strengthen the competitiveness of theGerman economy (KAGERMANN, 2011).
Industry 4.0 is expected to improve the key industrial processes involved in manufacturing,
engineering, the supply chain of materials and the management of the product and service life
cycle.
Activated through communication between people, machines and resources, the fourthindustrial revolution is characterized by a paradigm shift from centralized control todecentralized production processes.
As a result, intelligent products know the history of their own production, from their current
state and destination, proactively guide the production processes by instructing the machines toperform the necessary tasks and drive the conveyor belts for shipping to the next stage of
production (KAGERMANN, 2015).
4

The transformation of the digital industry into the Internet environment is undergoing intense
progress, but artificial intelligence, the big data and total connectivity will bring about acomplete transformation of the industry according to Almada-Lobo (2016); Schlechtendahl,
Keinert, Kretschmer, Lechler and Verl (2015) by the following factors:
1. Digitalization of production – use of information systems for Production Planning andManagement
2. Automation systems for data collection directly from the production line and the use of themachines
3. Automatic data exchange by connecting the factory floor to the global supply chain
We are now contemplating the dawn of the fourth Industrial Revolution with the use of CyberPhysical Systems (CPS) and Internet of Things (IoT) and Virtual Services.
The integration of cyber technologies that make Internet-enabled products facilitate innovative
services to achieve, among other things, Internet-based diagnostics, maintenance and operation
processes in a cost-effective and efficient manner.
In addition, it encourages the emergence of new business models, operational concepts andintelligent controls focusing on the user and their individual needs.
Lee (2008) identifies in the central objective of Industry 4.0 the emergence of digital factories
that would be characterized by the connection and incorporation of the heterogeneous andautonomous devices.
A CPS consists of a control unit, usually one or more microcontrollers, which control sensors
and actuators that are needed to interact with the real world, and to process the collected data.
These embedded systems also require a Communication Interface for data exchange withembedded systems or a cloud.
Data exchange is the most important feature of a CPS, since data can be linked and assessed
centrally. In other words, a CPS is an embedded system that is able to send and receive dataover the network. CPS connected to the Internet is often referred to as the "Internet of Things".
CPS tracks the inevitable trend of collecting and making information available everywhere in
real time in the networked world. Embedded systems such as smartphones, automobiles andhome appliances are the inseparable part of modern life and will be in the process of being
remotely controlled.
This remote access to the process data can also be adopted for the very maintenance of thesesystems. The remote diagnosis information helps the service team in identifying the tool andspare part accurately and issuing requisition to the infrastructure with the help of thecorresponding communication system. There are a number of existing and still applicable fields
of application for CPS, such as medical equipment, driver safety and driver assistance,industrial process control and automation systems, power supply and the optimum use ofrenewable energies.

5. Transparency of information
Activated by the growing number of interconnected objects and people (Lasi et al., 2014), thefusion of the physical and virtual world allows for a new form of information transparency(KAGERMANN, 2015). Through the connection between the data sensor and the model ofdigitalized plants, the virtual copy of the physical plants is created.
Thus, context sensitive information is indispensable among IoE actors to make appropriate
decisions. Context systems perform tasks based on information from the physical and virtualworld. Examples of information from the virtual world are electronic documents, drawings, andsimulation models. While from the physical world we will have Information on the position orconditions of a production tool (LUCKE et al., 2008).
To analyze the physical world, raw sensor data must be aggregated into other values andinterpreted in the context of the information.
In order to create greater transparency, the results of data analysis should be incorporated into
service systems accessible to all IoE participants (GORECKY, 2014). For critical processes
real-time information is of paramount importance (BAUERNHANSL, 2014).
5

6. Decentralized decision-making
Decentralized decisions are based on the interconnection of objects and people, as well as thetransparency of information inside and outside the premises of a production. The combinationof decentralized and interconnected decision making allows simultaneous access to local andglobal information with full productivity (MALONE, 1999).
IoE participants perform tasks as autonomously as possible. Only exceptionally, someinterference or in the emergence of conflicting objectives, tasks are delegated to a higher level(HOMPEL and OTTO, 2014).
From the technical point of view, the decision making is allowed by the CPS, which areautomated systems capable of allowing the connection between the operations of physicalreality with the Information and communication systems (RADHAKISAN, and GILL, 2011,
GERMAN NATIONAL ACADEMY of SCIENCE and ENGINEERING, 2011, LEE, 2008).
Embedded computers, sensors and actuators allow the monitoring and control of the physicalworld autonomously (LEE, 2008).
These technological developments interact with each other, where each is characterized by its
respective objectives and limitations. For example, when the aim is to reduce production costs,
the limitations are also in terms of, for example, a reflection on wage costs.
The life cycles of commercial products tend to be shorter and shorter. At the same time, greaterreuse of products, components, and materials can be observed, either through secondary(electronic) markets or in the so-called closed-loop supply chains (cradle-to-cradle, circular
economy).
Mass customization is an important aspect of today's consumer markets fueled by sharp
technological developments. The rapid advance of e-commerce is another feature of today's
markets, and with mixed consequences, since on the one hand it reduces the number of links inthe supply chain, but on the other hand, without proper regulation of the flows of goods or thereverse, it causes an increase in urban congestion and pollution.
Finally, we can mention the concept of sharing economy, that is, the notion that customers nolonger buy a real product, but only the service that the product represents (eg cloud computing,music streaming, car sharing, among others). These phenomena will have a profound impact on
the ecological footprint of mankind and on the design and planning of future supply chains.

7. Innovation in Logistics
Current supply chains and logistics systems are global, partly due to scarce natural resources
and not evenly distributed in terms of type and geographic location, but certainly also becauseof the differences in the cost of labor between emerging and mature economies.
According to Nakatani and Chuang (2005), logistics innovation began in the 1980s, initiallywith the introduction of the WMS and TMS systems, where logistics management became
possible through the computerization of warehousing and transportation processes, the processof customs clearance and various processes related to the digitalization and the consequentsystematization and integration of all foreign trade activity.
The emergence of outsourced logistics providers/operators is observed, aggregating all
operations with the gradual adoption of handling, storage and management technologies
towards the twenty-first century as shown below.

6

TRANSITION OF LOGISTICS BY INNOVATION

FOCUS

LOGISTICS 1.0
20th century

LOGISTICS 2.0
1960s

MECHANIZATION
OF TRANSPORTS

AUTOMATION
IN LOADMOVEMENT>Increasing speed
and carrying
capacity of roadand rail modes> Offer of thewaterway model> Viability of theautomation of thewarehouses and useof forklifts in the
movement andstorage of loads> Loadstandardizaton using
containers

PRODUCTIONLOGISTICS 3.0
1980s
SISTEMATIZATION
OF LOGISTICCONTROL> Systematizaton oflogistic control
using WMS and
TMS> Digitalization of
documents andlogistical processes

LOGISTICS

INTEGRATED LOGISTICS
3PL
Source: Logistics Systems, 2017, p.07

LOGISTICS 4.0
21st century
STANDARDIZATIONOF PROCESSESREDUCTION OF
LABOR BY IoT> Automatedwarehouses and teleguided vehicles with
reduced labor> Standardization for
the entire supply
chain

SMART LOGISTICS

36 years after the first logistical theories, we can see in the 21st century the era of Logistics
4.0 with the evolution of IoT technology towards automation and complete standardization oflogistics processes.
Radio Frequency Identification (RFID) is an identification technology used to track goods
along the supply chain (MICHAEL and McCATHIE 2005).
RFID and sensors can work together as the main component of a ubiquitous system. RFID
tags record the information that sensors collect from an object and its environment, and transfer
it to a reader. With wireless sensor networks, objects such as products, parts, vehicles ormachines become intelligent.
They issue alerts on any incidents that could cause damage such as dropping, abnormal
temperature rise causing changes to perishable products, or any type of violation of security
seals. With intelligent objects, all systems from equipment to the corporate level, tend to be
restructured Systems become more responsive and accountable for any kind of problems that
may arise.
RFID tags allow item, pallet or container-level control (USTUNDAG and TANYAS 2009).
Singer (2003) identifies four important factors with the use of RFID technology: operational
efficiency, accuracy, visibility, and security.
In fact, RFID tags can replace bar codes in the very near future (Kapoor et al., 2009) withadvantages, as it does not require a direct line of sight between the label and the reader, thus
allowing multiple and simultaneous reading through non-metallic materials and are resistant toambient temperature and other external factors such as humidity. They can also be read andreprogrammed several times (KÄRKKÄINEN, 2003).
In addition, battery-assisted RFID tags can monitor environmental variables such astemperatures and bacteria levels (MICHAEL and McCATHIE 2005).
The ultra-high-frequency RFID system (UHF RFID) allows the simultaneous reading of alarge number of labels, increasing the volume of processing, integration with other systems andconsequently increasing the productivity of the operation (Wu et al., 2006).
The world is currently experiencing the fourth Industrial Revolution in terms of cyber physicalsystems. These systems make up the automation that enable innovative features and access tothe cyber world through networking dramatically changing our daily lives.
It requires organizations to understand how connected consumers can serve as a criticalfoundation for companies to identify sociodemographic and psychological views and factorsthat may influence their decision making regarding the use of connected products or services.
Industry 4.0 organizations that have not yet taken action from conventional marketing for7

content marketing now have the opportunity to direct strategies towards the new businessenvironment (COURT, 2015; ROCCO and BUSH, 2016).
In this context, new business models, work processes and development methods that are
currently unimaginable will bring about important changes in society and in people. In this way,
family life, current processes of globalization, market structure and capital will tend to be
redefined. However, Industry 4.0 simultaneously exhibits features that represent the challengesof developing cyber-physical systems, reliability, security, and data protection.

RFID Scenario in SCM
RETAILMANUFACTURER

WAREHOUSE

a- Tag- All itens- All boxes
b- Link- Item with box
c- Identification in
the box after
boarding

a- Identification in thebox after receipt
b- Enter- after completeddeliverya- Identification in
the box after
receiptb- EnterCompleted orderMoved box
c- Link- box with orderd- Identification in
the box after
boarding

Box destroyed
after productwithdrawal

Source: Nilgun et al, 2014

An important factor is the dynamics of the profitability of operations. The main reason is theexternal factors, such as costs of specialized labor in the face of changes in the needs of users
and customers, in the profile itself according to the change in the nature of the processes bytechnological innovation.
On the other hand, internal factors such as flexible leadership in the conduct of work adjusted
to the reality of the environment and in the specificities of each project that requires
perseverance, fighting spirit and courage for change.
Advanced technology provides an operation by the "efficiency" and "flexibility" in a friendly
way in which people, robots, and artificial intelligence provide the extension of humanboundaries according to the following chart.
In the next-generation business model, an integrated and interconnected system in the supply
chain operation through robots, sensors and 3D printers in the process of storing, moving andtracking cargo and real-time information has been considered.
IoT can improve logistics and supply chain efficiency by providing detailed and up-to-date
information in real time by mitigating the whip effect (Flugel and Gehrmann, 2009) by reducing
unexpected occurrences and improving traceability of goods (ZHENGXIA and LAISHENG,
2010).
However, to complete this scenario, it is necessary to get compliance in the process, regulationof operations, unification of standards, rules, procedures in the manufacturing and logistics
industries, intellectual property rights, other issues such as finances, among others. By
collaborative creation beyond manufacturing and logistics, it is believed to be necessary tocreate a new form of business to be competitive and become winners in the next generation.

8

HUMANITARIAN LOGISTICSCOMPATIBILITY OF EFFICIENCY AND FLEXIBILITY WITH STATE-OF-THE-ART TECHNOLOGYINTENSIFICATION IN
BUSINESS CHANGE. Difficulty in long-term
ROI. Pressure to reduce
costs

WAREHOUSE AUTOMATION. INCREASE IN INVESTMENTS
IN INFRASTRUCTURED AND
PRODUCTIVITY. CHALLENGES OF THE
TRANSITION

DIVERSIFICATION IN
THE PROFILE OF
HUMAN RESOURCES. Internationalization. Flow of goods andservices

VARIETY IN THE
LOGISTICAL BUSINESS
MODEL. Separation,
fractionation. Service level

OPTIMIZATION
OF ORDERSPRODUCTIVITYVS

FLEXIBLE ROBOTSHUMANIZEDPROCESSESFLEXIBILITY
ENHANCED
HUMANSBIG DATAMANAGEMENT

Source: Adapted from Logistics Systems, 2017

In the moment the logistics environment is undergoing dramatic changes, the challenges thatare unveiled in the field of supply chain management and logistics, the processes expand anddiversify and require careful monitoring by the organizational managers.
It is observed as a result that future supply chains are global when necessary and local whenpossible. On the other hand, global supply chains will remain unavoidable in cases where foodproduction conditions are only feasible in some regions of the world or when minerals are only
locally available.

They will also continue to exist where material processing consumes such an immense amountof energy that it is only sustainable in places where energy is plentiful and sustainable, such as
geothermal energy, water power generation or long periods of intense sun.
9

8. Theoretical implications and future research
The purpose of this article was to evaluate the importance and influence of Industry 4.0 andthe technologies connected to the Internet in the creation of added value for organizations andsociety. In fact, the fourth industrial revolution is happening and require each company andeach individual a reflection and planning of what is expected or desired from the intelligent
design of devices connected to the Internet. The present study represents an important
theoretical contribution to the understanding of industry 4.0 and technologies connected to theInternet.
The fundamentals were based on literature review and the assumption that the IoTtechnology’s business value is significantly higher than is reflected primarily by the number ofdevices that can be connected in cyberspace.
Technological innovation and intelligent information systems, as expected with the concept ofphysical Internet, depend heavily on the presence of a competent workforce. This brings a newlevel of interdependence to technological innovation – as well as new business models basedon e-commerce, cloud computing and Industry 4.0 – and knowledge and competence oflogistics and management personnel.
As the dynamics and changes in supply chains increase as described, a new form ofcompetence will also gain more importance: Not the "concrete facts" of stored information and fixed
concepts that are taught today can be valuable for business purposes, "soft facts" and skills such as
adaptability (of mind – followed by the supply chain), flexibility and creativity can be announced in the
future as the main competencies needed for logistics.

The purpose of this automation is to tailor products and services to individual customers,
which will increase the added value for organizations and customers themselves(KAGERMANN, 2015, YU et al., 2015). Therefore, IoT technology allows the creation of
products, services and business models that promise gains for virtually all industries (DUTTON,
2014).
Future research can contribute to refining the meaning of many of the concepts. In this area,
issues such as logistics 4.0, and ways of measuring the contribution to the definition of thebusiness model are essential attributes of this dynamic within the limits of a company's
operations.
Much research is being done in the field of industry 4.0 together with its development, where thistypology is largely multidisciplinary and offers opportunities for the researchers to develop approaches
incorporating all areas of the typology matrix to examine what organizations are doing or need to do to
become truly sustainable.

In this way, the use of typology could expand and modify the more restricted approaches
currently in use.
As a limitation of the research, as Doty and Glick (1994) point out, the typology does notpropose ideal types, as these would be an area for future research. Typological research usuallyaims to develop ideal types and give names to groups of organizations that emerge in this typeof research.

10

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