lecture 4and 5

7/29/2019 Lecture 4and 5

1/36


2/36

Parallel to the physical innovations (e.g. containers)

there has been a flurry of non-physical innovations in

transportation

There are the institutional and organizational

innovations.


3/36

Such nonmaterial innovations are of two

types:

A. Change of economic institutions governing

transport.

e.g. deregulations, privatization liberalization

B. Change of operational processes of goods

transport


4/36

Economic InstitutionsGoverning Transport

Recent Reform:

The rise of free trade regimes

- creation of IMF and the World Bank General Agreement

on Tariffs & Trade (GATT)

WTO

NAFTA, EU, MERCOSUR


5/36

An Advanced Transport & Trade Facilitation

System

Physical InfrastructureTransport subsystems

Information subsystems

Nonphysical infrastructure (knowledge and

competencies in transport and trade facilitation)Overall governance of transport and trade facilitation

Business logistical systems

Financial coordination

Governance of physical flows

Components of an Advanced Transport and Trade

Facilitation System


6/36

Promotion of Cross-border Flows

A. Deregulation of Transport Services

- Removal of cabotage

- Privatization of transport infrastructure

- Reform of commercial & legal frameworks

- Reinvention of the customs function


7/36

B. New Business Logistics Systems

(Lower costs, minimum inventory, quick market feedback

& expanding market reach)

C. Better Financial Coordination

(New payment systems, lower risk)

D. Use of IT and other knowledge technologies to

speed up cross border flows


8/36

Source: Chatterjee, 2001 Adapted from OECD, 1996

Logistical

Innovations and the

'New'

Transportation

Enterprise

TransportationInnovations

Globalization

& Competitive

Forces

Public Policies of

Trade & Transport,

Deregulation,

Liberalization &Competition

Emerging

Knowledge So ciety:Changing Nature of

Work & WorkForce

Drive for

Corporate

Advantage

Changes in

Firm &

IndustryStructure

Technical & Social

Factors

Business Factors

Factors Underlying the Transformation of the

Transport Enterprise


9/36

0.06

0.05

0.04

0.03

0.02

0.01

0

80' 81' 82' 83' 84' 85' 86' 87' 88' 89' 90' 91' 92' 93' 94' 95'

Railroad Operating Costs per Revenue Ton-Mile,

Costs per Revenue Ton-Mile, 1980-1995, in 1995

Dollars


10/36

6

Operating Costs of Less than Truckload

and Truckload Carriers, 1988-1995, in

1995 dollars per vehicle mile


11/36

The Passenger Cost for the Airline Industry,

1980 - 20000 (in current USD)


12/36

Post 1990, Transport Logistical Structure

The Logistical Channel

Just-in-Time (JIT)

Quick Response Services

Containers tracked around the world & visible in transit

Old paper system on cargo replaced by Electronic Data

Interchange (EDI) and e-mail


13/36


14/36

Management of value chains of other firms

Moving into e-commerce

Consumer demand oriented pull system


15/36

Source: Lakshmanan and Anderson (2002)

Transport and

Information

Technologies

Transport

ServiceInnovations

Transport

Process

Innovations

New Fre ight

TransportService

Attributes

Transport

Infrastructure

Investments

Logistics- Travel co sts

- Warehousing

- Inventory stock

and i ts reorganization

Transport - Using Sectors

Lower Costs, Changing Production Processes,

and

New Services, Market Expansion, Economiesof scale and Scope

Transport

Policy Reforms Transport sector

productivityeffects

The Evolution of Novel Freight Service

Attributes, Logistical Systems, and

Economic Benefits


16/36

Worldwide Logistics Costs Exceed $1 Trillion, of

which $610 Million is Non-Transport LogisticsService Charges

100%

4% Administration6% Order Processing

24% Inventory Carrying Cost

27% Warehousing

39% Transportation Charges

0%

Source: P.O. Roberts, SAIC, "Presentations on Supply Chain Management: New Directions for Developing Countries", page 6, nodate.

61%

Logistics

Systems


17/36

Real Inventory Sales Ratio for Durable Goods

in Manufacturing Industry (1980-2005,

quarterly data)


18/36

Real Inventory Sales Ratio for Motor Vehicles

in Manufacturing Industry (1980-2005,

quarterly data)


19/36


20/36

Convergent Forces Leading to the Rise of the

Globalization and Dynamic Cities

Economic and Spatial Evolution

A. Global Transformation

Global organization of

production systems (economic

volatility)

B. Rise of Dynamic Learning

Regions

Rise of the Entrepreneurial City

(Emphasis on Wealth Creation)

A. The production of Urban

Dynamic Competitiveness

B. Innovations in Governance

in Policies

in Institutions

C. De-emphasis of Redistributive

Functions

A. Global Network

Corporations,

Dynamic Small and

Medium size (SME)

Enterprises

B. Public Sector

Entrepreneurial Agents

C. Social Sector

Entrepreneurial Agents

Weakening of the Earlier

Economic Regime[Rise of customized production and

quality competition & demand for

variety; the weakening of the National

Keynesian apparatus]

Non-Material Technologies &

Infrastructures

(Neo-liberal Ideologies, Open Trade

Regimes, Logistical, Property Rights

and Financial Innovations,

Entrepreneurship as a Pervasive Model)

Material

Technologies(Knowledge-rich Transport

Communications &

Production Technologies)

Change Factors Change Agents Outcomes


21/36

Global Network Corporations (GNC)

Major agents of current globalization(e.g. GE, Toyota, Microsoft, Pfizer, GM)

Take advantage of:- Economies of scale in knowledge

- Economies of scope in the use of corporate Networks(knowledge, financial, marketing etc.)

- Variations in local labor & other input costs

Create & maintain production units around the

world in urban areas with high global accessibility.

Global Corporations use cities and urban regions as

organizational structures to maximize returns on capital.

i d


22/36

Production ConsequencesCompetitive and comparative advantages

Global Sourcingharmonization across economic

systems

JIT- lean and flexible production

Flexible Specializationhorizontal replacing vertical

integration

Cost Advantages of Spatial Economies in addition to

scale and scope economies

Increasing Trade as % of GDP

continued.


23/36

Objective - Reliable delivery through low-cost/high-valueservices

World-wide coordination of production and

distribution

Capture upstream /downstream advantages of

material-component-output linkages for cost

reduction across supply chain

Attribute - Technology Advances

- Transportation - larger, faster- Information Systems

- Logistics Innovations

Transport Implications of Globalization

i i i S C i


24/36

Transportation Logistics: Supply Chain

Strategic and Operational IssuesSupply

Chain

Transportation Shipment Warehousing

Strategic Site/

location

Capacity

sizing

Sourcing,

production

andmarketing

coordin.

Warehouse

location

Fleet

composition

Fleet

forwarding

decisions

Internal/

outsourcing

Dispatch

centers

Fleet sizing

Delivery

frequency

Warehouse

layout

Level of

automation

Material

handling

design and

equip.

Tactical Production

planning

Sourcing

Routing

strategy

Network

alignment

IT

Mode choice

Zone alignment

Load size

Storage

retrieval

IT

infr astructure

Operational Enterprise

resource

planning

(ERP)

Transit time

minimization

Storage and

stocking

Vehicle

dispatch

Communicat.

infrastructure

Order

handling

Order pickup


25/36

Definition Integrated management of overall value chainthrough time compression.

ObjectivesEfficient movement and storage of raw materials,intermediate and final goods with associated information

flows through the supply chain.

Effective inventory management and distribution for cost

minimization.

Right product, right place at right time.

LogisticsDefinition and Components


26/36

Supply Chain Consideration

Inbound Network Distribution Network

Transportation Consideration

Infr astructure Assets

Source: Chatterjee (2000).

Vendors Production

Center

CustomersDistribution

Center

Logisticsoperation

environment

Airports,rail, ports,

roads

Warehousedepots

Fleet size andcomposition

Equipment Drivers

Transportation and Supply Chain Links


27/36

Integrated Logistics Management- Global

Optimization

Transport Logistics

Inbound/Outbound Logisticsmovement of goods

through the supply chain

Effective management of transportation,

warehousing and distribution

Pull Logistics

Types of Logistics


28/36

Inbound

logistics

Harmon

ization

of

supply

chain

withproduct.

needs

Sourcin

g and

procure

ment

Transpo

rt mode

choice

- sea

-

river/ca

nal

- air

- rail

- road

Distribu

tion

network

- direct

delivery

tofactory

-

wareho

use

Value-

added in

production

Demand

forecasting

Production

design

Manageme

nt

- total

quality

mgt

- just-in-

time

- others

Location

choice

Transport

to

warehouse

In-house /

third party

logistics

*

Frequency

of delivery

Mode

choice

Fleet size

Fleet

compositio

n

Optional

routing

Warehouse

characteristics

Network

Design

-central

- regional

Warehouselocation

Warehouse

Internal

Layout

Quantity and

inventory

IT and EDI

for

harmonizing

orders and

shipments

Delivery

to

customer

Market/

vendor

choice

Network

pattern- hub and

spoke

- point to

point

- route

Transporta

tion mode

frequency

- on

demand

- daily -

weekly

- monthly

Speed of

delivery

Tracking

equipment

Shipment

size

-package

- LTL

- TL

Damageconsiderati

on

-

breakage

- spoilage

- theft

- accident

On-time-

delivery

Cost Speed/ Agility / Accuracy

cycle time flexibilitySource: Chatterjee (2000).

Outbound logistics

Transportation

Logistics:Strategic Issues

in the Value

Chain


29/36

TNTInformation Systems

Integrated logistics

Inbound

logisticsManufacturing

materials mgmt .Production

Finished goods

warehousing

Distribution-wholesale

- retail- end user

Exportlogistics

Postdeliveryservice

Import- import

clearance

- transportto fa ctory

Local rawmaterials

transport

Inventory mgmt

Transport

systemdesign

Purchasing/ orderplacement

Invoice payme nt

Warehouse design,

layout and mgmt

(dedicated or shared)

Production order t aking

Picking

Delivery to production

line/warehouse

Nottradionally

contractedout

Warehousedesign,layout and

mgmt(dedicated or

shared)

Inventorymanagement

Security

systems

EDIcapabilitites

Deliveryorder taking

Picking

Assembling

Packing

Transport

from plant

/warehouse

to retailer,

wholesaler,

consumer/

end user

Crossdocking

Customsclearance

Transport

to port

Invoicing

Productinstallation

Inquiry

handling

Customerfollow-up

interviews

Return ofdefects

Elements of the Integrated System of TNT


30/36

Trends

Pre production/Post production decisions to

location and production decisions

Internet and e-commerce

Traditional to Web logistics

Reverse Logistics


31/36

Raw material

Primarymanufacturing

Secondarymanufacturing

Warehouse

Retail outlet

Customer

Material

Flow

Information Products and

Materials

OrderFlow

Traditional

LogisticsSupply

Chain


32/36

Logistics

Material flow

Information f low

Source: Greis and Kasarda, 1997

Customer

Marketing& Sales

RawMaterials

Pricingmanufacturing

Assembly

Distribution

Logistics

RetailOutlet

Rethinking the Logistics Supply Chain: Web


33/36

Supply Manufacturing Distribution Retail Consumer

Supply

chain

characteristics

Limited local

supply

Vertical integration Distributors play the

major role

50% or more sales

through informal

markets

Small middle class

Labor-intensive

processes

Inadequate

infr astructure

Direct store

deliveries (DSD)

High proportion of low-

income consumers

Growth of economic

processing zones

Limited avail. of

logistics services

Consumers with buying

power concentrated inlarge cities

Concentration of

production in

metropolitan areas

Emerging

Trends

Increased use

of suppliers

drawn fr om

advanced

economies and

other NICs

Investment in

production,

transportation and

communication

technology

Development of

improved

transportation service

Increasing

multinational retail

presence

Growing middle class

purchasing power

Assembly operation

of final goods

Third-party logistics Increasing info about

product diversity, quality

and name brand

Exports of

components and

intermediated goods

Increasing compet.

between multinl firms

for market share

Supply Chain Characteristics of Newly

Industrializing Countries

Source: Modified from Waller (1995).

L i ti Ch ll i I d i


34/36

Supplier(manufacturers)

Distribution Transport Customer

Coordination of

wide networkof distributors

Achieving geographic

and store coverage- Heavy investment

in fleet and facilities- Mgmt. of lg.

number of subscaletransport agents

Lack of

equipmentavailable enroute

Coordination of

>100 deliveriesper day at eachoutlet

Costmanagement

Managing high-SKUbut low-vol. deliveries

to retail outlets- frequency- narrow delivery

windows

Lack ofprofe ssionalism

- goodsmishandling

- delays

Lack of centralwarehousing

on lg. storagefacilities

Low customerservice levels

Expensive, less-than-truckload shipments

Substandardtrucks

Slow orderprocessingsystem withsuppliers

(high leadtimes)Need to hold > 14

days inventory due tosupply chaincomplications

Lack of inter-island shipping

- missedschedules

- poor quality

Warehousingsecurity

Logistics Challenges in Indonesia

Note: SKU = stock keeping unit

Source: Knoop, (1996)


35/36

Market Estimated

market

size ($billion)

Estimated

growth

rate

Years

behind UK

in marketmaturity

% of

companies

outsourcing

United

Kingdom

100 15 - 20 0 40 - 50

North

America

>300 >15 8 10 - 30

Europe 250 20 - 25 10 10 - 20

Australia 1.0-2.5 >20 5 20 - 30

Asia >250 >25 15


36/36

Time Delay and Exports

lecture 4and 5

Documents