Institutional and Organizational Innovations

in Transport Systems

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.

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

Economic Institutions Governing 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

An Advanced Transport & Trade Facilitation System

Physical Infrastructure Transport 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

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

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

Source: Chatterjee, 2001 Adapted from OECD, 1996

LogisticalInnovations and the

'New'Transportation

Enterprise

TransportationInnovations

Globalization& Competitive

Forces

Public Policies ofTrade & Transport,

Deregulation,Liberalization &

Competition

EmergingKnowledge Society:Changing Nature ofWork & Work Force

Drive forCorporateAdvantage

Changes inFirm &IndustryStructure

Technical & SocialFactors

Business Factors

Factors Underlying the Transformation of the Transport Enterprise

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'

Cos

t per

Ton

-Mil

e, 1

995

Do l

lar s

Railroad Operating Costs per Revenue Ton-Mile, Costs per Revenue Ton-Mile, 1980-1995, in 1995 Dollars

6

5

4

3

2

1

0

1977 1987 1993 1995

Operating Costs of Less than Truckload and Truckload Carriers, 1988-1995, in 1995 dollars per vehicle mile

The Passenger Cost for the Airline Industry, 1980 - 20000 (in current USD)

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

Freight flow faster, cheaper and more reliable

New types of Transport & Logistical Services (e.g. reliability & timeliness

- strategic outsourcing of a firm’s distribution function - flexibility in destination choices - additional production value and strategic competitive advantage - operation of distribution & warehousing facilities - where to source intermediate goods

Management of value chains of other firms

Moving into e-commerce

Consumer demand oriented “pull” system

Source: Lakshmanan and Anderson (2002)

Transport andInformationTechnologies

TransportService

Innovations

TransportProcess

Innovations

New FreightTransport

ServiceAttributes

TransportInfrastructureInvestments

Logistics - Travel costs - Ware housing - Inventory stock

and its reorganization

Transport - Using Sectors Lower Costs, Changing Production Processes,and New Services, Market Expansion, Economiesof scale and Scope

TransportPolicy Reforms Transport sector

productivityeffects

The Evolution of Novel Freight Service Attributes, Logistical Systems, and Economic Benefits

Worldwide Logistics Costs Exceed $1 Trillion, of which $610 Million is Non-Transport Logistics Service Charges

100%

4% Administration 6% Order Processing 24% Inventory Carrying Cost

27% Warehousing

39% Transportation Charges0%

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

61%LogisticsSystems

Real Inventory Sales Ratio for Durable Goods in Manufacturing Industry (1980-2005, quarterly data)

Real Inventory Sales Ratio for Motor Vehicles in Manufacturing Industry (1980-2005, quarterly data)

Globalization

Process - Cross-national integration across the world

AttributesMultidimensional-cultural, political, economic, spatial

Economic - functional integration of production/consumption

Spatial-coordination of demand/supply across international boundaries

The Context

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

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 theworld in urban areas with high global accessibility.

Global Corporations use cities and urban regions as organizational structures to maximize returns on capital.

Production Consequences Competitive and comparative advantages

Global Sourcing – harmonization across economic systems

JIT- lean and flexible production

Flexible Specialization – horizontal replacing vertical integration

Cost Advantages of Spatial Economies in addition to scale and scope economies

Increasing Trade as % of GDP

continued….

Objective - Reliable delivery through low-cost/high-value services

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

Transportation Logistics: Supply Chain Strategic and Operational Issues

SupplyChain

Transportation Shipment Warehousing

Strategic Site/location

Capacitysizing

Sourcing, production and marketing coordin.

Warehouselocation

Fleetcomposition

Fleet forwarding decisions

Internal/outsourcing

Dispatchcenters

Fleet sizing

Deliveryfrequency

Warehouselayout

Level ofautomation

Materialhandlingdesign andequip.

Tactical Productionplanning

Sourcing

Routingstrategy

Networkalignment

IT

Mode choice

Zone alignment

Load size

Storageretrieval

ITinfrastructure

Operational Enterprise resource planning (ERP)

Transit time minimization

Storage andstocking

Vehicledispatch

Communicat. infrastructure

Orderhandling

Order pickup

Definition – Integrated management of overall value chain through time compression.

Objectives – Efficient 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.

Logistics – Definition and Components

Supply Chain Consideration

Inbound Network Distribution Network

Transportation Consideration

Infrastructure Assets

Source: Chatterjee (2000).

Vendors ProductionCenter

CustomersDistributionCenter

Logisticsoperation

environment

Airports,rail, ports,

roads

Warehousedepots

Fleet size andcomposition

Equipment Drivers

Transportation and Supply Chain Links

Integrated Logistics Management- Global Optimization

Transport Logistics

Inbound/Outbound Logistics – movement of goods through the supply chain

Effective management of transportation, warehousing and distribution

Pull Logistics

Types of Logistics

Inboundlogistics

Harmonizationofsupplychainwithproduct.needs

Sourcing andprocurement

Transport modechoice - sea -river/canal - air - rail - road

Distributionnetwork- directdelivery tofactory -warehouse

Value-added inproduction

Demandforecasting

Productiondesign

Management- totalquality mgt- just-in-time- others

Locationchoice

Transporttowarehouse

In-house /third partylogistics

*

Frequencyof delivery

Modechoice

Fleet size

Fleetcomposition

Optionalrouting

Warehousecharacteristics

NetworkDesign -central - regional

Warehouselocation

WarehouseInternalLayout

Quantity andinventory

IT and EDIforharmonizingorders andshipments

Deliverytocustomer

Market/vendorchoice

Networkpattern - hub andspoke - point topoint - route

Transportation modefrequency - ondemand - daily -weekly - monthly

Speed ofdelivery

Trackingequipment

Shipmentsize -package - LTL - TLDamageconsideration -breakage - spoilage - theft - accident

On-time-delivery

Cost Speed/ Agility/ Accuracy cycle time flexibility

Source: Chatterjee (2000).

Outbound logistics

Transportation Logistics:

Strategic Issues in the Value

Chain

TNTInformation Systems

Integrated logistics

Inbound

logisticsManufacturing

materials mgmt.Production

Finished goods

warehousing

Distribution -wholesale - retail - end user

Exportlogistics

Postdeliveryservice

•Import - import clearance - transport to factory

•Local raw materials transport

•Inventory mgmt

•Transportsystem design

•Purchasing/ order placement

•Invoice payment

•Warehouse design,

layout and mgmt

(dedicated or shared)

•Production order taking

•Picking

•Delivery to productionline/warehouse

•Not tradionally contracted out

•Warehouse design, layout and mgmt (dedicated or shared)

•Inventory management

•Security systems

•EDI capabilitites

•Delivery order taking

•Picking

•Assembling

•Packing

•Transport

from plant

/warehouse

to retailer,

wholesaler,

consumer/

end user

•Cross docking

•Customs clearance

•Transport

to port

•Invoicing

•Product installation

•Inquiry handling

•Customer follow-up interviews

•Return of

defects

Elements of the Integrated System of TNT

Trends

Pre production/Post production decisions to location and production decisions

Internet and e-commerce

Traditional to Web logistics

Reverse Logistics

Raw material

Primarymanufacturing

Secondarymanufacturing

Warehouse

Retail outlet

Customer

MaterialFlow

Information Products andMaterials

OrderFlow

Traditional Logistics Supply Chain

Logistics

Material flow

Information flow

Source: Greis and Kasarda, 1997

Customer

Marketing & Sales

RawMaterials

Pricing manufacturing

Assembly

Distribution

Logistics

RetailOutlet

Rethinking the Logistics Supply Chain: Web

Supply Manufacturing Distribution Retail ConsumerSupplychaincharacteristics

Limited localsupply

Vertical integration Distributors play themajor role

50% or more salesthrough informalmarkets

Small middle class

    Labor-intensiveprocesses

Inadequateinfrastructure

Direct storedeliveries (DSD)

High proportion of low-income consumers

    Growth of economicprocessing zones

Limited avail. oflogistics services

  Consumers with buyingpower concentrated inlarge cities

    Concentration ofproduction inmetropolitan areas

EmergingTrends

Increased useof suppliersdrawn fromadvancedeconomies andother NICs

Investment inproduction,transportation andcommunicationtechnology

Development ofimprovedtransportation service

Increasingmultinational retailpresence

Growing middle classpurchasing power

Assembly operationof final goods

Third-party logistics   Increasing info aboutproduct diversity, qualityand name brand

Exports ofcomponents andintermediated goods

Increasing compet.between multin’l firmsfor market share

Supply Chain Characteristics of Newly Industrializing Countries

Source: Modified from Waller (1995).

Supplier(manufacturers)

Distribution Transport Customer

Coordination of wide network of distributors

Achieving geographic and store coverage - Heavy investment in fleet and facilities - Mgmt. of lg. number of subscale transport agents

Lack ofequipment available en route

Coordination of>100 deliveriesper day at eachoutlet

Costmanagement

Managing high-SKU but low-vol. deliveries to retail outlets - frequency - narrow delivery windows

Lack of professionalism - goods mishandling - delays

Lack of central warehousing on lg. storage facilities

Low customer service levels

Expensive, less-than- truckload shipments

Substandard trucks

Slow order processing system with suppliers (high lead times)

Need to hold > 14 days’ inventory due to supply chain complications

Lack of inter- island shipping - missed schedules - poor quality

Warehousing security

Logistics Challenges in Indonesia

Note: SKU = stock keeping unit

Source: Knoop, (1996)

Market Estimatedmarketsize ($billion)

Estimatedgrowth

rate

Yearsbehind UKin marketmaturity

% ofcompanies

outsourcing

UnitedKingdom

100 15 - 20 0 40 - 50

NorthAmerica

>300 >15 8 10 - 30

Europe 250 20 - 25 10 10 - 20Australia 1.0-2.5 >20 5 20 - 30Asia >250 >25 15 <5

Comparative Information on Selected Logistics Markets

Time Delay and Exports