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7/29/2019 Lecture 4and 5
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7/29/2019 Lecture 4and 5
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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.
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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
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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
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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
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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
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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
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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
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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
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6
Operating Costs of Less than Truckload
and Truckload Carriers, 1988-1995, in
1995 dollars per vehicle mile
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The Passenger Cost for the Airline Industry,
1980 - 20000 (in current USD)
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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
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Management of value chains of other firms
Moving into e-commerce
Consumer demand oriented pull system
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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
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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
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Real Inventory Sales Ratio for Durable Goods
in Manufacturing Industry (1980-2005,
quarterly data)
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Real Inventory Sales Ratio for Motor Vehicles
in Manufacturing Industry (1980-2005,
quarterly data)
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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Trends
Pre production/Post production decisions to
location and production decisions
Internet and e-commerce
Traditional to Web logistics
Reverse Logistics
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Raw material
Primarymanufacturing
Secondarymanufacturing
Warehouse
Retail outlet
Customer
Material
Flow
Information Products and
Materials
OrderFlow
Traditional
LogisticsSupply
Chain
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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
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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
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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)
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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
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Time Delay and Exports