GE 541
Institutional and Organizational
Innovations
in Transport Systems
September 16 - 18, 2008
(Lectures 4 & 5)
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
Components of an Advanced Transport and 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
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
Factors Underlying the Transformation of the
Transport Enterprise
Transportation
Innovations
Logistical
Innovations and the
'New'
Transportation
En terprise
Globaliza tion
& Competitive
Forces
Public Policies of
Trade & Transport,
Deregulation,
Liberalization &
Competition
Emerging
Knowledge Society:
Changing Nature of
Work & Work Force
Technical & Social
Factors
Source: Chatterjee, 2001
Drive for
Corporate
Advantage
Changes in
Firm &
Industry
Structure
Business Factors
Adapted from OECD, 1996
Railroad Operating Costs per Revenue Ton-Mile,
Costs per Revenue Ton-Mile, 1980-1995, in 1995
Dollars
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'
Operating Costs of Less than Truckload
and Truckload Carriers, 1988-1995, in
1995 dollars per vehicle mile
6
5
4
3
2
1
0
1977
1987
1993
1995
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
The Evolution of Novel Freight Service
Attributes, Logistical Systems, and
Economic Benefits
Transport and
Information
Technologies
Transport
Service
Innovations
Transport
Process
Innovations
Logistics
Transport
Policy Reforms
- Travel costs
- Warehousing
- Inventory stock
New Fre ight
Transport
Service
Attributes
Transport
Infrastructure
Investments
Source: Lakshmanan and Ande rson (2002)
and i ts reorganization
Transport - Using Sectors
Lower Costs, Changing Production Processes,
and
New Services, Market Expansion, Economies
of scale and Scope
Transport sector
produc tivity
effects
Worldwide Logistics Costs Exceed $1 Trillion, of
which $610 Million is Non-Transport Logistics
Service Charges
100%
4% Admini stration
6% Order Proce ssing
24% Inventory Carrying Cost
61%
Logistics
Systems
27% Ware housing
39% Tra nsportation Charge s
0%
Source: P. O. Roberts, SAIC, "Presentations on Supply Chain Manage me nt: New Dir ections for Deve loping Coun trie s", page 6, no
date.
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)
The Context
Globalization
Process - Cross-national integration across the world
Attributes
Multidimensional-cultural, political, economic,
spatial
Economic - functional integration of
production/consumption
Spatial-coordination of demand/supply across
international boundaries
Convergent Forces Leading to the Rise of the
Globalization and Dynamic Cities
Change Factors
Change Agents
Economic and Spatial Evolution
Material
Technologies
A. Global Transformation
(Knowledge-rich Transport
Communications &
Production Technologies)
Non-Material Technologies &
Infrastructures
(Neo-liberal Ideologies, Open Trade
Regimes, Logistical, Property Rights
and Financial Innovations,
Entrepreneurship as a Pervasive Model)
Weakening of the Earlier
“Economic Regime”
[Rise of customized production and
quality competition & demand for
variety; the weakening of the National
Keynesian apparatus]
Outcomes
Global organization of
production systems (economic
volatility)
A. Global Network
Corporations,
Dynamic Small and
Medium size (SME)
Enterprises
B. Rise of Dynamic “Learning
Regions”
B. Public Sector
Entrepreneurial Agents
Rise of the Entrepreneurial City
(Emphasis on Wealth Creation)
C. Social Sector
Entrepreneurial Agents
A. The production of Urban
Dynamic Competitiveness
B. Innovations in Governance
in Policies
in Institutions
C. De-emphasis of Redistributive
Functions
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.
continued….
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
Transport Implications of Globalization
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
Transportation Logistics: Supply Chain
Strategic and Operational Issues
Strategic
Tactical
Supply
Chain
Site/
location
Transportation
Shipment
Warehousing
Warehouse
location
Internal/
outsourcing
Warehouse
layout
Capacity
sizing
Fleet
composition
Dispatch
centers
Level of
automation
Sourcing,
production
and
marketing
coordin.
Fleet
forwarding
decisions
Production
planning
Routing
strategy
Fleet sizing
Material
handling
design and
equip.
Delivery
frequency
Sourcing
Mode choice
Storage
retrieval
Zone alignment
IT
infrastructure
Network
alignment
Load size
IT
Operational
Enterprise
resource
planning
(ERP)
Transit time
minimization
Vehicle
dispatch
Order
handling
Storage and
stocking
Communicat.
infrastructure
Order pickup
Logistics – Definition and Components
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.
Transportation and Supply Chain Links
Supply Chain Consideration
Inbound Network
Vendors
Distribution Network
Production
Center
Distribution
Center
Customers
Transportation Consideration
Infrastructure
Logistics
operation
environment
Source: Chat terjee (2000).
Airports,
rail, ports,
roads
Assets
Warehouse
depots
Fleet size and
composition
Equipment
Drivers
Types of Logistics
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
Outbound logistics
Inbound
logistics
Valueadded in
production
Transport
to
warehouse
Harmon
ization
of
supply
chain
with
product.
needs
Demand
forecasting
In-house /
third party
logistics
Network
Design
-central
- regional
*
Warehouse
location
Production
design
Warehouse
characteristics
Frequency
of delivery
Sourcin
g and
procure
ment
Transpo
rt mode
choice
- sea
river/ca
nal
- air
- rail
- road
Manageme
nt
- total
quality
mgt
- just-intime
- others
Location
choice
Warehouse
Internal
Layout
Mode
choice
Quantity and
inventory
Fleet size
Fleet
compositio
n
IT and EDI
for
harmonizing
orders and
shipments
Optional
routing
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
Distribu
tion
network
- direct
delivery
to
factory
wareho
use
Shipment
size
-package
- LTL
- TL
Damage
considerati
on
breakage
- spoilage
- theft
- accident
On-timedelivery
Cost
Speed/
cyc le tim e
Source: Chatterjee (2000).
Agilit y/
flexibility
Accuracy
Transportation
Logistics:
Strategic Issues
in the Value
Chain
TNT
Information Systems
Integrated logistics
Inbound
logistics
•Import
- import
clearance
- transport
to factory
•Local raw
materials
transport
•Invent ory mgmt
•Transport
system
design
Manufacturing
materials mgmt .
•Purchasing/ order
placement
•Invoice payment
•Warehouse design,
layout and mgmt
(dedicat ed or shared)
•Product ion order t aking
•P icking
•Delivery to product ion
line/warehouse
Production
•Not
tradionally
contract ed
out
Finished goods
warehousing
•Warehouse
design,
layout and
mgmt
(dedicat ed or
shared)
Distribution
-wholesale
- retail
- end user
•Delivery
order taking
•P icking
•Assembling
•Invent ory
management
•Security
systems
•EDI
capabilitites
Export
logistics
•Customs
clearance
•Transport
t o port
Post
delivery
service
•Invoicing
•Product
installat ion
•Inquiry
handling
•Packing
•Transport
from plant
/warehouse
t o retailer,
wholesaler,
consumer/
end user
•Cross
docking
Elements of the Integrated System of TNT
•Customer
follow-up
interviews
•Return of
defects
Trends
Pre production/Post production decisions to
location and production decisions
Internet and e-commerce
Traditional to Web logistics
Reverse Logistics
Raw material
Primary
manufacturing
Material
Flow
Secondary
manufacturing
Order
Flow
Warehouse
Retail outlet
Customer
Information
Products and
Materials
Traditional
Logistics
Supply
Chain
Marketing
& Sales
Raw
Materials
Pricing
manufacturing
Assembly
Customer
Logistics
Distribution
Retail
Outlet
Material flow
Logistics
Information flow
Source: Greis and Kasarda, 1997
Rethinking the Logistics Supply Chain: Web
Supply Chain Characteristics of Newly
Industrializing Countries
Supply
chain
characteristics
Emerging
Trends
Supply
Limited local
supply
Increased use
of suppliers
drawn from
advanced
economies and
other NICs
Manufacturing
Vertical integration
Distribution
Distributors play the
major role
Labor-intensive
processes
Growth of economic
processing zones
Inadequate
infrastructure
Limited avail. of
logistics services
Concentration of
production in
metropolitan areas
Investment in
production,
transportation and
communication
technology
Assembly operation
of final goods
Exports of
components and
intermediat ed goods
Source: Modified from Waller (1995).
Development of
improved
transportation service
Third-party logistics
Retail
50% or more sales
through informal
markets
Direct store
deliveries (DSD)
Consumer
Small middle class
Increasing
multinational retail
presence
Growing middle class
purchasing power
High proportion of lowincome consumers
Consumers with buying
power concentrated in
large cities
Increasing info about
product diversity, quality
and name brand
Increasing compet.
between multin’l firms
for market share
Logistics Challenges in Indonesia
Supplier
(manufacturers)
Coordination of
wide network
of distributors
Cost
management
Low customer
service levels
Distribution
Transport
Customer
Achieving geographic
and store coverage
- Heavy investment
in fleet and facilities
- M gmt. of lg.
number of subscale
transport agents
Managing high-SKU
but low-vol. deliveries
to retail outlets
- frequency
- narrow delivery
windows
Expensive, less-thantruckload shipments
Lack of
equipment
available en
route
Coordination of
>100 deliveries
per day at each
outlet
Lack of
professionalism
- goods
mishandling
- delays
Lack of central
warehousing
on lg. storage
facilities
Substandard
trucks
Need to hold > 14
days’ inventory due to
supply chain
complications
Lack of interisland shipping
- missed
schedules
- poor quality
Slow order
processing
system with
suppliers
(high lead
times)
Warehousing
security
Note: SKU = stock keeping unit
Source: Knoop, (1996)
Comparative Information on Selected
Logistics Markets
Market
United
Kingdo m
North
America
Europe
Australia
Asia
Estimated Estimated
market
grow th
size ($
rate
billion)
100
15 - 20
Years
behind UK
in market
maturity
0
% of
companies
outsourcing
40 - 50
>300
>15
8
10 - 30
250
1.0-2.5
>250
20 - 25
>20
>25
10
5
15
10 - 20
20 - 30
<5
Time Delay and Exports