GE 541 September 16 - 18, 2008 (Lectures 4 & 5) Institutional and Organizational Innovations in...
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Transcript of GE 541 September 16 - 18, 2008 (Lectures 4 & 5) Institutional and Organizational Innovations in...
GE 541
September 16 - 18, 2008 (Lectures 4 & 5)
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 - Warehousing - 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