Supply Chain Management and Regional Strategic...

© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 1

Supply Chain Management and Regional Strategic Transportation Planning

IntegrationA case for sustainability

Sgouris Sgouridis

Malaysia ProjectResearch Supervisor / Principal Investigator:

Joseph Sussman

22 October 2004


Agenda• Supply Chains Overview• RSTP Overview• SCM / RSTP Interfaces• Use of CLIOS as framework to study

SCM/RSTP• Further Research Engineering Systems

Systems Engineering

SCMPrivate Sector

Logistics Decisions:

Routes

Inventories

Fleet Management

Procurement

RSTP

Public Sector

Strategic Decisions:

Competitive advantage

Market expansion

Product development

Mergers

Overlap:

Sustainable Development

Infrastructure expansion

Demand management, pricing


Supply Chain Management


What are supply chains?A Supply Chain View [Source of Graphic: SAP AG]

Another Supply Chain View

Source: Sgouridis (2004)

MA

RK

ET

PR

OD

UC

T

CustomerService

RegionalConsolidation/ Distribution

Centers

PostponedProcessing(labeling,

kitting)

WarehousingLinehaul

(Road, Rail,Sea, Air)

InventoryManagement

ManufacturingProduct

Design forSCM

Sup

plie

rs

CU

ST

OM

ER

INFORMATION FLOW

Impo

rts

/E

xpor

ts

MATERIAL FLOW

REVERSE LOGISTICS FLOW

FINANCIAL FLOW


Integrator

Door

Rearview Mirror

Tier 1Dashboard

InjectedParts

Tier 2Tier 2Tier 2Lock ButtonsSteeringColumn

Stamps Tier 3Tier 3Tier 3Tier 3Tier 3IngotsPlasticsIngotsGlass

Generic Supply Chains Characteristics

• Geographically dispersed• Multi-tiered.• Knowledge may or may not

reside within the integrator.

Differentiated commodities

Module / Sub-system assembler

OEM Integrator

Commodities: Parts and Raw Materials

Suppliers of Infrastructure


How are Supply Chains Managed? A Snapshot of Current Trends

Postponedmanufacturing

InventoryReduction

Manufacturing toDemand

JIT Delivery

In-transitInventory

Vertical SCMIntegration

Cross-docking

SCM Internal ResponsesOutside factors

Increased FirmCompetition

SpecializedConsumerDemand

ICT Advances

TransportationTechnology Advances

Total CostReduction

Increasedcustomer

satisfaction

Mass Customization

Globalization

Firm

3PL

Reverse Logistics

Vendor ManagedInventory

Risk-pooling

EDI

Total QualityManagement

e-Commerce

Outsourcing


How are Supply Chains Managed? II A Snapshot of Current Trends

Low.Hourly to dailyInventory levels, transport, productionOperational Planning

MediumWeekly to monthly

Production, distribution, and transportation strategies

Supply Chain Master

Planning

High. Few months to few years.

Number, capacity and location of production plans, suppliers, warehouses, retailers. Decision on transport resources.

Strategic Network

Design and Optimization

High.Several years (Based on product life-cycle)

Regional differences, supplier input, compartmentalization, design for assembly, product demand data

SC-informed Product Design

Return on

Investment

Planning horizon

Influenced FactorsSCM Layer


So why should we care about Supply Chains?

• Importance:– Economic Impact – capital mobility.– Sustainability Impact – Efficiencies gained

and resource conservation.– Global nature.– Competitive Advantage for firms and

regions.• Engineering Systems:

– Complexity, process optimization.– Organizational Restructuring / Learning.– Critical decisions for enterprise viability.


Regional Strategic Transportation Planning


What is RSTP?

• Traditional Perspective of RSTP– The creation of a framework based on

existing legislation to support and promote mobility of passenger and freight in a region.


Shortcomings of Traditional RSTP

[From Conclin and Sussman (2000)]

• Intermodalism.• Economic integration.• Freight.• Private sector involvement.• Operations.• Technology scanning.• Transport and telecommunications.• Human resources.[Added by Sussman, Sgouridis and Ward (2004)]

• Sustainability. • Institutional change.• Uncertainty management.


Freight Specific Expanded RSTP Goals

From:“[The goal of freight transportation policy planning is] the

discovery and effective implementation of measures which will reduce the total social cost of goods movement to the lowest possible level commensurate with the freight requirements and objectives of society.”

[Ogden (1994)]

To:“The freight aspect of a regional strategic transportation

plan should ensure (i) an adequate, efficiently operated, robust, and secure transportation network based on (ii) a commensurate regulatory framework that in coordination aim to maximize total societal benefits within a sustainable framework.”

[Sgouridis (2004) based on Hall and Sussman (2004)]


Freight Specific Expanded RSTP Goals II

• Freight mobility based on• Sustainability

– Economic growth (possible decoupling)– Economic development / regional competitive

advantage– Environmental stewardship– Social impact awareness

• Safety• Security / Robustness


A Framework for RSTPSource: Sgouridis (2004), based on Dodder, Sussman and McConnell (2004)

CLIOS

Physical Domain

EVALUATION/ DESIGN

REPRESENTATION

6. Identify Performance Measures andRefine System Goals

7. Identify & Design StrategicOptions for System Performance

8. Flag Important Areas ofUncertainty

9. Evaluate Strategic Options and SelectRobust Ones that Perform "Best" Across

Uncertainties

EV

AL

UA

TIO

N&

DE

SIG

N

IMPLEMENTATION

REPRESENTATION

IMPLEMENTATION

OperationsPlanning

OperationsProcess

Regional OperatingArchitecture

Regional StrategicPlanning Process

StrategicOptions

Fleets LandUse

EnvironmentalPolicy

TechnologyITS

PricingFinance

Congestion

RegionalInfrastructure

RegionalPlanning

Architecture


Implementing the Framework (A View)

Source: Sussman, Sgouridis and Ward (2004)

CLIOS

Physical Domain

Economic Activity

Land Use

Environment

Transportation

Institutional SphereMap

Congestion Charging

GDP

VehicleEmissions

Resident andWorkplace

location

Emission Regulations

HighwayInfrastructure

VMT

FundingAllocation

CLIOS Sub-systems(Layering)

HighwayOperations

Expanding

Partial CLIOS Diagram forthe Transportation Layer

HighwayNetwork

IntermodalConnections

MappingSphere to plane State DOT

EPAFederal DOT


SCM / RSTP Interfaces


• Porter: management of supply chains can provide regional competitive advantage

• Transition to the new economics of regional competition: 1. macroeconomic to microeconomic, 2. productivity growth to capacity to innovate, 3. from economy-wide policies to clusters, 4. from internal to external company success, 5. from separation of economic and social policy to

integration, and 6. from national to cross-national, regional and local.

SCM / RSTP How is it viewed?


• Building the facilities may not be enough: industry coordination needed.– [Examples Alameda Corridor (USA),

Zaragoza Logistics Center (Spain), Port of Tanjung Pelepas (Malaysia)]

• Other relevant work (US DOT Freight Planning, Mobility Report 2001, EU White Paper on Transportation, Moving the Economy (Canada).

SCM / RSTP How is it viewed? II


• SCM allows for flexibility in the supply chains (outsourcing).

• Globalization implies that the region could accept both gains and losses.

• Not all regions can become logistics hubs.

SCM / Economic Growth: Ambivalence


How Supply Chains are affected? A Policy Inventory


Current Research


Objective

Create a framework of sustainable freight transportation planning based on the generic RSTP framework.

Start by architecting a simple regional model for freight transport.


Introducing the Model A Region

Factory ASupplier B

City

Warehouse

Food Mart

Store

Damp/Recycle

Airport

Train stationE-I

F-I

E-F F-F

RawMaterials

Barn

M-FM-E

F-W W-S

F-S

W-R

S-R R-D

D-F

I-W

E-W

REGION A

City

RawMaterials

Barn

Damp/Recycle

System Driver:Need forProduct A

Factory A

Food Mart

Store

Warehouse

Retail Outlet

Warehouse

Factory

Road

Railway

Initially:

one product,

one self-sufficient region

(no imports / exports)


Representation Phase. Step 1:Goal Identification.


Representation Phase. Step 2:

Major Sub-system Identification.

Transportation

Land Use

Environment

Manufacturing &SCM

Economy


Representation Phase. Step 3: (I)

Transportation Sub-system.

Regulatory Area

ExternalitiesMagnitude

InfrastructureFinancing

ExternalitiesRegulation

PrivateStrategy

RegionalStrategy

Transport Area

InfrastructureNetwork

TransportFlows

Economy Area

ProductionOutput

ProductDemand

Land Use Area

ResidencyLocation

FactoryLocation

Retail /Warehouse

Location

TransportRegulation and

Pricing

Fleet


Representation Phase. Step 3: (II)

Economy Sub-system.

FactoryOutput

ProductDemand

TradeRegulations

Product Pricing

TransportPricing

FactoryLocation

EconomicOutput

Private Strategy


RegionalStrategy


Representation Phase. Step 3: (III)

Land-use Sub-system.

InfrastructureNetwork

Land UseRegulations

ResidencyLocation

FactoryLocation

Retail /Warehouse

Location

Damp /RecycleLocation


Representation Phase. Step 3: (IV)

Environmental Sub-system.

ExternalitiesMagnitude

VehicleEmissions

Fleet

Ecosystemand Habitat

Loss

Industrial andResidential

LocationInfrastructure


ManufacturingEmissions &

Waste

ProductionOutput

ProductionProcess

RegionalStrategy


Representation Phase. Step 3: (V)

Manufacturing Sub-system.

ProductionOutput

ProductionProcess

ProductDesign

RawMaterials

ProductDemand

OutsourcingDecisionsSuppliers

TransportationFlow

Warehousing

Retailers

ProductPricing

Supply ChainMethods

TransportCosts

Profitability

PrivateStrategy


TradeRegulations

TransportPricing

Competition

TransportRegulations

Fleet


Representation Phase. Step 3: (VI)

Institutional Sphere.

Enterprise



TransportPricing

PrivateStrategy

RegionalStrategy

TradeRegulations

Product Pricing

Land UseRegulations

Department ofEnvironment

Department ofTransportation

Department ofPlannning

Department ofCommerce

Manufacturer

Suppliers

PrivateCarriers

ConsumerGroups

InfrastructureOperators

ProductDesign

Profitability

Outsourcing

TransportRegulations


Representation Phase. Step 3: (VII)

Overview


Representation Phase. Step 4: Describe

Compo-nentsand Links:

Link Matrix Analysis


Representation Phase. Step 5:Seek Insight

About System Behavior

(System Dynamics Support)

Raw MaterialInventory

Final ProductInventory

WarehouseInventory

RetailInventory

Products inUse Discarded

Products

Raw MaterialExtraction

Products inProcess (PIP)

ProductionRate

ProductionStart Rate

ShipmentRate Retail

Orders

Sales

FailureRate

Recycledproducts

Products inLandfill

RecyclingRate

Discarding

Reuse

ProductionProcess

Changes

ProductRecyclability (DES)

Transport costper shipment

Product Demand

+

EconomicOutput

+

+

REconomy

growth

-

B

-

ProductPricing

+-

BPrice

DemandEquilibration

TotalInventory+ +

+

TotalInventory 0

- B

Supply DemandEquilibration

+

End-of-life EnvironmentalRegulation (or Pricing)

Strictness (REG)

-

+

+

ProductionEffluents

+

Product Appeal(DES) +

ProductManufacturability

(DES)

FuelCost

Transport Flow(Raw->Factory)

Transport Flow (Factory-> Warehouse -> Retail)

+

Transport Flow(Consumer -> Landfill &

Recycle)

Transport FlowTotal (Ton-km)

Fossil FuelReserves

Depletionrate

+

+

B

Transport Cost -Flow Equilibration

Fuel Tax(REG)

+

+

+

Regulatory dependenceof production process

Congestion+

TransitTime

Transport Density(Tons/shipment)

Average Distances (e.g.Factory to warehouse) (LU)

- +

PassengerTraffic

+

Fuel Efficiency(ton-kms/liter)

Fuel Use-

Shipment Consolidation --Modal Choice (SC)

+

Vehicle EfficiencyMandates (REG)

+

TransportEmissions+

+

+

EmissionRestrictions (REG)

++

+

+

CapacityCapacity

Acquisition

Depreciation

+

Demand - CapacityDifferential

+

+

InfrastructureCapacityInfrastructure

Investment Infrastructurewear

-

+

+

Maintenance+

-

+

+

+

B

Congestion - FlowEquilibration


Design and Evaluation Phase. Step 6: Need – Metrics Matrix


Further Research


Steps forward• Iterate insights from the modeling process by

identifying critical areas of intervention.• Complete the design and evaluation phase of

CLIOS for model region.• Expand model to include imports and exports

(Malaysia as target region is major exporter) and more products (competition).

• Refine SD model.• Expand SD model into simulation for

quantification of policy effects.• Transfer insights to existing regions (Malaysia).


Your Feedback


(Some) ReferencesSussman, J. and C. Conklin. (2000). “Regional Strategies For The Sustainable Intermodal Transportation Enterprise

(ReS/SITE): Five Years of Research.” In Transportation Research Record: Journal of the Transportation Research Board TRB Record, TRB Paper Number: 01-0302.

Runhaar, H. (2002). “Freight Transport: at any price?” Doctoral dissertation. Delft University. DUP Science. Netherlands.Pendleton, T.A. (1998). Regional Architectures: Definition and Integration into the Strategic Transportation Planning

Process. Unpublished thesis. MIT.Dodder, R, J. Sussman and J. McConnell. (2004). The Concept of the “CLIOS Process”: Integrating the Study of

Physical and Policy Systems Using Mexico City as an Example . Presented at the MIT Engineering Systems Symposium, 29-31 March, at MIT, Cambridge, Mass.

Simchi-Levi, D., P. Kaminsky, and E. Simchi-Levi. (2003). “Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies.” 2nd Edition. McGraw Hill.

Ogden K.W. (1992). Urban Goods Movement. Cambridge University Press.Hall, R. and J. Sussman. (2004). “Sustainable Transportation – A Strategy for System Change.” Under review for the

International Journal of Sustainable Development.Polenske, K. (2001). “Competitive Advantage of Regional Internal and External Supply Chains.” In Regional Science

Perspectives in Economic Analysis, Benjamin H. Stevens, edited by Michael L. Lahr and Ronald E. Miller, Amsterdam, The Netherlands: Elsevier Science, B.V., pp. 259-284.

Lakshmanan, T. R. and W. P. Anderson. (2002). “Transportation Infrastructure, Freight Services Sector and Economic Growth.” A White Paper prepared for The U.S. Department of Transportation, Federal Highway Administration. Center for Transportation Studies. Boston University. Available at: http://www.ncgia.ucsb.edu/stella/meetings/20020115/Lakshmanan.pdf. Accessed Aug. 2004.

Ward, J. (2004). “Current Regional Strategic Transportation Planning Practice: Shortcomings and Solutions.” Internal report. MIT.

Sussman, J., S. Sgouridis, and J. Ward. (2004). “An Engineering Systems Approach to Transportation Planning: Regional Strategic Transportation Planning as a CLIOS.” Under review for publication at the 84th Transportation Research Board Annual Meeting. January 2005. Washington DC.

Porter, M. (2001). “Regions and the New Economics of Competition,” In Global City-Regions, edited by Allen J. Scott. New York: Oxford University Press, pp. 139-157.

Grube J.W. (2001). Regional Competitive Advantage and Transportation Planning: An Extended ReS/SITE Framework. Unpublished thesis for the Master of Science in Transportation, MIT.

Miller, G., D. Kiguel and S. Zielinksi. (2003). Moving Goods in the New Economy: a Primer for Urban Decision Makers. Moving the Economy (MTE) and Canadian Urban Institute. Toronto, Canada.

Design Structure Matrix Website. (2004). Available at http://www.dsmweb.org/. Accessed Aug. 2004.

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