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GE541

InstitutionalandOrganizational
Innovations
inTransportSystems
September1618,2008
(Lectures4&5)

Paralleltothephysicalinnovations(e.g.containers)
therehasbeenaflurryofnonphysicalinnovationsin
transportation
Therearetheinstitutionalandorganizational
innovations.

Suchnonmaterialinnovationsareoftwo
types:
A. Changeofeconomicinstitutionsgoverning
transport.
e.g.deregulations,privatizationliberalization
B.Changeofoperationalprocessesofgoods
transport

EconomicInstitutionsGoverningTransport
RecentReform:
Theriseoffreetraderegimes
creationofIMFandtheWorldBankGeneralAgreement
onTariffs&Trade(GATT)
WTO
NAFTA,EU,MERCOSUR

AnAdvancedTransport&TradeFacilitation
System
ComponentsofanAdvancedTransportandTrade
FacilitationSystem
PhysicalInfrastructure
Transportsubsystems
Informationsubsystems

Nonphysicalinfrastructure(knowledgeand
competenciesintransportandtradefacilitation)
Overallgovernanceoftransportandtradefacilitation
Businesslogisticalsystems
Financialcoordination
Governanceofphysicalflows

PromotionofCrossborderFlows
A.DeregulationofTransportServices
Removalofcabotage
Privatizationoftransportinfrastructure
Reformofcommercial&legalframeworks
Reinventionofthecustomsfunction

B. NewBusinessLogisticsSystems
(Lowercosts,minimuminventory,quickmarketfeedback
&expandingmarketreach)

C. BetterFinancialCoordination
(Newpaymentsystems,lowerrisk)
D.UseofITandotherknowledgetechnologiesto
speedupcrossborderflows

Factors Underlying the Transformation of the


Transport Enterprise
Transportation
Innovations

Logistical
Innovations and the
'New'
Transportation
Enterprise

Globalization
& 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

CostperTonMile,1995Dollars

RailroadOperatingCostsperRevenueTonMile,
CostsperRevenueTonMile,19801995,in1995
Dollars

95'

OperatingCostsofLessthanTruckload
andTruckloadCarriers,19881995,in
1995dollarspervehiclemile

1995

ThePassengerCostfortheAirlineIndustry,
198020000(incurrentUSD)

Post1990,TransportLogisticalStructure
TheLogisticalChannel
JustinTime(JIT)
QuickResponseServices
Containerstrackedaroundtheworld&visibleintransit
OldpapersystemoncargoreplacedbyElectronicData
Interchange(EDI)andemail

Freightflowfaster,cheaperandmorereliable
NewtypesofTransport&LogisticalServices
(e.g.reliability&timeliness
strategicoutsourcingofafirmsdistributionfunction

flexibilityindestinationchoices
additionalproductionvalueandstrategiccompetitive
advantage
operationofdistribution&warehousingfacilities
wheretosourceintermediategoods

Managementofvaluechainsofotherfirms
Movingintoecommerce
Consumerdemandorientedpullsystem

TheEvolutionofNovelFreightService
Attributes,LogisticalSystems,and
EconomicBenefits

Transport sector
productivity
effects

Source: Lakshmanan and Anderson (2002)

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

61%
Logistics
Systems

27% Warehousing

39% Transportation Charges


0%
Source: P. O. Roberts, SAIC, "Presentations on Supply Chain Management: New Directions for Developing Countries", page 6, no
date.

RealInventorySalesRatioforDurableGoods
inManufacturingIndustry(19802005,
quarterlydata)

RealInventorySalesRatioforMotorVehicles
inManufacturingIndustry(19802005,
quarterlydata)

TheContext
Globalization
ProcessCrossnationalintegrationacrosstheworld

Attributes

Multidimensionalcultural,political,economic,
spatial
Economicfunctionalintegrationof
production/consumption
Spatialcoordinationofdemand/supplyacross
internationalboundaries

ConvergentForcesLeadingtotheRiseofthe
GlobalizationandDynamicCities
ChangeFactors

ChangeAgents

Outcomes
EconomicandSpatialEvolution

Material
Technologies

A.GlobalTransformation

(KnowledgerichTransport
Communications&
ProductionTechnologies)

Globalorganizationof
productionsystems(economic
volatility)

NonMaterialTechnologies
&Infrastructures
(NeoliberalIdeologies,OpenTrade
Regimes,Logistical,PropertyRights
andFinancialInnovations,
EntrepreneurshipasaPervasiveModel)

A.GlobalNetwork
Corporations,
DynamicSmalland
Mediumsize(SME)
Enterprises

B.RiseofDynamicLearning
Regions

B.PublicSector
EntrepreneurialAgents

RiseoftheEntrepreneurialCity
(EmphasisonWealthCreation)

C.SocialSector
EntrepreneurialAgents

A.TheproductionofUrban
DynamicCompetitiveness
B.InnovationsinGovernance
inPolicies
inInstitutions

WeakeningoftheEarlier
EconomicRegime

[Riseofcustomizedproductionand
qualitycompetition&demandfor
variety;theweakeningoftheNational
Keynesianapparatus]

C.DeemphasisofRedistributive
Functions

GlobalNetworkCorporations(GNC)
Majoragentsofcurrentglobalization
(e.g.GE,Toyota,Microsoft,Pfizer,GM)

Takeadvantageof:

Economiesofscaleinknowledge
EconomiesofscopeintheuseofcorporateNetworks
(knowledge,financial,marketingetc.)
Variationsinlocallabor&otherinputcosts

Create&maintainproductionunitsaroundthe
worldinurbanareaswithhighglobalaccessibility.
GlobalCorporationsusecitiesandurbanregionsas
organizationalstructurestomaximizereturnsoncapital.

continued.

ProductionConsequences

Competitiveandcomparativeadvantages
GlobalSourcingharmonizationacrosseconomic
systems
JITleanandflexibleproduction
FlexibleSpecializationhorizontalreplacingvertical
integration
CostAdvantagesofSpatialEconomiesinadditionto
scaleandscopeeconomies
IncreasingTradeas%ofGDP

TransportImplicationsofGlobalization
ObjectiveReliabledeliverythroughlowcost/highvalue
services
Worldwidecoordinationofproductionand
distribution
Captureupstream/downstreamadvantagesof
materialcomponentoutputlinkagesforcost
reductionacrosssupplychain
AttributeTechnologyAdvances
Transportationlarger,faster
InformationSystems
LogisticsInnovations

TransportationLogistics:SupplyChain
StrategicandOperationalIssues
Strategic

Tactical

Supply
Chain
Site/
location

Transportation

Shipment

Warehousing

Warehouse
location

Internal/
outsourcing

Warehouse
layout

Capacity
sizing

Fleet
composition

Dispatch
centers

Levelof
automation

Sourcing,
production
and
marketing
coordin.

Fleet
forwarding
decisions

Production
planning

Routing
strategy

Sourcing

Delivery
frequency

Network
alignment
IT

Operational

Enterprise
resource
planning
(ERP)

Fleetsizing

Material
handling
designand
equip.

Modechoice

Storage
retrieval

Zonealignment

IT
infrastructure

Loadsize

Transittime
minimization

Vehicle
dispatch

Storageand
stocking

Communicat.
infrastructure

Order
handling

Orderpickup

LogisticsDefinitionandComponents
DefinitionIntegratedmanagementofoverallvaluechain

throughtimecompression.

ObjectivesEfficientmovementandstorageofrawmaterials,
intermediateandfinalgoodswithassociatedinformation
flowsthroughthesupplychain.

Effectiveinventorymanagementanddistributionforcost
minimization.
Rightproduct,rightplaceatrighttime.

TransportationandSupplyChainLinks
SupplyChainConsideration
InboundNetwork

DistributionNetwork

Production
Center

Vendors

Customers

Distribution
Center
TransportationConsideration

Infrastructure

Logistics
operation
environment

Airports,
rail,ports,
roads

Assets

Warehouse
depots

Fleetsizeand
composition

Source:Chatterjee(2000).

Equipment

Drivers

TypesofLogistics
IntegratedLogisticsManagementGlobal
Optimization
TransportLogistics
Inbound/OutboundLogisticsmovementofgoods
throughthesupplychain
Effectivemanagementoftransportation,
warehousinganddistribution
PullLogistics

Outboundlogistics
Inbound
logistics

Value
addedin
production

Transport
to
warehouse

Harmon
ization
of
supply
chain
with
product.
needs

Demand
forecasting

Inhouse/
thirdparty
logistics

Network
Design
central
regional

Warehouse
location

Sourcin
gand
procure
ment

Manageme
nt
total
quality
mgt
justin
time
others

Production
design

Transpo
rtmode
choice
sea

river/ca
nal
air
rail
road

Location
choice

Frequency
ofdelivery

Mode
choice
Fleetsize
Fleet
compositio
n
Optional
routing

Warehouse
characteristics

Warehouse
Internal
Layout
Quantityand
inventory
ITandEDI
for
harmonizing
ordersand
shipments

Distribu
tion
network
direct
delivery
to
factory

wareho
use

Delivery
to
customer
Market/
vendor
choice
Network
pattern
huband
spoke
pointto
point
route
Transporta
tionmode
frequency
on
demand
daily
weekly
monthly

Transportation
Logistics:
StrategicIssues
intheValue
Chain

Speedof
delivery
Tracking
equipment
Shipment
size
package
LTL
TL
Damage
considerati
on

breakage
spoilage
theft
accident
Ontime
delivery

Cost Speed/
cycletime

Source:Chatterjee(2000).

Agility/
Accuracy
flexibility

TNT
InformationSystems
Integratedlogistics
Inbound
logistics
Import
import
clearance
transport
tofactory
Localraw
materials
transport
Inventorymgmt
Transport
system
design

Manufacturing
materialsmgmt.
Purchasing/order
placement
Invoicepayment
Warehousedesign,
layoutandmgmt
(dedicatedorshared)
Productionordertaking
Picking
Deliverytoproduction
line/warehouse

Production

Not
tradionally
contracted
out

Finishedgoods
warehousing
Warehouse
design,
layoutand
mgmt
(dedicatedor
shared)
Inventory
management

Distribution
wholesale
retail
enduser

Export
logistics

Delivery
ordertaking

Customs
clearance

Picking

Transport
toport

Assembling
Packing

Security
systems

Transport

EDI
capabilitites

/warehouse

fromplant
toretailer,
wholesaler,
consumer/
enduser
Cross
docking

ElementsoftheIntegratedSystemofTNT

Post
delivery
service

Invoicing
Product
installation
Inquiry
handling
Customer
followup
interviews
Returnof
defects

Trends
Preproduction/Postproductiondecisionsto
locationandproductiondecisions
Internetandecommerce
TraditionaltoWeblogistics
ReverseLogistics

Traditional
Logistics
Supply
Chain

Order
Flow

Logistics

Material flow

Retail
Outlet

Information flow
Source: Greis and Kasarda, 1997

RethinkingtheLogisticsSupplyChain:Web

SupplyChainCharacteristicsofNewly
IndustrializingCountries
Supply
chain
characteristics

Supply
Limitedlocal
supply

Manufacturing
Verticalintegration

Distribution
Distributorsplaythe
majorrole

Laborintensive
processes
Growthofeconomic
processingzones

Inadequate
infrastructure
Limitedavail.of
logisticsservices

Emerging
Trends

Increaseduse
ofsuppliers
drawnfrom
advanced
economiesand
otherNICs

Concentrationof
productionin
metropolitanareas
Investmentin
production,
transportationand
communication
technology
Assemblyoperation
offinalgoods

Retail
50%ormoresales
throughinformal
markets
Directstore
deliveries(DSD)

Consumer
Smallmiddleclass

Developmentof
improved
transportationservice

Increasing
multinationalretail
presence

Growingmiddleclass
purchasingpower

Thirdpartylogistics

Increasinginfoabout
productdiversity,quality
andnamebrand
Increasingcompet.
betweenmultinlfirms
formarketshare

Exportsof
componentsand
intermediatedgoods

Source:ModifiedfromWaller(1995).

Highproportionoflow
incomeconsumers
Consumerswithbuying
powerconcentratedin
largecities

LogisticsChallengesinIndonesia
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
- Mgmt. 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=stockkeepingunit
Source:Knoop,(1996)

ComparativeInformationonSelected
LogisticsMarkets
Market

United
Kingdom
North
America
Europe
Australia
Asia

Estimated Estimated
market
growth
size($
rate
billion)
100
1520

Years
behindUK
inmarket
maturity
0

%of
companies
outsourcing
4050

>300

>15

1030

250
1.02.5
>250

2025
>20
>25

10
5
15

1020
2030
<5

TimeDelayandExports