Factors That Impact

the Supply Chain

 Supply Chain Economic Factors 1
• International Trade
– Trade—the business of buying and selling for
money or credit
• The act or business of exchanging commodities by
barter
• People have always been willing to trade for goods they
did not have or otherwise produce

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 Supply Chain Economic Factors 2
• International Trade
– The history of international trade, transportation
and economic growth are inextricably linked
• 1290: Marco Polo connects Venice to China’s Silk Road
• 1492: Christopher Columbus seeks water route to India
• 1498: Vasco de Gama opens Asia to Europe
• 1602: Dutch East India Company develops global
import/export network

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 Supply Chain Economic Factors 3
• Old model of production—local supply chain
– Local market enjoyed the advantage of locally
produced goods and paid a premium for goods
produced elsewhere and transported to the
consuming market
• Traditional manufacturing areas
• Traditional agricultural areas
• A function of natural resources, labor availability, local
infrastructure, and transportation service and cost

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 Supply Chain Economic Factors 4
• Industrial revolution increased trade and
transportation
– Wide-scale mechanization of production
• Production and consumption no longer local
• Need to transport raw materials (in) and finished goods
(out)
– Cheaper mass produced goods available for
consumers
• Economies of scale
• The more goods available the greater the market

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 Supply Chain Economic Factors 5
• New model—International supply chain
– Manufacturing not dependent on local natural resources
– Food availability not dependent on local production
– Location of production not dependent on location of intended market
– Low production and transportation costs a driving factor
• Economies of scale
• Decentralization of production
• Reliable transportation service
• Creates world-wide manufacturing capabilities
– Make more goods available world-wide
• Creates new consumer markets

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 Supply Chain Economic Factors 6
• Globalization
– Restructuring of corporate ownership and global
economics
– Economic "globalization" is a historical process
• innovation and technological progress
• increasing integration of economies around the world, through
trade and financial flows
• the movement of people (labor) and knowledge (technology)
across international borders
– Commercial aspect
• Availability of consistent quality consumer goods and services
throughout the world

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Links in the
Supply Chain
 Key Links in the Supply Chain
• Producers
• Distributors
• Retailers
• Customers
• Service Providers

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 Key Links in the Supply Chain
• Producers
– Raw materials, Finished products and components,
Services
 Distributors
 Receive Products in bulk from producers
 Retailers
 Sell to customers and maintain limited inventory
 Customers
 Consumer or entity that uses the material in the
production of another product

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 Key Links in the Supply Chain
• Service Providers
– Services to producers, distributors, retailers, or
customers
• Carriers
• Intermediaries
• Infomediaries
– Expertise about particular activity
• Transportation, Freight forwarding and consolidation,
Warehousing, Financial services, Market research,
Advertising, Engineering, Legal, Information technology

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 Transportation:
a Look at Some of
the Players
 Transportation Consists of:

• Shipper—places the goods in transit

• Consignee—designated to receive the goods
• Either the shipper or the consignee may make cargo
transportation arrangements

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 Supply Chain Transportation
• Need to move goods from origin to
destination in the supply chain by
– Water
– Highway
– Rail
– Pipeline
– Air
• Decisions based upon cost, time, and
reliability

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 Water Transportation Providers
• Vessel Operator—provides ocean transportation
– Liner service—fixed routes on fixed operating schedules and generally
refers to container cargo
– Non-liner service (tramp service)—non-container, project, and dry
bulk (ores, grains, chemical compounds) cargoes
– Tanker service—oil and petroleum products, chemicals, LPG
• Port Authority—public, quasi-public, or private entity
providing port berth and pier availability
– May act as landlord for terminal operators and other tenants
– Or may actually operate terminals and other facilities
• Marine Terminal Operator—operates facilities for cargo
loading and discharging
• Stevedore—performs cargo loading and discharging
operations for a terminal or vessel operator

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 Non-water (Other Modal)
Transportation Suppliers

• Carriers that • Basis of carriers can

transport goods to or vary
from ports – Financial structure
– Railroads • Asset based
– Motor Carriers • Non-asset based
• Integrators
– Parcel companies
– Functional basis
– Barge lines
• Transportation
– Air freight • Intermediary

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Examples of Intermediaries

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 Non-Asset Based Carriers and
Intermediaries
• Freight Forwarder
– Acts as agent on behalf of the shipper
• Frequently makes the cargo booking reservation
• NVOCC
– Non-Vessel Common Carrier
• A non-asset based ocean carrier that provides carriage by
purchasing capacity from vessel operators
• Intermodal Marketing Company
– Provides door-to-door intermodal services by purchasing
transportation from a variety of asset and non-asset
carriers

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 More Intermediaries
• Logistics providers
– LLP—Lead Logistics Provider
• Aggregates and coordinates services of multiple 3PL
and may be a 3PL itself
– 3PL—Third-Party Logistics Provider
• Manages inbound or outbound supply chain with its
own resources
– 4PL—Fourth-Party Logistics Provider
• Assembles strategy, capabilities and technology to
design, build and run supply chains

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 Still More Intermediaries
• Assistance and technology providers
– Steamship Agent
• Duly authorized steam ship line geographical representative
attending to all matters on behalf of the line’s vessels
– Customs House Broker
• Independent broker licensed to act for importers in handling
Customs formalities for importers
– ASP (Application Service Provider)
• Distributes software systems through the internet to customers
from a central site
– Portal
• Web-site providing multiple services and connecting multiple
parties

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Functions of Intermediaries

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 Evolution and way ahead
Freight Forwarder Logistics & Supply Chain
OCEAN ● AIR
(Limited Coverage) Providers
3PL ● CUSTOMS ● W&D
FREIGHT FORWARDING
Freight Forwarder
MTO ● OCEAN ● AIR
FORWARDING
(Worldwide Coverage)

Freight Forwarder
MTO ● OCEAN ● AIR Global Logistics
FORWARDING
(Worldwide Coverage) Integrators
W&D ● CONSULTING
SUPPLY CHAIN ● FORWARDING

P A S T P R E S E N T F U T U R E
1 9 9 7 - 2 0 0 1 2 0 0 2 - 2 0 0 8 2 0 0 9 - 2 0 1 2
The Container Revolution and Other
Technological Advances
Container Revolution in Transportation
• The history
– Malcolm McLean sailed the Ideal X from Port Newark NJ to Houston
TX on April 26, 1956 with 58 thirty-five foot containers on deck.
– Matson Navigation introduced the first full container vessel the
Hawaiian Citizen in 1960
• The impact
– Revolutionized how goods were shipped
• Dramatically reduced transportation costs, delivery times, and shrinkage
• Required new port configurations, equipment, labor rules, and business
practices
• Containerization along with the diesel engine, jet engine, and the internet
were the transformative transportation technologies of the 20th century!

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 Evolution of Cargo Traffic
Pre-1980 1980-1995 1996-today

Physical Supply Chain

Evolution of Logistics
Transportation Management

Regulated market Deregulated market Global market

Cost-based pricing Price-based costing Financial reengineering

Awareness of high inventory

Low cost of capital Total cost of sales
cost
Inventory carried to support JIT pushed carrying cost Total inventory pipeline
EOQ and sales back to suppliers reduced

Inflation and Globalization and

Deregulation Reengineering

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 Evolution of Cargo Traffic
Days Transit: Hong Kong to New York

60
50
Transit Days

40
30 Rail
Ocean
20
10
0
1968 1973 1978 1983 1988 1993 1998 2003
1973: Containerization implemented
1978: Fewer port calls
1983: West Coast intermodal/MLB
1988: Double-stack
1993: Rail service improvement
1998: Far East Express MTSNAC Education Team 26
 Import Cargo—Origin

Overseas Land transport Origin Port Ocean Carrier

Factory
•Importer/shipper Customs Broker
•Freight forwarder U.S. Customs Service
•Consolidators
•NVOCCs

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 Import Cargo—Destination

U.S. Port Land Warehouse Land Store

Transportation Factory Transportation
Truck/rail Truck

Port Authorities 3rd Party Logistics Providers

Terminal Operators De-consolidators
Longshore Labor

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