Production Networks, Logistics,
Intermodalism and Supply Chain
Management

Globalization
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Refers to increasing geographical scale of economic, social and political interactions
Examples: international trade, mobility of capital, tourism, expanding media delivery
Also changing patterns of institutional organization and structural shifts in world economic order
Most conspicuous are expanding MNCs, regional trade alliances, and roles of NGOs

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Globalization and MNCs
Global level corporate opportunities are reinforced by
and
of public controls
Combined with technological developments these changes facilitate
that alter networks of goods and services production and distribution
Allow exploitation of
MNCs and global city regions are dominant

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Too often transport in globalization is ‘invisible’
But transport is central and functions as an enabling mechanism and space adjusting technology (SATs) which integrates production and distribution points
SATs such as transport produce flows linking places, not goods in places

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Globalization and Transport
Transport, and especially freight, services have become more critical in order for firms to compete
Accommodating new technologies, new markets and new organizational structures requires change- both from providers and consumers whether individuals or firms
Need for greater efficiencies has made urgent the need for a more “seamless” transport market
“Seamlessness” suggests an environment in which neither national nor modal boundaries neither delay movements nor hinder choice of efficient route/mode combination

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Driving Factors in Search for Seamlessness
1/ Competitive pressures require goods and services producing firms to manage almost simultaneously multiple inter-organizational info and material flows
2/ Externalization of production trend is heightened- seeking efficiency in managing flow from source to consumer
3/ Logistics and supply chain management depend upon ways in which separate modal systems are joined: containerization, load centers, hub/feeder networks
4/ Role of real time in global operations has been heightened: JIT, time based competition
5/ Rise of e-commerce has huge consequences for transport system and logistics

Obstacles to a Seamless World
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Enhancement of goods flow has been empowered by liberalization, intermodalism and new technologies in logistics but contradictory forces also exist
“Choiceless churning”-inability of concerned social and political forces to confront challenges
Extending appropriate entry and exit approaches from national to regional and international levels may be a major issue
What policy research is required in this light?

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Longer and more customized transport linkages
Sensitivity to timing of connections, arrivals, and departures
Speed of movements and transactions
Expanded reliance on e-communications and e-commerce
Holding together Global Production
Networks (GPNs)

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Above demand sensitive logistical concerns are consistent with many trends
Reliance on out-sourcing
Customized production runs
Flexibility in resource access
Just-in-time management of production and distribution processes
Zero inventory
Opportunities for economies of scope

Globalization and Transport Vulnerability
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High levels of auto and oil dependence expose transport to risks of boycott and embargoes
Global solutions to environmental problems (air pollution and global warming) expose transport and their dependent economies
Transport serves as vehicle for intensifying mass consumption but more info based goods and service ( might be reduced
) mean transport inputs to various goods

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Freight transport is both an industry and core input in manufacturing process
Must understand how raw, semi-finished and final commodities are moved to serve businesses
Changes in technology, markets, institutional structures, and management theory have led to new ways of tying transport into production process

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Initially a military activity concerned with moving men and munitions to battlefronts
Now logistics has integral role in firm operations
Ability to move goods quickly, safely and economically are vital to firm’s profitability and the global economy
Why new emphasis? Competitiveness of firms, technology, deregulation, packaging

Aspects of Logistics in the Economy
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Two aspects: logistics management and logistics providers
Logistics management in manufacturing and distribution organizations
Logistics organizations providing services to manufacturing and distribution firms
Growth of
—(firms that both fly the cargo between airports and handle ground pick up from and delivery to customers) UPS, FedEx, DHL
Growth of

Supplier Customer
Supply
Transport
Activity Distribution
Transport

Origin
Shipper
Forwarder 1
Airport
Pickup &
Trucking
Airline
Destination
Airport
Forwarder 2
Consignee
Trucking &
Delivery
Forwarder secures space from airline.
Customs clearance
(often by a separate firm)
Forwarders relay information about shipment to/from shipper and consignee.

Shipper 1
Shipper 2
Shipper 3
Air Freight-Linked
Integrated Logistics Services
Shipper
Forwarder
Origin
Airport
Airline
Destination
Airport
Consignee
Forwarder
Forwarder’s
Warehouse
Consignee
Forwarder
Vendor Managed Inventory
Merge-in-Transit

Air Freight-Linked
Integrated Logistics Services
Shipper
Shipper
Forwarder
Origin
Airport
Airline
Destination
Airport
Consignee
Forwarder
Consignee 1
Forwarder’s
Warehouse
Consignee 2
Multiple products/ components
Distribution Hub
Pick & Pack
Testing & Assembly
Postponement
Consignee 3

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Firms now compete not as entities but rather as supply chains
Definition: a business strategy to improve shareholder and customer value by optimizing the flow of products, services and related information from source to customer
Generally management of multiple relationships across the suppliers, producers and distributors

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Porter’s value chain-system shows how firms construct value by gathering profits at various points in the production chain
Push chain- costs are transmitted up the chain determined by selling price at preceding level-cost plus approach
Pull chain- place downward pressure on suppliers who determine profits from their input costs

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Production Chain: Materials >
Procurement > Transformation >
Marketing and Sales >Distribution >
Service
: transactionally linked sequence of functions where each stage adds value to the process of goods and services production
Two aspects important: coordination and regulation and geographical configuration
Production chains may be very localized but increasingly are global in scale to take advantage of international division of labor

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Assembled in S Korea KIA Sorrento clear example of global supply chain
Uses 30K parts from all around world
Parts shipped from places as diverse as
Wales and Mexico—but very risky
War in Iraq and piracy in Malacca Straits
Demonstrate surprising adaptability due to advance planning, multiple sourcing of parts and ability to shift routes on short notice

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Communicates regularly with suppliers-at least once a week
Order several months in advance
If necessary use air freight instead of sea freight
Greater demand forced KIA to air freight airbags from Swedish company which makes them in the U.S.
Greater expense of trans-Pacific flight better than slowing down production line

Intermodalism
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One of most dynamic sectors of transport industry
Common meaning: flow of goods involving more than one transport mode
Mutimodal transport- involve several different modes
Intermodal transport- flow of cargos from shipper to consignee involving single cargo unit across at least two different modes using a single through rate

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Goal to remove barriers to flows inherent in traditional systems
Includes technical limits of transferring freight between competitors and organizational and legal constraints imposed by separate rates and bills
Attempt to achieve seamlessness where relative advantages of each mode are captured

Elements of Intermodal Transport
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Transferability of a unit loadlargely technological problem
Provision of door to door service- requires organizational control that may face regulatory restrictions
Transferability has been achieved through containerization- boxes of standard dimensions

First Intermodal Revolution
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Several attempts to integrate transport modes-
“Piggyback” or trailer on flatcar (TOFC)
Early success limited by rate restrictions, poor reliability and low profitability
Containerization was the revolutionary breakthrough
Transfer of cargo can be mechanical by crane and safety and security is improved
Fast loading and unloading reduces port congestion
Growth has occurred through conversion of cargo from traditional break of bulk and the growth of world trade

Impacts of Containerization on Ships
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First generation vessels- WWII liquid bulk tankers
Second generation – late 1960s larger ships (2000 TEUs) capable of stacking 10 lines of containers appeared
Third generation- 1980s size and fuel efficiency- up to 4000 TEUs
Fourth generation- 6-8000 TEU ships

Impacts of Containerization on Shipping
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1. Effects on shipping services and routing
Goal to maximize number of voyages and minimize port stays- a. use fleet as efficiently as possible
Container services are liner services with regularly schedules arrivals and departures
Service frequency is important in designing networks – b. generate cargo and market share
Selection of port of call is strongly influenced by cargo availability
2. Effects on structure and organization of industry
Development of alliances has been common

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Huge investments in machines to lift and move containers
Provision of new berths for large ships
Extensive storage space required until land modes can receive cargo
Larger demand for adequate port sites and old terminals have been abandoned
Elimination of labor has provoked resistance to containerization

Second Intermodal Revolution
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By early 1990s first intermodal revolution had matured
Global assault on regulatory restrictionsliberalization removing control over rates and permitting multimodal ownership
Information technology assisting in problems of documentation, security and safety
New revolution characterized by “through transport” concept- organization of trade is “door to door” and attempt to integrate various modes into production and consumption systems
Implies landward links where rail and highway play major roles