Globalization and the Geography of Logistics: Conceptual Issues

Jean-Paul Rodrigue Dept. of Economics & Geography Hofstra University Hempstead, New York, 11549 USA Jean-paul.Rodrigue@hofstra.edu

Outline
  

1. Transportation and Logistics 2. A Transportation Geography of Logistics 3. Dimensions and Case Studies

Transportation and Logistics



Time is the essence

Transit times are declining:
Since 1950, the average time in transit for imported goods fell from 40 days to 10.5 days. Each transit day adds about 0.8% to the final cost of goods. 20 days at sea adds the equivalent of a 16% tariff.

Modal shift:
Increasing willingness to pay higher costs to gain time. Air transport: From 7% of trade in 1965 to 30% of trade in 1998. Conventional explanation: Spoilage, immediate information content and seasonality. Emerging explanation: Production and trade of intermediate goods.

The core of the wealth and efficiency based on the flow of people and commodities.

Logistical Improvements, Manufacturing Sector, 1960-2000

20 18 16 14
% of GDP
Logistics Costs (% GDP) Inventory Costs (% GDP) Cycle Time Requirements (days)

40 35 30 25 20 15 10 5 0 1960s 1970s 1980s 1990s 2000s

Days

12 10 8 6 4 2 0

Transportation and Logistics

% of Products Shipped for Just-inTime Manufacturing
45 40 35 30 25 20 15 10 5 0 1990 1992 1995 2000

Logistics has given rise to two fundamental features of the contemporary economy:
Just-in-Time (JIT). Door-to-Door (DTD). Cycle time requirements down by 25% between 1990 and 2000. Half of the productivity boom of the late 1990s was produced by logistics.

Both favour use of the least energy efficient modes:

Trucking. Air.

Logistics Costs, United States, 1980-2000 (in billions of $)

1200


Administrative Costs Transportation Costs Inventory Carrying Costs

Inventory reduction:
1980: 50%. 1990: 44%. 2000: 37%.

1000


800

Transportation costs:
1980: 46%. 1990: 52%. 2000: 59%.

600


400

While the manufacturers may achieve economies:

Inventories are in transit. More links are added to the production chain, with more traffic movements added overall. A form of externality.

200

0 1980 1985 1990 1995 2000

Evolution of Logistical Integration, 1960-2000

1980s
Materials Management Purchasing

Demand Forecasting

Requirements Planning Production Planning Manufacturing Inventory Warehousing Materials Handling Packaging Inventory Distribution Planning Order Processing Transportation Customer Service Strategic Planning

1990s 2000s
Logistics Supply Chain Management

Physical Distribution Information Technology Marketing

A Transport Geography of Logistics

Friction


Space
Core concept to geography. Location and accessibility. Transportation technologies.

Space

Time


Time
Core management concept. Communication technologies.

Geography of logistics
Information technologies. Gaining time by using efficiently distribution systems. Compromising space and time:
Locations. Networks. Interactions / Flows.

Logistics (Supply chain management) Locations Networks Interactions

A Transport Geography of Logistics: Location



Facilities
Warehousing. Technical requirements. Labor requirements.

Transactional environment


Accessibility
To suppliers. To customers. Overall supply and distribution chain.

Facilities

Accessibility

Transactional environment
National / local incentives (taxes and real estate). Political climate (security). International trade.

Site
Supply chain Distribution chain

A Transport Geography of Logistics: Networks

Average Path Length

Geographic Barrier

Network Length

Fully Connected Network

Minimum Network

A Transport Geography of Logistics: Interactions / Flows

Feedback Terminal

A
Warehousing (accumulation) function Large shipments Low frequency

Logistics

A
Transfer warehousing Small shipments High Frequency

Logistical Friction


Transportation costs
Distance / time. Energy / Environmental impacts.

Locations

Complexity of the supply chain

Number of parts and tasks. Number of suppliers and clients. Extent of warehousing and of consolidation.

Logistical Friction Networks Interactions

Transactional environment
Customs procedures and tariffs. Corporate management. Payments and foreign exchange.

Fluxes in a Fordist and Post-Fordist Production System

Fordism Post-Fordism Raw materials and parts

Manufacturing

Sales and distribution

Fragmentation of the Industrial Production System

Region A Region Factory Inputs

Task

Outputs

Region B Logistics Region C

Inbound Truck Traffic by US Port of Entry, 1997

The Emergence of the Logistics Industry

Parts

Conventional

Distribution Dilemmas
Delays and bottlenecks. Increasing distribution costs. High investment costs for expansion.

Distribution

Manufacturer

Logistics Industry
Separate service function.
Specialization. Third-party logistics.

Products

A Emerging

C
Subcontracting

Mergers, acquisitions and strategic alliances.

Controlling the whole transportation chain.

Consolidation of deliveries. Warehousing management.

More value-added activities.

Distribution Logistics Industry

Key players: UPS, FedEx, DHL, TNT.

15 Largest Owners of Warehouses, North America, 2000 (in millions of square feet)
0
United Parcel Service Exel General Motors GATX Logistics Supervalu Sysco AmeriCold Logistics Fleming Co. Tibbett & Britten Group Target Stores W.W. Grainger Inc. Kenco Logistics Services Standard Corp. NFI USCO Logistics

10

20

30

40

50

60

70

National Semiconductors, Supply Chain, 1996

Wafer Fabrication Portland Salt Lake City Midget Haemek Santa Clara Arlington Greenock

Assembly & Testing Cebu Malacca Penang Bangkok Toa Payoh

Prime Distribution Center Swindon Portland Santa Clara Tokyo Hong Kong

National Semiconductors, Improved Supply Chain, 1998

Wafer Fabrication Portland Salt Lake City Midget Haemek Santa Clara Arlington Greenock

Assembly & Testing Cebu Malacca Penang Bangkok Toa Payoh

Prime Distribution Center Singapore

National Semiconductors, Logistical Impacts



Before
5 regional distribution centers. 2 weeks delivery cycle. 700 logistics employees. Distribution costs 2.9% of sales. 42 freight forwarders contracting with 14 airlines.

After
1 global distribution center (Singapore). 4 days delivery cycle. 200 logistics employees. Distribution costs 1.2 % of sales. 1 logistical supplier (FedEx).

The Logistics of Mitsui & Co.

Needs Increase production efficiency. Reduce distribution costs. Services Offer and develop a logistical distribution system. Needs Reduce inventory costs. Offer better services to customers.

Production

Mitsui

Sales

Information fluxes Freight fluxes Orders

Producer Producer Producer

Distribution System Orders Logistical center Supervisions of orders and the inventory. Consolidation of deliveries.
Customer Customer Customer

Logistics and Instability



Just-in-time delivery to just-in-case stockpiling?

Current situation has created challenges for the North American logistics industry. Just-in-time system compromised.
Maintaining a buffer stock.

Modal dependency on trucking: 70% of US/CAN trade. Increased border delays (Canada US). Potential of geographical switch of supply chain management:
Readjustment to continental / regional scale. Security clearance as a comparative factor.

Information systems to mitigate the situation.

Pre-border clearance for regular users.

Reverse logistics


Suppliers


Management of reduction and disposal Reverse distribution

Collection of damaged or unsold products. Recycling of used products. Reusable packaging. The manufacturer takes responsibility for delivery as well as take-back.

Recycling / Reuse

Supply Chain

Disposal

Two reverse channels

Recycling / reuse (back to the suppliers). Disposal (shipment of nonrecyclable waste).

Customers

Environmental Vicious Circle of Logistics

Application of logistics

Emphasis on trucking and air transportation

More ton-km transported

Activities less spatially constrained

Energy consumption Pollutant Emissions Congestion

Space consumption Pressure on marginal land

Logistics and E-commerce

Supply chain Supply chain

E-Retailer
Warehousing

Retailer

Customers

Customers