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© 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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 2
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 3
Supply Chain Management
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 4
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 5
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 6
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 7
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 8
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.
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 9
Regional Strategic Transportation Planning
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 10
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.
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 11
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.
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 12
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)]
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 13
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 14
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 15
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 16
SCM / RSTP Interfaces
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 17
• 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?
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 18
• 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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 19
• 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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 20
How Supply Chains are affected? A Policy Inventory
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 21
Current Research
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 22
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.
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 23
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)
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 24
Representation Phase. Step 1:Goal Identification.
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 25
Representation Phase. Step 2:
Major Sub-system Identification.
Transportation
Land Use
Environment
Manufacturing &SCM
Economy
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 26
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 27
Representation Phase. Step 3: (II)
Economy Sub-system.
FactoryOutput
ProductDemand
TradeRegulations
Product Pricing
TransportPricing
FactoryLocation
EconomicOutput
Private Strategy
InfrastructureFinancing
RegionalStrategy
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 28
Representation Phase. Step 3: (III)
Land-use Sub-system.
InfrastructureNetwork
Land UseRegulations
ResidencyLocation
FactoryLocation
Retail /Warehouse
Location
Damp /RecycleLocation
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 29
Representation Phase. Step 3: (IV)
Environmental Sub-system.
ExternalitiesMagnitude
VehicleEmissions
Fleet
Ecosystemand Habitat
Loss
Industrial andResidential
LocationInfrastructure
ExternalitiesRegulation
ManufacturingEmissions &
Waste
ProductionOutput
ProductionProcess
RegionalStrategy
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 30
Representation Phase. Step 3: (V)
Manufacturing Sub-system.
ProductionOutput
ProductionProcess
ProductDesign
RawMaterials
ProductDemand
OutsourcingDecisionsSuppliers
TransportationFlow
Warehousing
Retailers
ProductPricing
Supply ChainMethods
TransportCosts
Profitability
PrivateStrategy
ExternalitiesRegulation
TradeRegulations
TransportPricing
Competition
TransportRegulations
Fleet
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 31
Representation Phase. Step 3: (VI)
Institutional Sphere.
Enterprise
InfrastructureFinancing
ExternalitiesRegulation
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 32
Representation Phase. Step 3: (VII)
Overview
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 33
Representation Phase. Step 4: Describe
Compo-nentsand Links:
Link Matrix Analysis
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 34
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
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 35
Design and Evaluation Phase. Step 6: Need – Metrics Matrix
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 36
Further Research
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 37
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).
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 38
Your Feedback
© 2004 Sgouris Sgouridis , Engineering Systems Division, Massachusetts Institute of Technology 39
(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.