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1 IEEE/SOLI’2008 Trends & Research Directions in Supply Chain & Logistics Engineering Chelsea C. White III Schneider National Chair of Transportation & Logistics Georgia Institute of Technology 13 October 2008

IEEE/SOLI'2008 Trends

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Page 1: IEEE/SOLI'2008 Trends

1IEEE/SOLI’2008

Trends & Research Directions in Supply Chain & Logistics Engineering

Chelsea C. White IIISchneider National Chair of Transportation & Logistics

Georgia Institute of Technology13 October 2008

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Presentation objective & perspective

Forces affecting global supply chain design & logistics Many important research challenges for improved

global supply chain design and operation, including– Risk and resiliency– Real time control, based on real time data

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Past & current situation - U.S. perspective

Manufacturing has gone off-shore, invested in manufacturing infrastructure.

Logistics has followed, made off-shore investments. Enablers: low labor, communication, & logistics costs Many risks/uncertainties in managing international supply chains Fuel, labor, and other costs are dynamic, contributing to ‘reverse

globalization’ Much anecdotal evidence; little data

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Stimulants to reverse globalization

Fluctuating fuel costs Currency dynamics (China’s currency is up 7% against

the U.S. dollar this year) Long lead-times usually mean large lead-time

variability Geopolitical & financial risk China

– Labor: potential shortages; new laws; increasing wages– Less generous incentives for low-end exporters– International freight transport network congestion– IP & contract law– Lack of uniform regulatory interpretation & enforcement

Available alternatives to the supplier footprint in China– Other Asian countries– NAFTA countries – Mexico & Canada– Caribbean

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Reverse globalization is a ‘mini-trend’

U.S. manufacturing & logistics are heavily invested in China Asian alternatives limited Labor cost advantage still goes to China Chinese government committed to continued growth &

investment; e.g., very recent increase in export tax rebates Chinese manufacturing & logistics have significant room for

productivity improvement Other ways of reducing fuel costs:

– Mode shifts (reduce energy cost but increase inventory cost)– Improved efficiency within each mode (APUs, EcoDrive, hybrid

vehicles) and regulations to motivate improved efficiency (CAFE)– Improved capacity/efficiency of global freight transport network,

vehicles, and vessels– Product & package design to reduce weight & cube

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Other issues

Capacity reduction due to economic slowdown – bankruptcies, slower speeds, parking vehicles

Global freight transport network changing Transport usually a small contributor to overall product lifecycle

GHG emissions Some products more efficiently produced outside home market Continued interest in preventing & effectively responding to

major supply chain & freight transportation network disruptions The potential for increased efficiency & reduced risk enabled by

IT - real-time supply chain control, based on real-time data

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Background Background

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Globalization, reverse globalization

Prince Rupert, Canada

SavannahNorfolkNew York

Los Angeles

Lazaro Cardenas, Mexico

Punta Colonet, MexicoHong Kong, ChinaCalcutta

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Growth in Trade as a Percentage of US GDP

2000, 26%

2020, 35%

1990, 13%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Percent of GDP

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Freight transport modes

8X Increase in Energy Consumption (BTU per ton-mile)and corresponding GHG emissions

4X Decrease

3X Decrease

Mode shifts can reduce energy consumption but may increase inventory costs

Tim Riordan, Interface

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Enabling infrastructuresEnabling infrastructures

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Enabling infrastructures – physical & information

Information– Role of information in transport: in-vehicle IT, infrastructure IT

Physical - global network – Panama Canal expansion ($5 billion)– Build Canada Plan ($31.3 Billion)– Punta Colonet, Mexico Container Port– India to spend $320 Billion over next 15 years– Dubai Logistics City– Santos, Brazil, to double it’s capacity by 2016 - other projects in

Argentina, Uruguay and Chile– “Inland Ports” being built in the U.S.A. – China, $54B over next 10 yrs for port improvements & expansions – Port projects in Singapore, Hong Kong, Hamburg, Rotterdam

Physical – vessels & vehicles– post Panamax ships

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U.S. national ITS architecture

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Yangshan Terminal Location

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12,000

Chamber Length 427m (1,400’)Vessel Beam 385.8m (1,265’)

Chamber Length 427m (1,400’)Vessel Beam 385.8m (1,265’)

Chamber Length 305m (1,000’)Vessel Beam 294.3m (965’)

Chamber Length 305m (1,000’)Vessel Beam 294.3m (965’)

*These dimensions were defined for a typical 8,000 TEU vessel

Existing LockExisting Lock New Lock*New Lock*

*Courtesy of

Panama Canal expansionPanama Canal expansion3rd Set of Locks & Vessel Dimensions

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Supply chain resiliencySupply chain resiliency

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Uncertainty & major disruption

Uncertainty – dealing explicitly with stochastic effects, e.g., variability in demand, supply, congestion, driver availability

Major disruption – a loss of nodes &/or links in the global freight transportation network

Resiliency in supply chains – preventing, gracefully reacting to, and quickly recovering from major disruptions

Comment: lean supply chains are notoriously fragile Policy implication – the balance in investment between

prevention & quick recovery R&D challenge – for models of sequential decision making

(e.g., route finding, MDP), a weighted sum of a multiplicative criterion and an additive criterion produces violations of the Principle of Optimality (dynamic programming); games

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Toyota Brake Plant Fire

1997

UPS Labor Strike

1998

Terrorist Attacks & U.S.-Canada

Border Closures

GM Labor Strike

Taiwan Earthquake

1999 2000 2001 2002 2003

Nokia - Ericsson Supplier Fire

Longshoreman Strike & West Coast Ports

Lockout

Iraq War

SARS Outbreak

Supply Chain Disruptions

Sarbanes-Oxley Act

Business Failures: Enron, Arthur Andersen, Worldcom, Global

Crossing, K-Mart, etc.

Ford-Firestone Tire Recall

NASA Columbia Disaster

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Loss of Key Personnel

Restriction of Access / Egress

Logistics Provider Failures

Dealer Distribution Network Failures

Computer Virus / Denial of Service Attacks

IT System Failures (Hardware, Software, LAN, WAN)

Service Provider Failures

Harassment & Discrimination

Loss of Key Equipment

Tier 1, 2, 3, …nSupplier Problems: Financial Trouble, Quality “Spills”, Failure to Deliver

Materials, etc.

Warranty / Product Recall Campaigns

Logistics Routeor Mode

Disruptions

KidnappingExtortion

VandalismArson

Info. Mgmt. Problems

Supplier Bus. Interruption

HR Risks – Key Skill Shortage, Personnel Turnovers

Loss of Key

Supplier

Op. Risks

Accounting or Internal Controls Failures

Embezzlement

Gov’t Inquiries

Theft

Operator Errors /

Accidental Damage

Workplace Violence

Health & Safety

Violations

Utilities Failures Communications, Electricity,

Water, Power, etc.

Financial Risks

Revenue Management

Equip., Facilities, Business Acquisitions & Divestitures

Asset ValuationLiquidity / Cash

Debt & Credit Rating

Fuel PricesInterest Rate Fluctuations

Currency & Foreign Exchange Rate Fluctuations

Accounting / Tax Law Changes

Economic Recession

Currency Inconvertibility

Credit Default

Uncompetitive Cost Structure

Financial Markets

InstabilityInadequate /

Inaccurate Financial Controls & Reporting

Health Care & Pension Costs

Shareholder Activism

Adverse Changes in

Industry Regulations

Adverse Changes in

Environmental Regulations

Boiler or Machinery Explosion

Hazard Risks

Property DamageBldg. or Equip. Fire

Building Collapse

Asbestos Exposure

Mold Exposure

Cargo Losses

Land, Water, Atmospheric

Pollution

Geopolitical RisksSevere Hot / Cold Weather

Disease / Epidemic

Animal / Insect InfestationBlizzard / Ice Storms

Hail Damage

Lightning Strikes

EarthquakeFlooding

Wildfire

Hurricane / Typhoon

Heavy Rain / Thunderstorms

Tsunami

Volcano Eruption

Wind Damage

Building Subsidence &

Sinkholes

3rd Party Liability

General Liability

Product Liability

Directors & Officers Liability

Workers Compensation

Deductible Limits

Terrorism / Sabotage

Tornados

Loss of Key Facility

Strategic Risks

Customer Relations

Corporate Culture

Budget Overruns or Unplanned Expenses

Product-Market Alignment“Gotta Have Products”

Attacks on Brand Loyalty

Public Boycott & Condemnation

New or Foreign Competitors

Market Share Battles

Joint Venture / Alliance Relations

Pricing & Incentive Wars

Ineffective

Planning

Union Relations, Labor Disagreements &

Contract Frustrations

Customer Demand Seasonality & Variability

Mergers & Industry Consolidation

Perceived Quality

Inadequate Mgmt. Oversight

Negative Media Coverage

Product Design & Engineering

Program LaunchDealer Relations

Timing of Business Decisions & Moves

Technology Decisions

Product Development Process

Supplier Relations

Foreign Market Protectionism

Ethics Violations

Offensive Advertising

Loss of Intel. Property

Industry Portfolio of Risks

Enterprise Risks

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Real-time supply chain control, based on real-time data

Real-time supply chain control, based on real-time data

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Where do the data come from?

Inventory levels Production rates Vehicle, vessel, or trailer

– Position– Speed– Direction– Temperature– Oil or air pressure

Driver alertness Traffic congestion Weather Freight status & visibility

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Real time control, based on real time data

The next level of supply chain efficiency, resilience, stability What’s the value of real-time data? Is it worth the IT

infrastructure investment? Operationally, how to extract the value (optimally, sub-optimally)

of real-time data? Dealing with data corruption: sensors, transmission, processing What is impact of data processing delay on information value? Are we sure that improved system observation will improve

system performance?

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Perishable Product Transportation with Costly Observation

Taesu Cheong & Chelsea C. White IIITaesu Cheong & Chelsea C. White IIISchool of Industrial and Systems EngineeringSchool of Industrial and Systems Engineering

Georgia Institute of TechnologyGeorgia Institute of Technology

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Problem

How to most effectively transport temperature sensitive freight from origin to destination

Common practice: try to control temperature in transit. If goods perish, then discard at the destination.

Question: how valuable would it be to check freight at intermediate locations between origin and destination and abort transport once it is determined freight is spoiled?

Example: Transport temperature sensitive freight from Japan to LA/LB to Atlanta.

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Temperature control in reality

Temperatures in an air freight shipment with the instruction to maintain temperatures between 2°C and 8°C (Heap, 2006)

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Economic impact of food spoilage

– 19% of food consumed in U.S. is grown in other countries

– Up to 20% of food is discarded due to spoilage (FDA)

– U.S. food industry annually discards $35 billion worth of spoiled goods (Forbes Magazine, April 24, 2006)

– 25% of all vaccine products reach their destination in a degraded state (Black, 2003, quoting WHO)

Black, A., E-Logistics in Cold Chain Management, http://www.samedanltd.com/members/archives/EPC/Summer2003/AlastairBlack.htm

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Problem Statement

00 11 nn n+1n+1 NN… …

W: wholesale purchase cost c(n,n+1): transportation cost from n to (n+1)

Rs: reward for state s

0 n n+1

Decisions

Problem Setting

NI: no inspection at (n+1)

I: perform inspection at (n+1)R: return to the origin

M: inspection costDs: disposal cost for state s

Origin DestinationIntermediate Inspection Points

1,0)2,1(1, 1cnncnncnC n

States• (S+1) states: 0 (fresh), 1, …, S (spoiled)• P: State transition probability matrix from location n to (n+1)

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Conclusion

Value of information - Investigated the value of having the choice to inspect freight quality at intermediate locations in transit

Business implications:– Better inform decision to invest in IT infrastructure– Better understanding of how to set price; what profit to expect– Operationally, when to inspect

Basic knowledge creation:– Structure of optimal reward functions & optimal policies– Bound on value of information – Real time algorithmic development

Future research: examination of results in context of inventory system – when to expedite

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Thank youThank you