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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
2IEEE/SOLI’2008
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
3IEEE/SOLI’2008
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
4IEEE/SOLI’2008
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
5IEEE/SOLI’2008
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
6IEEE/SOLI’2008
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
7IEEE/SOLI’2008
Background Background
8IEEE/SOLI’2008
Globalization, reverse globalization
Prince Rupert, Canada
SavannahNorfolkNew York
Los Angeles
Lazaro Cardenas, Mexico
Punta Colonet, MexicoHong Kong, ChinaCalcutta
9IEEE/SOLI’2008
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
10IEEE/SOLI’2008
11IEEE/SOLI’2008
12IEEE/SOLI’2008
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
13IEEE/SOLI’2008
Enabling infrastructuresEnabling infrastructures
14IEEE/SOLI’2008
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
15IEEE/SOLI’2008
U.S. national ITS architecture
16IEEE/SOLI’2008
Yangshan Terminal Location
17IEEE/SOLI’2008
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
18IEEE/SOLI’2008
Supply chain resiliencySupply chain resiliency
19IEEE/SOLI’2008
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
20IEEE/SOLI’2008
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
21IEEE/SOLI’2008
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
22IEEE/SOLI’2008
Real-time supply chain control, based on real-time data
Real-time supply chain control, based on real-time data
23IEEE/SOLI’2008
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
24IEEE/SOLI’2008
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?
25IEEE/SOLI’2008
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
26IEEE/SOLI’2008
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.
27IEEE/SOLI’2008
Temperature control in reality
Temperatures in an air freight shipment with the instruction to maintain temperatures between 2°C and 8°C (Heap, 2006)
28IEEE/SOLI’2008
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
29IEEE/SOLI’2008
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)
30IEEE/SOLI’2008
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
31IEEE/SOLI’2008
Thank youThank you