CHAPTER 1

GLOBAL SUPPLY CHAINS: THE ROLE AND

IMPORTANCE OF TRANSPORTATION
Transportation: A Global Supply Chain Perspective (9e)
Novack, Gibson, Suzuki, and Coyle
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 Discussion Outline
• Global supply chain flows
• The economic basis and logic of
improved global trade
• Contributing factors for global flows
and trade
• Supply chain concept

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Global Supply Chain Flows
 Export-Trade Flows of Merchandise

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 Import-Trade Flows of Merchandise

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 The Growth in the Volume of Global Trade

• Trade agreements
among countries
• A reduction in tariffs
• Greater acceptance of
importing finished
products (vs. raw
materials)

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The Economic Basis and Logic of
Improved Global Trade
 The Economic Basis and Logic of
Improved Global Trade (1)
• Absolute advantage
• Trade is beneficial if cost of production
for the same product differ between
countries
• Comparative advantage
• Trade is also beneficial even if one
country has lower cost of production
than other country in multiple
products
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Contributing Factors for Global
Flows and Trade
 Contributing Factors for Global Flows
and Trade (1)
• Population size and age distribution
• Urbanization
• Land and resources
• Technology and information
• Globalization

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 Population = Labor and Consumption

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 “Aging” Developed Countries (1)

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 “Aging” Developed Countries (2)

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 Urbanization
• The rise of “megacities” – By 2030, 60% of the
world’s population will live in urban areas (vs.
47% in 2000)
• Change most rapid in underdeveloped
countries – Urban infrastructure and
sustainability challenges

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 Land and Resources
• Crops
• Water
• Food
• Energy

Critical role of technology in mitigating resource

scarcity

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 Technology and Information (1)
• Technology as an “internal” change agent
• Enhanced efficiency, effectiveness, and
competitiveness of an organization
• Technology as an “external” driver of
change
• New forms of competition or new
business models

“Technology and transportation

services have been major factors supporting
these changes.”
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 Technology and Information (2)
• Technological “Game Changers”
• The Internet
• Industrial robotics
• Digitization of manufacturing –
Additive manufacturing or 3D printing

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 Globalization
Economic integration and reduction of trade barriers leads to increased global
flows of goods and services (comparative advantage), which leads to global
interdependence.
Benefits (Macro-level view)
• Lower prices
• Wider availability of goods and services
• Land and resource development
• New employment opportunities
• BRIC and VISTA countries

Challenges (Micro-level view)

• Increased level of complexity and competition
• Shorter product life cycles
• New forms of competition
• New business models
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Supply Chain Concept
Development of Supply Chain Concept
1960s: Physical Distribution
• Focus on system costs and trade-off among transportation, inventory
levels, warehousing, protective packaging, materials handling, and
customer service
1980s: Business Logistics/ Integrated Logistics
• Focus on coordination between the outbound and the inbound sides of
logistics. Analyzing trade-offs for the lowest total cost and the value of
demand aspects of customer service effectiveness
1990s: Supply Chain Management
• The extended enterprise or boundary spanning perspective, focusing on
a system of connected networks between the original vendor and the
ultimate final consumer

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 Physical Distribution

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 Logistics Network

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 Integrated Supply Chain
SCM is the art and science of integrating the flows of
products, information, and financials through the entire
supply pipeline from the supplier’s supplier to the
customer’s customer.
• Products / Services Flows:
• Suppliers
• Distributors
• Manufacturers
• Finance / Cash Flows, Information Flows:
• Wholesalers
• Retailers / Customers
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 The Basic Characteristics of a
Supply Chain
• An extended enterprise that crosses
the boundaries of the individual
firms to span their related activities
• Integrated two-way flows (forward
& reverse flows)
• Three key flows
• Products and related services
• Information
• Financials (cash)
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 Product/Service Flows
• Product flow is directly dependent
on effective transportation for
timely, reliable, and damage-free
product delivery to customers.
• Importance of reverse logistics systems for
returning products
• Different network designs (location, size, and
layout of facilities)
• Growing number of specialized reverse logistics
and transportation service providers

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 Information Flows (1)
• Traditionally, demand or sales data triggered
replenishment and served as a basis for
forecasting future demand for all members of
the supply chain.
• Lengthy time intervals between orders created
demand uncertainty, resulting in higher
inventory (safety stock) or stock out costs.
• This contributed to the “bull whip effect” in the
supply chain as the magnitude of uncertainty
increased with the “distance” from the market
or customer.
• Supply chain management mitigates the bull
whip effect by reducing the level of uncertainty.
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 Information Flows (2)
• Timely, two-way flows of accurate information
helps to mitigate the bullwhip effect.
• Bar codes and RFID
• Reduce uncertainty (thus safety stock)
• Forms of forward information – advanced shipment
notices (ASNs), order status information, and
inventory availability
• Transportation plays an important role in supply
chain efficiency (including level of inventory)
and effectiveness.
• Service reliability
• Transit time
• Efficiency through consolidation and merging in
transit strategies
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 Financial (Cash) Flows
• Cash flows involve backward flows of payment for
goods, services, and orders received.
• Shortened order and replenishment cycles mean
faster cash-to-cash or order-to-cash cycle.
• Faster cash flow reduces working capital
requirements for financing operations and
contributes to improved profitability.
• Transportation service quality contributes to
improved customer service and faster cash flow.
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 Summary
• Globalization through economic integration and
elimination of trade barriers increased global trade flows
and interdependence.
• Global trade flows continue to expand, motivated by:
• Population growth and age distribution
• Urbanization
• Land and natural resource use
• IT and non-IT technologies
• Increased global trade flows are dependent on integrated
flows of products/services, information, and finances
(cash).
• Increased flow of products/services elevated
transportation to a more strategic role in many
organizational supply chains.
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