Supply Chains, Supply Chains, Globalization and the Globalization and the Future of Goods Future of Goods Movement in California Movement in California

Randolph HallRandolph HallEpstein Department of Industrial & System Epstein Department of Industrial & System EngineeringEngineeringUSC Viterbi School of EngineeringUSC Viterbi School of Engineering

October 24, 2004October 24, 2004Lake Arrowhead ConferenceLake Arrowhead Conference

Rise of GlobalismRise of Globalism

PrimitivePrimitive Emerging Cities (10,000 years)Emerging Cities (10,000 years)

– Innovations: agriculture, metal toolsInnovations: agriculture, metal tools Industrialization (200 years)Industrialization (200 years)

– Innovations: steam power, Innovations: steam power, telegraph,partstelegraph,parts

Data (50 years)Data (50 years)– Computers, Comm, WebComputers, Comm, Web

ThenThen

People locate near food and waterPeople locate near food and water People move, not goodsPeople move, not goods Produce to meet needs of own Produce to meet needs of own

communitycommunity Little specializationLittle specialization Little spread of knowledgeLittle spread of knowledge Little movement of goodsLittle movement of goods

NowNow

UrbanizationUrbanization Larger agglomerations of Larger agglomerations of

productionproduction Greater specializationGreater specialization Larger citiesLarger cities Fast spread of knowledgeFast spread of knowledge Transportation over larger regionsTransportation over larger regions

Factors Favoring TradeFactors Favoring Trade

Resources (e.g., oil, coal)Resources (e.g., oil, coal) Climate (e.g., water, food, timber)Climate (e.g., water, food, timber) Scale economies (e.g., flu Scale economies (e.g., flu

vaccines)vaccines) Regional Specialization (planes, Regional Specialization (planes,

computers, cars)computers, cars) Wages Differentials (clothing, Wages Differentials (clothing,

consumer products)consumer products)

Example SourcesExample Sources

Oil: Middle EastOil: Middle East Food: ChileFood: Chile Airplanes: FranceAirplanes: France Cars: DetroitCars: Detroit Clothing: ChinaClothing: China

EnablersEnablers

Containerization, super-sized shipsContainerization, super-sized ships Air travel efficiencyAir travel efficiency Communication/ITCommunication/IT Financial MarketsFinancial Markets IP regularizationIP regularization Trade agreementsTrade agreements SecuritySecurity

The DriversThe Drivers

International MarketsInternational Markets Overcoming national, cultural, Overcoming national, cultural,

language barrierslanguage barriers Efficient transportationEfficient transportation Communication/controlCommunication/control

Centers of InnovationCenters of InnovationCould They Exist Without Could They Exist Without Trade?Trade? HollywoodHollywood Silicon ValleySilicon Valley DetroitDetroit New YorkNew York SeattleSeattle BombayBombay ParisParis

Can Drive for Trade be Can Drive for Trade be Reversed?Reversed? Resources: unlikelyResources: unlikely Climate: artificial climate?Climate: artificial climate? Scale economies: rapid prototyping?Scale economies: rapid prototyping? Regional Specialization: tele-Regional Specialization: tele-

presence?presence? Wages Differentials: free Wages Differentials: free

immigration?immigration?

Otherwise: If Barriers are RecreatedOtherwise: If Barriers are Recreated

What Do We Transport the What Do We Transport the Most?Most?Can We Do it Less?Can We Do it Less?

Water: live near the source?Water: live near the source? Food: less choice?Food: less choice? Oil: drive less?Oil: drive less? Timber products: live near the Timber products: live near the

source?source? Electronics, Clothing: automation, Electronics, Clothing: automation,

immigration?immigration? Autos: economies of scope; less Autos: economies of scope; less

choice?choice?

Supply Chain StepsSupply Chain Steps

Idea GenerationIdea Generation ExtractionExtraction StorageStorage TransformationTransformation Assembly/Dis-assemblyAssembly/Dis-assembly TransportationTransportation

CharacterizationCharacterization

Where?Where? Which step?Which step? By Whom?By Whom? How much?How much?

Vertically Integrated: Ford River RougeVertically Integrated: Ford River Rouge

Today: Globally Sourced, Great Range Today: Globally Sourced, Great Range of Business Arrangements, Choiceof Business Arrangements, Choice

ExampleExample

Design Generated in San JoseDesign Generated in San Jose Chip Fabricated in PhoenixChip Fabricated in Phoenix Product Assembled in ChinaProduct Assembled in China Product Consumed in Chicago, Product Consumed in Chicago,

passing through Los Angeles on passing through Los Angeles on the Waythe Way

Sub-region Source: Large Sub-region Source: Large Consumption, Weak Scale Consumption, Weak Scale Economies, High Transport CostEconomies, High Transport Cost

Central Regional Source: Central Regional Source: Must Compete for Central Must Compete for Central City SitesCity Sites

Outside Region Outside Region Source: Effect of land Source: Effect of land costscosts

Distant Source: TradeDistant Source: Trade

Pass Through Region

Can We Reduce Trade Can We Reduce Trade Through a Region?Through a Region? Less Trade: A Step Backward in Less Trade: A Step Backward in

InnovationInnovation Alternate Port: outside region?Alternate Port: outside region?

– Natural harborsNatural harbors– Infrastructure investmentInfrastructure investment– Barriers to some transport routesBarriers to some transport routes– Large % locally destinedLarge % locally destined– Employee/Industry BaseEmployee/Industry Base

Within Region Rail?Within Region Rail?

The FutureThe Future

Goods movement is product of 10,000 Goods movement is product of 10,000 year trend of innovationyear trend of innovation

Trade is likely to increaseTrade is likely to increase Trade will continue to use West Coast Trade will continue to use West Coast

ports, especially Long Beach, Los ports, especially Long Beach, Los AngelesAngeles

Goods Movement Will Consume an Goods Movement Will Consume an Increasing Share of Transport Increasing Share of Transport InfrastructureInfrastructure

Moderating FactorsModerating Factors

Far more road capacity is consumed Far more road capacity is consumed by passenger travel than goods by passenger travel than goods movementmovement

Goods movement often occurs outside Goods movement often occurs outside the automobile peak, sometimes in a the automobile peak, sometimes in a counter commute directioncounter commute direction

Issue is somewhat localizedIssue is somewhat localized Pass through traffic is more likely to be Pass through traffic is more likely to be

on railon rail

What to DoWhat to Do

Hard to Avoid Capacity IncreasesHard to Avoid Capacity Increases Cost Efficiency Should be Considered: Cost Efficiency Should be Considered:

single use roads are expensive to single use roads are expensive to build, and do not maximize utilizationbuild, and do not maximize utilization

Market Solutions for Allocating Market Solutions for Allocating Capacity: cost-effective, but will it ever Capacity: cost-effective, but will it ever fly?fly?

Should minimize negative impacts : Should minimize negative impacts : noise, crashes, pollutionnoise, crashes, pollution