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Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global Supply Chain & Logistics

From SCDigest's On-Target e-Magazine

- Aug. 14, 2013 -


Supply Chain News: Will New Approaches to Manufacturing and Distribution Change the Current Dominant Global Logistics Model?

MIT's Chris Caplice Says Emerging Trends will Disrupt Existing Distribution Paradigms - Question is Not If but When


SCDigest Editorial Staff


Are emerging trends in manufacturing and distribution going to upset the current physical distribution model in the US?

Likely Yes says Dr. Chris Caplice, executive director of MIT's Center for Transportation and Logistics, in a recent blog post.

SCDigest Says:


Companies planning mid-term supply chain networks and logistics strategies should adopt a forward looking strategy, not a rearward looking one, and embrace the value of network flexibility in a dynamic supply chain world.

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There is a common pattern in many domains relative to lifecycle evolution, from new product development to supply chain and logistics, Caplice says.

In new product markets, typically you see wildly different variants that are released and tested in the market, but eventually they converge on a common core set of features. That is, a dominant design emerges from the pack to become the de facto standard.

Once that de facto standard is embraced, the industry turns from a focus on innovation to the relentless pursuit of greater operational efficiencies within that standard.

He says the history of the cell phone industry is a perfect example of this pattern.

And that same type of process can often be seen in supply chain and logistics, says Caplice.

"The dominant design of distribution over the last several decades has been ocean-based transport from China to (usually) US West Coast ports and then into a multi-echelon distribution network," Caplice writes. "This means that most products are funneled into one of just 25 leading gateways and then are moved to deconsolidation points by truck and rail, and delivered by road to the final destination."

As that model has become the standard, a variety of logistics providers continue to make investments to drive additional efficiencies within that framework. Caplice cites examples such as BNSF's TransCon Corridor, CSX's National Gateway, and Norfolk Southern's Crescent Corridor as three (very big) examples of these recent investments.

But might the current paradigm be changing, perhaps putting some of those investments at risk over the mid-term?

Caplice says there are four trends that may combine to upset the current logistics apple cart:

Densification of Product: This is the process of reducing product size while maintaining or increasing its value. Examples of densification include laundry detergent (shifting from liquid to concentrate), portable computer storage (think magnetic tapes to floppy disks to USBs to microSD cards), pre-recorded music (from vinyl to 8-tracks to cassettes to CDs) and electronic goods (consider all the components within a smart phone to their 1980s equivalents).

(Global Supply Chain Article Continued Below)



Transporting product in smaller units enables companies to cut the number of containers, trucks, and rail cars used in distribution networks as well as potentially shift to other faster modes such as air.

Diversification of Sales Channels: Online retailers such as have grown rapidly over recent decades. Now, omni-channel retailing is gaining ground, where traditional retailers bundle online, mobile, and traditional channels to compete for sales. The retail store can become a DC and the DC a final delivery point.
This shift requires retailers to rethink the way they distribute product and could dramatically change the dominant multi-tiered echelon system of today.

Decentralization of Production: One of the primary reasons manufacturing is conducted across the globe is to achieve economies of scale; a single massive plant can reduce production costs. But, what if new manufacturing technologies and production processes dramatically diminish these economies of scale? Additive manufacturing/3D Printing and programmable robotics are just two examples. As the economies of scale are reduced, production can be decentralized into smaller, perhaps regionally-based manufacturing clusters that are closer to population centers.

Why ship product half way across the world and funnel them through ports when a more customized product can be built across town?

Digitization of Products:
This is the long-predicted shift away from physical to information-based products. While this is old news for knowledge-based products such as books, music, and movies, it is now starting to happen to more traditional products. The intellectual property of the product (the design or recipe) is being bifurcated from the physical product (or the ingredients). This will not only lead to more decentralized production, it could spawn even more dramatic supply chain changes.

"As these trends play out, there will likely be a period when many different logistics models emerge. The shape of the dominant model is unknown, but it will look very different from the one we follow today," Caplice says. "Perhaps the real question is not whether this current dominant design will be disrupted, but when."

The bottom line: companies planning mid-term supply chain networks and logistics strategies should adopt a forward looking strategy, not a rearward looking one, and embrace the value of network flexibility in a dynamic supply chain world.

Do you think the current logistics paradigm will be transformed based on these trends? Let us know your thoughts at the Feedback button (email) or section (web form) below.


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