SUPPLY-CHAIN MANAGEMENTMIT OpenCourseWarehttp://ocw.mit.edu 11.481J / 1.284J / ESD.192J Analyzing and Accounting for Regional Economic Growth Spring 2009 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.SUPPLY-CHAIN MANAGEMENT Supply-Chain Management (SCM) and Industrial Restructuring • What is a supply chain? • What are objectives of SCM?SUPPLY-CHAIN MANAGEMENT – SCM has been restructuring industries’ physical networks and coordination mechanism • automobile industry: information sharing • wholesaling industry: advanced Information Technology (IT) • computer-manufacturing industry: make to orderLITERATURE REVIEW Modern Logistics and Industrial Location Choice • Neoclassic theories on industrial location choice • Dipasquale and Wheaton (1996) • Application of logistic models to location choice • McCann (1998) • Dispersion economies along supply chains • Pereira (1996) • Chen (2002) • Polenske (2003)Empirical Analysis Assumptions • supply-chain configuration fundamentally determines demand for industrial space at macro level • inventory requirement determines demand for industrial space at micro level • at the regional level and from a sector perspective, the industrial real estate stock adjusts to its desired level gradually ⇨ The relationship between location-choice/inventory-holding and demand for industrial space holds over the time.EMPIRICAL ANALYSIS Consolidation vs. Dispersion firms in manufacturing industries, in general, have dispersed their production and distribution locations Sector Analysis • Manufacturing (Dispersed) • Electronics/Computers (D) • Transport Equipment (D) • Miscellaneous (D) • Food (Consolidated) • Other five sectors (unclear) 50 60 70 80 90 100 110 1989199019911992199319941995199619971998199920002001200220032004 Year IRE Stock Concentration IndexL H TEMPIRICAL ANALYSIS Summary of Empirical Analysis 1. Distribution sector has a more significant impact on location choice and property market than manufacturing sector. 2. As a whole, both manufacturing and distribution industries have dispersed to relatively small markets. 3. All manufacturing/distribution/retailing sectors, except metals, improved their inventory management. 4. In a supply chain, one player’s gains in inventory reductions are not necessarily at the cost of its suppliers or customers. 5. Space demand generally follows inventory requirements. 6. Traditional partial stock-adjustment model does not work.CHINA CASE STUDY Background • China has become global manufacturing center • SCM has been playing an increasingly important role in industrial location choice and regional economic development • logistics in China are considerably inefficient: spending on logistics accounted for 1/5 of GDP in 2000 (1/10 in the U.S.) • no systematic data on inventories and industrial property market ⇨ reply on case studies ⇨ focus on two sectors—traditional steel-making sector and relatively modern electric-appliances sectorCHINA CASE STUDY • Steelmaking Sector • supply chain: raw materials—steelmaking— manufacturing • Steel firms in Liaoning: two distribution channels • large steel firms prefer direct shipping (cost-effective) • small steel firms use intermediate distributors (flexible) • consolidation • Bao Steel: strategic global supply chains • integrated supply chains with suppliers and customers • information technology-based • centralize management and decentralize servicesCHINA CASE STUDY • Electric-Appliances Sector • products: customer goods • intensive market competition ⇨ actively implemented modern logistics • case study of Haier Group • providing high-quality service is equally or even more important than reducing total costs • successful SCM reform: (i) implementation of advanced information technologies, and (ii) proximity to end customers • location choice: dispersion of manufacturing/services • demand for industrial space: CDC/total demand reducedCHINA CASE STUDY Summary of Case Studies • SCM has been a core component in firms’ business models • different supply-chain requirements in different sectors • electric-appliances sector: actual impacts similar to findings in the U.S. ⇨ improve service levels and reduce costs • steelmaking sector: consolidation ⇨ increase negotiation power and reduce costs • Modern logistics’ increasingly significant impacts • generally consistent with the U.S. empirical findings • particularly true for modern firms, e.g., Haier GroupCONCLUSIONS Hypothesis Testing • theoretical analysis does not provide clear conclusion • location choice hypothesis: incorrect ⇨ dispersion • space demand hypothesis: correct ⇨ reduction Major Findings • distribution functions dominate location choice • firms reap economies of dispersion by proximity to customers • space demand follows improvement in inventory management • manufacturing firms in China are catching up in SCMSUPPLY-CHAIN MANAGEMENT Information in this presentation is from a dissertation by Dr. Yu Li, 2007. “Impact of Modern Logistics on Industrial Location Choice and Property Markets.” Ph.D. dissertation, Department of Urban Studies and Planning, Massachusetts Institute of Technology,