Multi-Modal Transport System Effects on Selection of Global Supply

UNIVERSITY OF GLAMORGAN BUSSINESS SCHOOL| Globalization of Logistics and Supply Chain: Selection Of Global Supplier Over Local Impacts On Sustainability of Supply Chain| Key words : Sustainable Supply Chain, Multi- modal/Intra-modal Transport, Transport modes, Logistics, Operations, Sustainability, Triple bottom line| | Aqeel Iqbal| 15-Apr-13|This paper is conceptualizing on combination of transport modes organisation use to maintain sustainability in their supply chain by keeping the carbon foot print to minimum, this paper utilizes desk research to evaluate the impact of this approach on the organisations who prefer global suppliers over local evaluating the trade-offs these organisations need to make in order to maintain an equilibrium of sustainability in their supply chain concluding on the fact that dependent on an organisational willingness to be environmentally sustainable future most practices don’t need a choice of cost over environment but some need sacrifice of at least one to maintain sustainability. | Introduction This research paper is aimed to critically evaluate and answer the research question of: how selection of global over local suppliers affects organisation’s sustainable supply chain strategy while considering the impact of ‘‘multi-modal’/‘intramodal’ choice’ and what trade-offs does these organisations need do in order to achieve this?To answer this research question it is essential to address two wide areas in business literature, gaining an understand of what these areas actually mean to an organisational operational strategy: first being identification of different intramodal/multimodal transport choice used in local and global supply chains; whereas the second to critically evaluate why priority is given by different organisations to select global suppliers over local, while achieving reasoning from prospective of different Industries and organisations within those industries for t he trades-off they are willing to do in order to implement selected means in to practice, while maintaining the sustainability of their supply chain. This paper divided into four nterlinked parts will use desk search to grasp understanding on wide topics of present transportation modes, multi-modal/intramodal transportation system, and sustainability of supply chain (focusing on logistics and operation function) and Impacts of selecting global supply chain; dividing each part by sub-research questions asked to the reader at end of each part; While concluding the paper on the notion that selection of the mode depends on trade-offs an organisations is willing to make between being ecological sustainable to cost and service. Transportation modes at present In the past decades the transportation system has been regarded as a separate function and an additional cost to the organisations supply chain (Huge-Brodin, 2013); which has also often been likened with the objective of cost minimis ation rather than a value adding factor (Cunningham, 1982).However, this long-established concept has been critiqued to be a value added activity in the supply chain from literature of twenty first century (E. Bo and Hammervoll, 2010; Freight best practice, 2013; Huge-Brodin, 2013) based on the emerging demand for advanced logistics services and the globalization trends, demand in cutting of lead period, short product life cycles, and increased technology use and outsourcing trends (Anthony D. Ross, 2012). This notion has lead organisations consider flexible and effective freight flow which can match and fulfil organisation needs dependent on their market and environment (Cunningham, 1982; Murphy and Farris, 1993; Huge-Brodin, 2013).In order to understand how to use the right transportation mode freight movement it is eminent to know different transportation methods used by organisations at present and critically evaluate the advantages and disadvantages of each of them (see Appendi x A & B). (Appendix A&B) does not show one of the major transport mode pipeline mainly because of its use in movement of specific kind of freight like oil and gas thus not firmly a modal choice it has a high initial cost of setup but is full reliable cost effective and environment friendly (CEFIC, 2011; Freight best practice, 2013). There are four major categories of freight transport used presently: inland water and sea, air, pipeline, and land.Whereas most literatures in the past categorised land into sub modes in order to evaluate the effectiveness of them as Road and Rail (Murphy and Farris, 1993; Freight best practice, 2013); thus for the purpose of this paper five inclusive the sub categories will be used. Maria Feo-Valero and her colleagues (Feo-valero, Menendez and hidalgo, 2011) in a review to bibliography has highlighted Freight Value Of Time (FVOT) as a scale for the methods of transport mode selection; based on the rate of substitution between travel cost and time called value of time (VOT) as different modes vary majorly in consciences of amount they carry in given time and the cost to the organisation (Feo-valero, Menendez and hidalgo, 2011) .As different organisations in the same industries have different priories of transport mainly dependent on their locations, sustainability, market share, quantity, size and weight of inventories (Carter and Rogers, 2008; Meixell and Mario, 2008) as an example retail industry consists a combination of deep-sea mode which commute inventories internationally (may contain inventories for various competitors within the same region in a container (Fawcett and Mangan, 2002; Pettit, Liu and Beresford, 2011)) then through either rail or road depended on inventory size, weight, type and location of main warehouse and sustainable practice of the organisation is selected from which may be distributed via road transport either to depot or directly to the retail store (Wu and Dunn, 1995; Huge-Brodin, 2013). The FVOT value has been an important addition to the logistics planning following the concept of cost reduction with less recognition over time but similar frameworks illustrate results which have been used to optimize time and cost of transportation of freight (Murphy and Farris, 1993; Carter and Rogers, 2008).Which lead managers and academics to a conclusion that combination of more than one mode is mostly profitable to organisation (Murphy and Farris, 1993) but depended on type of freight and relative distance but is it that simple in present world? Multimodal/ Intermodal Transportation System Multimodal and intermodal being the two words used in literature with synonymous meaning of: ‘usage of one or more than one mode of transport’ innocently interoperated occasionally. Thus it is important to address this for the purpose of this paper: intra-model transport with only one significant difference to multimodal is that the freight being transported are not handled on every occasion when the mode of transport is changed (Freight best practice, 2013) in opposition to multi-modal where freight are andled each time for example in case of container caring automobile that arrive at deep sea port is opened and cars remove from the container are loaded on a auto-transport trailer to carry by the trailer to showroom (Worthington and Britton, 2006). For the purpose of this paper multi-modal will be used to demonstrate more than one of transport. Multi-modal transportations have answered to the cost reduction of the orthodox literature on reduction of cost and time freight transport: as discussed earlier in the retail example for the ship carrying inventories of different competitors in a shared container reducing cost by sharing of container, and dependent on the agile approach of any of these competitor time frame of getting inventors from deep sea port to stores can be reduced by using road mode rather than rail (Logistcs Cluster, 2011).As the field of transportation evolved â€Å"Deregulation of the rail and trucking industries, implementation of innovative manufacturing strategies such as Just in Time (JIT),increased emphasis on quality management† (Meixell and Mario, 2008) and stakeholder (R. E. Freeman, 1984) consideration have all contributed to cause complexity in transportation selection (Murphy and Farris, 1993) developing the traditional view of just selecting the mode and type of carrier (Meixell and Mario, 2008). In present time logistics/operation manages are bound to understand the Industries challenges faced by the organisation as explained by (Meixell and Mario, 2008) in their paper comparing â€Å"Transportation capacity shortage, and International growth, Economies of scale and scope, Security concerns, Environmental and energy used†.As research carried by (Pettit, Liu and Beresford, 2011) on the extraction and transportation of iron ore from Australia to China utilizing multimodal transportation relied on more co nvectional mode of transport Deeps Sea for country to country transportation but other than that saw were some limitations imposed on multimodal transport options for bulk cargoes. As Iron ore flows are typically as â€Å"high volume – high weight – low value and transhipment is time consuming, energy intensive and expensive† thus minimising the modes of transportation and limiting â€Å"large number of transhipment points†. As the research question point out need to investigate the sustainable options to transport the next parts of the essay will achieve an understanding: Is global multi-modal transportation a sustainable option for an organisations supply chain and what trade-offs are organisations willing to make in order to implement this modal in their supply chain?In order to answer this it is critical to first grasp an understanding of what sustainable supply chain means to an organisation? Sustainability of Supply Chain Shareholder theory stating the organisations primary focus being increasing shareholders wealth (Friedman, 1970) has overly been critiqued by the stakeholder theory over the topic of ill consideration of environmental and social sustainability (R. E. Freeman, 1984; Jensen, 2002; Murphy, 2012). Sustainability as defined by (Worthington and Britton, 2006: 510) â€Å"An approach to economic growth and development which takes account of the social and environmental consequences† also referred to as the triple bottom line approach (Elkington, 1994; Carter and Rogers, 2008; Seuring and Muller, 2008).Supply chains by definition necessitate organisations to work collectively with the purpose of adding value to the customer by physical movement of goods. In present world combination of different supply chains have come together to form a supply web (Poter. M. E, 1985,1996; Handfield and Nichols, 2002). As the research question only relates with the impact of the multi-modal choice impact on the supply chain thu s functions supporting function from Poter’s value chain model are side lined and emphases is given on the inbound/outbound logistics and operations (Poter. M. E, 1985,1996) value chain model (explaining supply chain as a combination of value adding activates within an organisational structure).Inbound/Outbound logistics being one of the most important function of the supply chain (Carter and Rogers, 2008) has been linked to sustainability because of inclusion of one the most costly and environmentally harmful sub-function (transport function) in it (Huge-Brodin, 2013) as according to (CEFIC, 2011) report Transport including freight accounts for 20% of all EU’s green house gas emissions which was projected to raise to 30% by 2020 if precautions are not taken. Sustainability a wide topic in itself has been of great interest to all the stakeholders in present time especially to customers, governments and non-Governmental organisations (NGOs); Pressurising organisations t o operate in environmental and social friendly manner and demanding transparency from organisation supply chains (Carter and Rogers, 2008; CEFIC, 2011; Freight best practice, 2013). This transparency majorly driven y corporate reporting, â€Å"Interoperable software and globalization of supply chains† making it hard and risky for an organisation to do corporate unethical activities (Carter and Rogers, 2008)as: in case logistics external stakeholders are mainly interested in the economical and the environmental impact on sustainability for example raised awareness in sustainability of environment presently as consumers looking at carbon foot print (total amount of carbon emission done in to getting the product to the end user (Freight best practice, 2013))before purchase of a product (Anthony D. Ross, 2012); Carbon footprint is one of most important variable, while calculating environmental sustainability (Anthony D. Ross, 2012; Carter and Rogers, 2008; Feo-valero, Menendez an d hidalgo, 2011).As all three Economical, social and Environmental impacts are considered while making a mode selection, (Carter and Rogers, 2008) drew a wider picture of implications in the their version of triple bottom line(3BL) (see Appendix C)by including the risk management, organisational culture, transparency and organisational strategy as the factors basing the triple bottom line of an organisation. Whereas placing a question mark at being good which relates the social and environmental factors of 3BL following the viewpoint of some scholars like (Walley and Whitehead, 1994) stating â€Å"environmental and social initiatives are costly undertakings† (Carter and Rogers, 2008).In contrast to statement by (Walley and Whitehead, 1994) some logistics and operations functions fall in the category of being sustainable in all forms as resulted in a study done in 1980 on 45 firms in Denmark; results found suggested 20 out of 45 to be cost saving options (Dielman and de Hoo, 1 993) for example: efficient routing of transport, reducing packaging, improving operational order in warehouses and having fuel efficient transportation, (Carter and Rogers, 2008) and reverse logistics for some Industries as the fabricated metal products industry and electric/electronic products industry used as topic of research by (Talbot, Lefebvre and Lefebvre, 2007).According to (Wagner, 2005) In practice, organisation try hard to achieve a win-win situation when considering the economic and the environmental aspect; but when it comes to trade-offs based on the analysis of all there dimension (Seuring and Muller, 2008) have rated the economic dimension of being the most important from the view of the organisation explaining the notion that â€Å"without economic success, there would be no supply chains† whereas trade-offs between environmental and social dimension dictions have not been clear (Wagner, 2005). This now leads to the question of: Are global multi-modal sustai nable and what trade-offs does an organisation need to make while selecting them? Global Supply chain Impacts and Trade-offs Following the challenges faced by the organisations highlighted earlier in the paper by (Meixell and Mario, 2008).As different Industries operate in different ways and organisations within those industries may also differ in operation and strategy example form the fashion retail industry being: Zara fashions, number one fashion retailer of the world benefited with highly agile supply chain function; highly integrated communication and inventory management system (Euromonitor International , 2011) . Where as in comparison its nearest competitor GAP utilizing a more leaner approach to reduce the uncertainty; both organisations being global brands but with different operational strategies and possessing their own comparative advantage within fashion industry.As both these companies source some of their products from global suppliers but because of difference in o rganisational strategies and core competency rely on different sources as Zara with its most of its operations and headquarters in Spain use more European to aid its agile approach with tradeoffs cost to small batches of inventory levels at each store every fourth week (Euromonitor International , 2011; Paloma Diaz Soloaga and Mercedes Monjo, 2010) making Zara environmentally and economical less sustainable to GAP but Zara make that up with local most manufacturing locally in Spain (Euromonitor International , 2011). As the research question converse the notion of impacts of selecting a global supplier over local supplier it is important to address the reasons for selecting one? As some nations are more comparative than other nations as explained by (Porter, 1990) possessing a unique quality that attracts organisations to select global supply chains rather than local mostly looking for economic sustainability (Yip, 1989; Elkington, 1994; Seuring and Muller, 2008).Organisations decid ing to select a global supplier than a local supplier decreases environmental sustainable supply chain but mostly has an opposite impact on economically. Successful businesses respond to both internal and external changes and amend their strategist in the same manner. In order to ain supplies globally even with increased pressure from customer demands of being ‘green’ and highly imposed governmental regulations in most regions around the globe organisation in turn making diction hard for logistics managers to do certain trade-offs to maintain sustainability on ‘cost, quality and service’, while limiting dangerous emissions to atmosphere (IBM, 2008).Managers devising an operational strategy of an organisation analyse cost and profit in perspective of corporate goals and objectives. The main Trade-offs linked to each part of sustainable supply chain as in acquisition of raw materials sourced by inbound logistics, involves purchasing purchase of ‘greenâ €™ raw material may be costly to normal material leaving a trade-off to buy form low cost supplier or environmentally friendly. Organisation indoor to stay sustainable only trade from suppliers that are certified to International Organization of Standardization standards (ISO) has lead organisations dealing in third world countries with less awareness of ISO regulations to find alternative sources of suppliers (Wu and Dunn, 1995; Anthony D. Ross, 2012).The selection of the vendor will also influence the transpiration mode of selection as for example in third world countries there is lack of infrastructure of trains is not of high speed and precise in timing as in European countries which causes delays, unpredictability and also be unsustainable by possessing extra cost and additional CO2 emissions’; where as some don’t have facility of using road rail combination at all, in both cases trucks to transport goods from remote locations of railway station or deep seapor ts may increase the Carbon foot print more than of that of a normal raw marital bought from a local supplier (Wu and Dunn, 1995).Smart Packaging is another part of logistics in which organisation can do trade-off to stay environmentally sustainable as global supplies use containers to send bulk of goods packed together reducing packaging and material handling costs; another way is being minimizing protection packaging can improve space utilization and reduce handling costs (Sony Global, 2012) at each point of transportation reducing carbon footprint. Lean approach within the supply chain makes it environmentally sustainable but adds usage of ware housing costs with storage of goods in oppositions to widely uses JIT approach (smaller regular shipments) (IBM, 2008) as warehousing occupies excess and and generation of excess packaging waste hat can be reduced by using a local supplier as organisations trade-off of selecting a leaner approach while selecting a global supplier being risk of excess inventories stuck with in the warehouse with an unpredictable customer demand (Wu and Dunn, 1995) as demonstrated by Appendix D demonstrating an example of relationship of all variables of trade-off while comparing operational strategies with shipment consolidation used by IBM (IBM, 2008) to explain effects on environment. Reverse logistics have solved this problem of excess cost of packing and return items by the customers to be sent upstream to supplier using standardized renewable packing (Walley and Whitehead, 1994; Wu and Dunn, 1995; Anthony D. Ross, 2012)but when considering a global supplier it will be addition cost of transportation to the organisation using reverse logistics resulting in excess waste creation an unsustainable option (Talbot, Lefebvre and Lefebvre, 2007; Feo-valero, Menendez and hidalgo, 2011).Information and communications (ICT) can also played an important role in sustainable global supply chain substituting Information with inventory levels (Wu and Dunn, 1995) devising the right routs and knowing the exact times inventory arrivals, conciliation of shipments and optimising waste by minimizing large number of suppliers to just few, maximizing truckload in forward and backward supply chain over all removing uncertainty of supply chain (Mason, Lalwani and Boughton, 2007) the tradeoffs of the initial cost of implementing the ICT systems in organisation to long term sustainable benefits (IBM, 2008; Feo-valero, Menendez and hidalgo, 2011; Sony Global B, 2012).Dependent on the trade-off an organisation is willing to make over cost, service or environment organisations can select a sustainable multimodal method of transport(see Appendix E ) as trade-offs may vary according to selection of a local supplier. Conclusion This paper was aimed to answer question of how selection of global suppliers affects organisation’s sustainable supply chain strategy in light of multi-modal choice while considering the impact and what trade-o ffs does these organisations need do in order to achieve a sustainable supply chain? It is best to conclude this paper at notion of Industries and organisations vary in the need of supply chains dependent on the variants discussed in the paper; taken as a whole, these factors explained by (Carter and Rogers, 008; Meixell and Mario, 2008) play a very important role in selection of mode transport and over all operation strategy and an organisation should assess the trade-offs based on these factors. Whereas overall the decision of using or changing the multi-modal used depends on an organisational willingness to be environmentally sustainable future most of the changes are both cost and eco friendly whereas some require to long protesting one on other. 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