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Logistics Clusters

Logistics Clusters: Delivering Value and Driving Growth

Yossi Sheffi
Copyright Date: 2012
Published by: MIT Press
Pages: 368
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  • Book Info
    Logistics Clusters
    Book Description:

    Why is Memphis home to hundreds of motor carrier terminals and distribution centers? Why does the tiny island-nation of Singapore handle a fifth of the world's maritime containers and half the world's annual supply of crude oil? Which jobs can replace lost manufacturing jobs in advanced economies?Some of the answers to these questions are rooted in the phenomenon of logistics clusters--geographically concentrated sets of logistics-related business activities. In this book, supply chain management expert Yossi Sheffi explains why Memphis, Singapore, Chicago, Rotterdam, Los Angeles, and scores of other locations have been successful in developing such clusters while others have not. Sheffi outlines the characteristic "positive feedback loop" of logistics clusters development and what differentiates them from other industrial clusters; how logistics clusters "add value" by generating other industrial activities; why firms should locate their distribution and value-added activities in logistics clusters; and the proper role of government support, in the form of investment, regulation, and trade policy. Sheffi also argues for the most important advantage offered by logistics clusters in today's recession-plagued economy: jobs, many of them open to low-skilled workers, that are concentrated locally and not "offshorable." These logistics clusters offer what is rare in today's economy: authentic success stories. For this reason, numerous regional and central governments as well as scores of real estate developers are investing in the development of such clusters.View a trailer for the book at:

    eISBN: 978-0-262-30601-0
    Subjects: Business, Management & Organizational Behavior

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
    (pp. vii-xi)

    In early 2002, I was invited to give a keynote address at a logistics conference in Zaragoza, Spain. The invitation came from Emilio Larodé, a professor at the University of Zaragoza, who got in touch with me as a result of the recommendation of my MIT colleague, Ralph Gakenheimer, the well-known urban planning guru. Before I could respond, however, I first had to locate Zaragoza on a map. I had never been there nor had I heard of this modest city in the middle of Spain.

    During my visit, I learned about the government’s plan to develop a large logistics...

    (pp. 1-26)

    A Japanese school girl snatches the last sheer black blouse off the rack at a Zara store in downtown Tokyo. She had popped into Zara for some casual browsing, recognized the blouse from a recent music video, loved it, noticed it was the last one in the store, and feared it might not be there the next time she went shopping. On the other side of the world, a Madrid housewife carefully selects two large fresh fillets of Namibian hake at a Mercadona grocery store. From her experience, she knows that the fish—caught, cut, and packed by Caladero—will...

    (pp. 27-54)

    Consider Silicon Valley technology, Florentine Renaissance art, Hollywood movies, Burgundy wine, Detroit automobiles, Paris fashion, Swiss watches, or Madison Avenue advertising. Throughout history and into the modern era, certain regions rise to become world-renowned centers for a particular industry or skill. These regional economic booms attract workers, entrepreneurs, investment, companies, political interest, and intellectual capital. Economists, historians, and business school academics give these special regions names such as economic clusters, industrial clusters, agglomerations, and industrial districts. More pointedly, Perroux¹ referred to them as “growth poles,” while Hirschman² called them “growth centers.” Politicians, regional boosters, and business executives eagerly seek the...

    (pp. 55-86)

    Basic logistics services—transportation and storage—enable trade. By the seventeenth and eighteenth centuries, the prevailing strategy of trade-based economic growth was mercantilism, which called for maximizing exports through subsidies while minimizing imports through tariffs. Adam Smith, the father of modern economics, realized that mercantilism could not create economic growth for all nations at the same time because one nation’s export is another nation’s import. In 1776, he published the concept ofabsolute advantage, using labor productivity to explain that all nations can simultaneously get rich if they focus on their absolute advantages and practice free trade.¹ To follow his...

    (pp. 87-120)

    I asked logistics and supply chain management executives around the world why their companies picked a particular region for their operations—“why Singapore?” or “why Memphis?” Many of the answers mentioned computerized network analysis. Using a database of supply and demand locations, integer-programming-based computer models fed with expected product flows and costs, as well as real estate rents, tax regimes, and other data, would spit out “optimal” regions for locations of distribution activities. Such models, though, are typically incapable of finding real business-optimal solutions because of both their mathematical shortcomings and the inherent forecasting challenges.¹ Other answers noted a location’s...

    (pp. 121-146)

    Alert readers may have noticed that chapter 4 strayed from logistics a bit. Basic logistical activities don’t include repairing laptops or arranging flower bouquets. Yet these are the sorts of value-added activities found in logistics clusters in addition to the more plebeian tasks of moving and storing goods. Over time, a logistics cluster becomes more than just a location for warehousing and transportation activities. Logistics providers and shippers’ logistics operations within a cluster add value to the goods they handle in the cluster. Also, the availability of low-cost, high-performance logistics services found in logistics clusters attracts manufacturers, distributors, and other...

    (pp. 147-174)

    Watching Platforma Logística de Zaragoza (PLAZA) in Spain transform from a quiet farmland to a bustling logistics park gave me an appreciation for all the different infrastructures required by logistics clusters. The large scale and sophistication of assets such as ports, airports, warehouses, roads, railroad tracks, and canals, implies the need for large investments, careful stewardship, and astute management.

    Supply chain operations generally handle three types of flows: (i) the physical flow of products moving downstream from suppliers to manufacturers to retailers, as well as the reverse flow of unsold goods, returns, and reuse, (ii) information flow, including specifications and...

    (pp. 175-208)

    Several observers note that many governments have aspired to create industry clusters, especially knowledge-based clusters of the “next Silicon Valley” type, without success. They see governments’ efforts as discredited “industrial policy” and point to the failure of most governments to “pick winners” while attributing the success of clusters solely to entrepreneurial fervor and risk taking.¹ Examples of failed attempts include Tsukuba, Japan’s science city; Akademgorodok, “City of Science” in Siberia; and Egypt’s “Silicon Pyramid.”²

    Most economists, however, acknowledge the role of government in the investment and stewardship of a cluster. For example, Harvard’s Michael Porter cites access to public goods...

    (pp. 209-236)

    Logistics professions span a range of skill levels and specialties, including equipment operators and mechanics, inventory managers, supply chain managers, information systems professionals, and distribution executives. To supplement workforce recruitment and on-the-job training, many logistics clusters attract, develop, or partner with educational institutions for vocational, undergraduate, postgraduate, and professional education.

    Leading logistics clusters also support research and development institutions, which are set either as independent organizations, or in conjunction with educational institutions. A cluster provides a rich environment for new knowledge creation because cluster companies can provide data, experience, and problem framing that anchor logistics research in real world issues....

    (pp. 237-264)

    Many regional and state governments solicit investments by specific industries because they recognize the synergistic value of industrial clusters in creating competitive advantage. “Trade and Invest” organizations in most European countries as well as similar local and national organizations compete for foreign direct investment. In trying to attract tomorrow’s industry and not yesterday’s, these governments often focus on recruiting “sexy” industries employing highly paid knowledge workers (and in many cases, industries with a perceived lower carbon footprint). Yet replicating Silicon Valley appears to be difficult. Moreover, creating a high-tech cluster may fail to address pressing social problems like unemployment among...

    (pp. 265-296)

    As a reflection of the world’s dynamic economies, logistics clusters continue to evolve, with new clusters arising, existing ones changing, and some potentially declining. Rising standards of living in emerging market countries, changing infrastructure, environmental concerns, and new technologies combine to influence both the volume and the routing of trade flows, leading to new and changing logistics clusters. Overall, logistics seems to be growing in both importance and concentration. The long term growth rate of the logistics industry in Europe (through 2007) was 2.5 times the average GDP growth.¹ Furthermore, the logistics property market in 2010 accounted for around 10...

  14. NOTES
    (pp. 297-322)
  15. THANKS
    (pp. 323-338)
  16. INDEX
    (pp. 339-356)