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8 Guidebook for Understanding Urban Goods Movement How Goods Move In the latter half of the twentieth century, logistics management became a legitimate business function that continued to evolve toward a more integrated chain linking previously separate functions: material sourcing and procurement, manufacturing, inventory management, distri- bution, and transportation. As the science of logistics evolved into what is today supply chain management, businesses refocused from just delivering products to reducing inventory and con- tributing to a company's bottom line. With the emergence of worldwide production markets for consumer products, supply chains have taken on more prominence in business strategy. Today, businesses define how goods move by the nature of their supply chains: people, processes, and physical entities linked together by information and transportation. This "logistics revolution" over the past three decades has rede- fined many business sectors. Wal-Mart is an often noted example of a business that redefined the retail industry primarily because of its superior supply chain management practices. Supply-chaining is a method of collaborating horizontally--among suppliers, retailers, and customers-- to create value. Supply-chaining is both enabled by the flattening of the world and a hugely important flat- tener itself, because the more they grow and proliferate, the more they force the adoption of common standards between companies (so that every link of every supply chain can interface with the next), the more they eliminate friction at borders, the more they encourage global collaboration. --Thomas Freidman, The World Is Flat: A Brief History of the 21st Century One step undertaken for this project involved research about urban supply chains. Additional information about urban supply chains, including product supply chain illustrations, is provided at the end of this chapter. (See Exhibit 2-2.) Who Is Moving Your Goods? Most goods and services are moved by private-sector companies; however, some government- supplied services include the transport of goods such as waste removal and military operations. The first distinction for private-sector freight services is private and for hire. Businesses that operate their own transportation fleets to carry their own products or services are classified as private carriers. Most private carriers operate truck fleets; however, some industries (such as mining companies, agricultural businesses, or producers of time-sensitive products) may also operate their own railroad assets, barges, or aircraft. Some of the largest private truck fleets are operated by utilities, food services, business or home services (e.g., cable providers), and con- struction and sanitation businesses. Many of these large private carriers also operate primarily in urban environments. Businesses that exist for the sole purpose of providing transportation services are classified as for-hire carriers. For-hire carriers include trucking companies, railroads, ship or barge opera- tors, and air cargo providers that move freight for various businesses and industries. The trend in the United States of moving toward a trade-based economy also shaped public policy toward freight transportation. Intermodalism--the ability to smoothly transition freight shipments from one mode to another--became a centerpiece of U.S. transport policy when Con- gress passed the Intermodal Surface Transportation Efficiency Act (ISTEA) in 1991. The success of intermodal freight transportation results from economic synergies gained by integrating the best attributes of each individual mode. Working together, each mode per- forms most efficiently the task it does best. Typically, railroad or barge transportation costs less and is more fuel-efficient than trucking over long distances (e.g., the movements between
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Background: The Importance of Goods Movement in the Urban Environment 9 Exhibit 2-2. Supply chain process. Source: Wilbur Smith Associates. seaports and the urban area). Railroads frequently move shipments between urban centers, or between an international gateway and an urban center. Trucks then deliver the shipment directly to the receiver's facility. Motor carriers, with their greater flexibility and universal access to industrial and commercial locations, are used for the last mile of the journey. Joint services offered by more than one mode take advantage of each mode's inherent economy but are much more complicated than single-mode movements because of the specialized equipment, terminals, and coordination among multiple parties. Exhibit 2-3 illustrates the relationship between costs and service levels associated with a spectrum of common freight transport modes. Speed to market is one of the most important factors in supply chain design and execution, as it influences mode selection by commodity type. Every supply chain differs in its need to economize on cost while at the same time arranging to consistently deliver the freight at the right time to the right destination in good condition. Some commodities must get to the mar- ket very fast before the product's perishable lifespan expires. Usually, the higher the price and the fresher the product, the faster it must get to market. Fresh food must get to market while it is fresh and safe for consumption, usually just a few days. A pharmaceutical must arrive in days before its potency date expires. Furthermore, sometimes seemingly plain commodities have high speed to market goals; for example ready-mix concrete must be poured within hours of being mixed at the plant.