Thursday, October 18, 2012

Logistics as a Generator of Jobs


A few years ago I met Prof. Sheffi at an event with my colleague Theo Fletcher.  He was nice enough to recently reach out to me for a contributed blog post as part of a publicity campaign for his new book.  

By Professor Yossi Sheffi, Director. MIT Center for Transportation & Logistics

Supply chain practitioners are well aware of the vital role they play in delivering the goods that people need and desire. But supply chain management fulfills another, less obvious, function that has taken on important significance in today’s economic climate: job creator.

This is achieved through the growing importance of logistics clusters, agglomerations of firms that come together to share logistics expertise and know-how. The story of logistics clusters, and the key role they play in economic development, is told in my new book Logistics Clusters: Delivering Value and Driving Growth (MIT Press, October 2012).

There are logistics clusters in almost every part of the world in various locations including ports, airports, and sites close to major consumer markets. These clusters offer substantial supply chain benefits that are self-reinforcing. Logistics clusters generate large volumes of freight, which make it possible to capture economies of scale and scope. More efficient cargo flows lead to lower transportation costs and higher service levels, which attract even more companies to the cluster, feeding a virtuous circle of benefits. Another positive feedback loop is that by raising the efficiency bar these entities promote global growth, which increases the demand for the services that clusters provide, promoting further growth of global trade.

In addition, logistics clusters offer advantages based on the interchangeability of transportation and logistics assets. Rail cars, containers, trailers, and airplanes come in standard sizes and shapes regardless of what company owns and/or operates them. These assets – as well as specialized knowledge and best practices – can be shared by enterprises in the community, enabling them to withstand the variations in freight flows associated with the industries they serve.

As they grow both in number and reach, logistics clusters generate jobs. The port of Rotterdam, for example, employs 55,000 people directly and 90,000 indirectly. The Memphis International Airport in the U.S. is responsible for supports 220,000 jobs in the local economy, 95% of which are tied to cargo operations. In fact, more than one in three jobs in the Memphis area linked to the airport.

But as I explain in the book, it is not only the number of jobs that is impressive; logistics clusters also create a wide variety of employment opportunities. There are blue collar jobs in areas such as warehousing, white collar positions in IT, customer service, and management, and work associated with value-add activities including light manufacturing and repairs. In its Louisville Worldport hub, UPS employs hardware technicians to repair Toshiba laptops, for instance.

Of particular importance in this day and age is that these jobs are not generally “offshorable” and not dependent on a single industry. Late-stage customization of products is carried out in such clusters, and by definition these activities must be located in close proximity to end markets. In addition, the economics of transportation dictate that clusters should not too far from customers.

Logistics clusters are also building considerable expertise in environmental sustainability. These freight hubs make it possible to improve vehicle utilization rates and to deploy larger conveyances, which lower the carbon footprints of supply chains.

Globalization will continue to drive the growth of logistics clusters. I believe that we need more investment in these entities, which provide economic benefits that extend far beyond the logistics space.

4 comments:

The Sly Fox said...

In addition to some of the various benefits of clusters that you pointed out, another area is the benefits to end users or customers. You mentioned Memphis, where FedEx has it's global hub. In Louisville, where UPS has it's Worldport there are hosts of companies that chosen to locate their warehouses close to the airport or allowed their warehouse functions to be outsourced to the host of companies located near the airport. Zappos is one prominent example. With its central warehouse located close to the airport, it can shorten lead times for customers. Since the flights leaving the hub for the spokes leave much later than if the warehouse was located at a spoke, Zappos can offer 9pm order deadlines and promise customers that they will ship it that night. They can wait until 1am or even later before dropping their shipments at the hub instead of 9pm or 10pm if they were at a spoke. All of this benefits us as customers.
-willcoop

The Sly Fox said...

In addition to some of the various benefits of clusters that you pointed out, another area is the benefits to end users or customers. You mentioned Memphis, where FedEx has it's global hub. In Louisville, where UPS has it's Worldport there are hosts of companies that chosen to locate their warehouses close to the airport or allowed their warehouse functions to be outsourced to the host of companies located near the airport. Zappos is one prominent example. With its central warehouse located close to the airport, it can shorten lead times for customers. Since the flights leaving the hub for the spokes leave much later than if the warehouse was located at a spoke, Zappos can offer 9pm order deadlines and promise customers that they will ship it that night. They can wait until 1am or even later before dropping their shipments at the hub instead of 9pm or 10pm if they were at a spoke. All of this benefits us as customers.
-willcoop

Kevin Long said...

As a Memphis native I definitely appreciate the points made here. Logistics had provided a huge number of jobs to the Memphis area directly as well as plenty of spill over into other industries.

The industry knowledge has begun to touch other industries such as medical devices (Medtronic, Smith & Nephew) and is becoming a significant source of competitive advantage for start ups in the Memphis area as well.

Kevin Long said...

As a Memphis native, and child of a FedEx "lifer" I can appreciate your points about the benefit to the local economy. FedEx has provided a huge number of jobs directly but also through spill over into other areas.

Other industries in the Memphis area have benefited from the industry knowledge such as medical devices, Medtronic and Smith & Nephew have a huge presence in the area as well. The knowledge is also becoming a source of competitive advantage for the start up scene in the Memphis area as well.