Abstract
Logistic services are central to the design and management of any supply chain. Due to recent technological advances, modern supply chains are challenging traditional market boundaries in ways that both influence and are influenced by consumer behavior (e.g., Amazon, Alibaba, or JD.com). Economically speaking, corporations are changing along the way resources are being used in production. At the firm level, management decisions follow cost efficiency and risk management principles, pursuing a cost-risk tradeoff equilibrium. Theoretically, operations organized within the boundaries of the firm are just those for which the markets are unable to offer a more efficient alternative, whereas the link between buyers and sellers (i.e., demand and supply in the market) is intermediated by logistics services, such as transport, to mention but one. As technological innovation, social transformation, and consumer behavior threaten firms' traditional boundaries, logistics need to adjust and adapt to new and emerging challenges, its costs, and risks to end consumers.
TopBackground
Illustrating the rising trend in global value chain participation, Ignatenko et al. (2019) show that, in 2013, about 70% of total exports from the European countries involved global value chains – either backward and forward linkages − comparing with only 60% in 2010. Although the distribution is not homogeneous across the globe, growth in participation rates is a common feature for most of the countries and regions. Over the same period, the ratio increased by 5 percentage points for the Western World and Asia, rising participation levels to close to 50%. Similarly, in a special report − “The World is Flat” – published just recently, The Economist sustains that a majority of world trade involves global value supply chains:2
Key Terms in this Chapter
Efficiency: Efficiency within the context of this paper means using a production technology that minimizes incurred costs, and leading to the lowest effort – energy saving – needed to produce a unit of output.
Firm Organisation: Firms are hierarchical institutions managing resources (inputs) according to an internal set of rules. Such rules specify not only efficiency, but also risk sharing goals. A trade-off exists between efficiency and risk, and decisions regarding production are shaped by the way firms are organized – i.e., internal formal and informal rules.
Sustainability: It means having the least impact upon the environment (e.g., decarbonisation), minimizing social unrest (e.g., income equality), and maximising economic efficiency (e.g., cost of production). We use it to mean environmental, social, and economic sustainability.
Transaction Costs: The explicit and implicit costs that firms incur when transacting with other firms in the market. The higher the costs, the more likely is the firm to internalize production.
Logistics: Moving goods along the value chain implies two flows: goods and information. A logistic approach to the value chain involves an optimisation process, deciding on how to make production – i.e., a protocol of information exchange and physical transport.
Globalization: In a globalized world, production can take place anywhere in the world, as firms chose to minimize costs of production. Globalization means increased interdependency between countries, and usually implies international specialization.
Global Supply Chains: In a global supply chain, production takes place in different countries before being sold to final consumers. Once produced, the components – originated in places distant apart – are assembled in total or partly at a given location, before the good is placed in the market. IT facilitates coordination of global supply chain.
Innovation: Innovation is used interchangeably as meaning either new production processes, or new products and services. In a global supply chain context, it also means re-arranging production to take place at geographically distant plants in the world of the same or distinct corporations.
Digitization: It is used to mean the increased use of information technologies (IT) to manage production and link stakeholders – various producers and consumers - in the value chain.
Transportation Costs: When goods – either materials, final or ongoing products – are transported from the production site to the market, there is a cost to be paid, increasing the price to final consumers.
Seaports: Seaports are nodes of a transport network, where cargo – either final or ongoing products – is aggregated and shipped overseas using vessels of varying purposes and capacities. Usually, a port performs a wide range of activities, including administrative paperwork, manoeuvres, safety operations, and inter-modality.