Spatial Economics or The Invisible Hand of Logistics

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Spatial Economics orThe Invisible Hand of
Logistics!

• Stephen M. Swartz, Ph.D., CTL
• Assistant Professor of Logistics

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Domestic Product?

• Name for me a Purely Domestic product
• From perspective of USA
• All product components must be domestic
• Entire supply chain must be domestic

Can You? Why is this so difficult?
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Utility or Value

• Possession
• Form
• Time and Place
• Value of a bottle of water?
• Value of a 6 piece of waxed thread?

Why does a beer cost so much at the ball park
(food at amusement park)?
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A Tale of Two Villages

• Two goods in trade
• Fish (produced at shore)
• Wool Garments (produced in mountains)
• Two villages removed by space and time
• Shore village
• Mountain village
• Cost Issues (cost to transport goods)
• Value Issues
• Goods in surplus?
• Goods in shortage?

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Pressure to Move
Where V f(possession, form, time/place) C
f(trans, store, tax, profit, fees)
As long as 1) The value proposition is
satisfied, and 2) market conditions exist,
and 3) Government does not prohibit movement
The goods move as if by some invisible hand!
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Cost vs. Value Logistics Perspective

• In deploying a Supply Chain across global
  markets, want to identify opportunities where
• Differential Value is high
• Supply Chain Cost is low
• Value
• Time Place Utility (5 Rights)
• Customer Service Level (Fulfilled Demands)

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Total Cost Service Tradeoff
?TC gt ?CSL
?TC lt ?CSL
?TC gt ?CSL
Infrastructure
Returns to Scale
Inventory
Most Efficient Frontier
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Cost Trade-offs in Marketing and Logistics
Product
MARKETING
Price
Promotion
Place/customer service levels
Inventory carrying costs
Transportation costs
LOGISTICS
Lot quantity costs
Warehousing costs
Order processing and information costs
From Stock, James R. and Doug Lambert (2004).
Strategic Logistics Management, 4th Ed.
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Role of Decision Maker

• Management The finite assignment of resources
  to tasks in order to achieve organizational
  objectives.
• Bettermization The allocation of resources that
  improves the bang (achievement of objectives) to
  buck (total system cost) ratio.
• Purpose of the Logistician/Supply Chain Manager
  Take decisions among the trade-offs that result
  in a bettermal level of CSL/TC.

Driving Decisions to the Most Efficient
Frontier!
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Total Cost Service Tradeoff
?TC gt ?CSL
?TC lt ?CSL
?TC gt ?CSL
Infrastructure
Returns to Scale
Inventory