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Value of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D Shailesh Chandra, Ph.D 1 April 10, 2014

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Page 1: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

Value of Access -Manufacturing Supply

Chains

Sharada Vadali, Ph.D

Shailesh Chandra, Ph.D

1

April 10, 2014

Page 2: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

CONTENTS

Introduction & Background

Measuring Access/Directness

Index Applications

Concluding Remarks

2

Page 3: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

3

Introduction & Background-Value of

Manufacturing and Access

Figure 1. Buyer Supplier Network/Upstream Downstream Connections

12.5%

GDP

$3.2 trillion

spent on materials

Capital expenditures ($147 million)

85% on machinery,

parts

17.4 million employment

Source: Annual Survey of Manufacturing, 2012 National Association of Manufacturing

$1.32

approximate

multiplier

Production

costs

Economies of scale-

delivered prices

costs

Page 4: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

4

Introduction & Background- Access, Supply

Chains and Productivity

Consumer/Buyer

Buyer’s Buyer 2

Buyer’s buyer 1 Supplier 1

Supplier 2

End User/Buyer

1/Final Market

End User/Buyer 2/Final

Market

End User/Buyer 3/Final

Market

Supplier’s Supplier 2

Supplier’s Supplier 1

Supplier’s Supplier 3

Supplier’s Supplier 4

Value Chain Local Spatial Manifestations: Supplier clusters and productivity implications Better access to a pool of employees, and suppliers Access to specialized market, technical, and competitive information Complementarities

Page 5: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

Measuring Access (Within Supply Chains)

A Threshold-bound Buyer-Supplier Index (TBI)

1. Behavioral basis-Based on a threshold drive time around the given firm.

1. Single day drive

2. Just in time /just in sequence criteria

3. Other sourcing criteria

5

Threshold-free Index (TFI)

1. Over a region

All measures bound [0, 1]

Cover the broadest range of supplier markets: Labor, raw materials, parts, energy N

None of this is typically captured in traditional input-output models

Page 6: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

𝐴1𝑖,𝑘 =

𝜂𝑖,𝑠𝑘 𝛼𝑖,𝑠𝑘

𝑆𝑖𝑘

𝑠=1+ 𝜂𝑖,𝑏

𝑘 𝛼𝑖,𝑏𝑘

𝐵𝑖𝑘

𝑏=1

𝜔𝑖,𝑠𝑘 𝛼𝑖,𝑠𝑘

𝑆𝑖𝑘

𝑠=1+ 𝜔𝑖,𝑏

𝑘 𝛼𝑖,𝑏𝑘

𝐵𝑖𝑘

𝑏=1

where

i = firm unit for which the index is to be calculated,

s and b are the respective supplier and buyer industries with 1,2,..., k

is S and 1,2,..., k

ib B

k

iS = number of direct suppliers to industry unit i belonging to type k

k

iB = number of buyers of industry unit i belonging to type k

,

k

i s = 1 if the supplier industry s of unit i belonging to type k is within the threshold drive time

through the shortest path transportation network, otherwise 0

,

k

i b = 1 if the buyer industry b of unit i belonging to type k is within the threshold drive time

through the shortest transportation network, otherwise 0

,

k

i s = 1 if the supplier industry s of unit i belonging to type k is within the threshold drive time

based on Euclidean travel time

,

k

i b = 1 if the buyer industry b of unit i belonging to type k is within the threshold drive time based

on Euclidean travel time

,

k

i s (or, ,

k

i b ) is the weight for travel or interaction between industry s (or i of type k) to industry

i (or b) of type k.

(I) Level -1: The Firm- Specific Industry Access Indicator ( ,

1

i kA ) for an firm unit 1,2,..., ki U

belonging to type industry sector 1,2,...,k K , is defined as follows:

Proximity: Threshold Bound Index (Level 1 Firm and

Level 2- Industry)

𝐴2𝑘 = 𝐴1

𝑖,𝑘

𝑈𝑘

𝑖=1

𝑈𝑘

(II) Level-2 TBI (2

kA ) for the industry type or sector k is given by:

where Uk is the total number of firms in the cluster sector.

Upstream Downstream

Page 7: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

I) Level-1 Transport Accessibility Index ( ,

1

i kL ) for an industry unit 1,2,..., ki U

belonging to type 1,2,...,k K with Uk as the number of industry units is defined as,

𝐿1𝑖,𝑘 =

𝛼𝑖,𝑠𝑘

𝜏𝑖,𝑠𝑘

𝑆𝑖𝑘

𝑠=1

+ 𝛼𝑖,𝑏𝑘

𝜏𝑖,𝑏𝑘

𝐵𝑖𝑘

𝑏=1

𝛼𝑖,𝑠𝑘

∈𝑖,𝑠𝑘

𝑆𝑖𝑘

𝑠=1

+ 𝛼𝑖,𝑏𝑘

∈𝑖,𝑏𝑘

𝐵𝑖𝑘

𝑏=1

where

i = industry unit for which the index is to be calculated,

s and b are the respective supplier and buyer industries with 1,2,..., k

is S and 1,2,..., k

ib B

k

iS = number of direct suppliers to industry unit i belonging to type k

k

iB = number of buyers of industry unit i belonging to type k

,

k

i s = travel time via the shortest path network from supplier s to industry unit i of type k

,

k

i b = travel time via the shortest path network from industry unit i of type k to buyer b

,

k

i s = travel time from supplier s to industry unit i of type k, using Euclidean distance

,

k

i b = travel time from industry unit i of type k, to buyer b using Euclidean distance

7

Proximity(Contd.): Threshold Free Index (Level 1

Firm and Level 2- Industry (Gravity Formulation)

𝐿2𝑘 = 𝐿1

𝑖,𝑘

𝑈𝑘

𝑖=1

𝑈𝑘

II) Level-2 TFI (2

kL ) for the industry type k

where Uk is the total number of firms in the cluster sector.

Page 8: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

Practical Applications of Measures

Influence of transport networks in influencing business

connectivity

New or improved links and associated impacts on transport costs, reliability and speed

Connections to input markets OR downstream bottlenecks in getting goods to markets

8

Analyzing and understanding freight flows

Non-transportation applications like workforce access, economic development applications

Page 9: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

Automotive Suppliers

(Total 40 for Mercedes- Benz USA LLC and

38 for Honda Manufacturing of Alabama)

Cities as

Retail Markets

(Total 60)

OEM Assembly Plant

(Total 2, Mercedes- Benz USA LLC and Honda

Manufacturing of Alabama)

(Stage 1)

(Stage 2)

Wholesale Trade Markets

(Total 341)

(Stage 3)

9 Evaluation Example: Automobile Industry Chain

Alabama, US

Page 10: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

Stage 2/3

Buyer-

Supplier

Access Indices

Mercedes- Benz USA LLC

Honda Manufacturing

2002 2010 2002 2010

Level -1 TBI

(With Supplier

(S)-Buyer (B)

percentage

increase/decrease)

0.39 0.41 0.27 0.36

S (upstream) =

+9.3%,

B (downstream) = +0.9%)

S = +31%, B = +39%

Level -2 TBI 0.33 0.38

10

Evaluation of a Corridor Improvement- TBI

(Levels 1 and 2)- 120 m JIT supplier

threshold(OEM Plants as buyers) (2002-2010)

Page 11: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

11 Concluding Remarks- Indices are….

Generic and allow the possibilities for extension to multi-modal

networks and subsequently broader geography.

Geography of final demand

Geography of inputs- supplier markets

Applied to a transport project evaluation exercise for 2 local

chains (Mercedes; Honda, Al).

Project level connectivities influence both positively (local chains

benefit), but reveal differences in how individual chains may be

affected.

Can be part of a proactive transportation planning strategy

and economic development strategy in areas where

manufacturing chains exist

Page 12: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

Concluding Remarks…

Generic for any manufacturing industry type and the

markets they represent for enabling agglomeration

effects within the value chain

Link to inputs in a production process y= f(k, l, e, m, R&D)

12

Manufacturing Sectors

Innovation and R&D instensive

Labor intensive

Energy intensive

Regional processing

Page 13: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

Challenges and Opportunities

Integration into planning

Data

Geography and scale

Potential adaptation of Web Tag Guidance on

agglomeration considerations via the effective

density metric (UK).

In the US, the TTI developed two sets of tools under SHRP2-

C11 (2012).

Specialized labor and/or input markets

Effective density (zonal measure-gravity formulation).

13

Page 14: Value of Access -Manufacturing Supply ChainsValue of Access -Manufacturing Supply Chains Sharada Vadali, Ph.D ... Ak) for the industry type or sector k is given by: ... Vadali, S and

14

Thank You

1. Vadali, S and S. Chandra. Buyer-Supplier Transport Access Measures for

Industry Clusters, Journal of Applied Research and Technology, 2014.

2. Vadali, S and S. Chandra. Supply-Chain Consistent Access Measures for

Mega Region Economic Development. Transportation Research Record,

2014.

3. Texas A&M Transportation Institute—SHRP2-C11 Market Access Tools

(Vadali, S and S, Chandra, 2012) in Collaboration with G. Weisbrod,

A.Winston et.al. (2012).