Supply Chain Frontiers issue #45
Megacities – cities with a population of at least 10 million people – are growing both in size and number, and are expected to account for about 20% of world GDP within a decade. But building the supply chains needed to serve these metropolises is a major challenge for both companies and city governments. The MIT Center for Transportation & Logistics (MIT CTL) will address many of the problems that hamper the development of supply chains in large urban areas with the launch of the Megacity Logistics Lab.
Dr. Edgar Blanco, Executive Director of the MIT SCALE Network, Latin America, who is head of the Megacity Logistics Lab project, points to the Brazilian city of São Paulo as a prime example of the roadblocks – both figurative and actual – that can obstruct vital delivery channels in megacities.
The municipal government restricted truck movements in congested parts of São Paulo in an effort to tackle the city’s chronic traffic congestion problems. Local companies had no choice but to adapt to the law, and invested in a redesign of their distribution networks. Now the city is edging toward a total ban on trucks in key areas, including certain roads that connect businesses to São Paulo/Congonhas Airport. In addition to wasting money on the first network redesign, companies now face a new round of potentially crippling supply chain restrictions.
“The government is trying to do its best to solve the city’s traffic problems, but they are not giving enough thought to the freight logistics implications,” says Blanco. “Businesses cannot react fast enough to these changes and, frankly, need to start looking beyond reaction.”
Many companies – particularly foreign-run enterprises – find it difficult to cope with the myriad logistics issues that come with doing business in ultra large urban areas. Many opt to outsource these operations and the associated complexity to local third-party service providers. City-based, third-party logistics services operators have an intimate knowledge of the terrain, and can respond quickly to network changes.
But these enterprises are far less competent when it comes to envisioning the challenges that will shape supply chains in megacities over the next decade. “These vendors are excellent operationally, but not strategically, and it is this strategic vision that is sorely needed,” says Blanco.
The Megacity Logistics Lab will research issues like these as well as specific supply chain problems, such as how to distribute product profitably and sustainably in extremely diverse, densely populated urban centers.
The work will build on research carried out at the Center for Latin-American Logistics Innovation (CLI) in Bogotá, Colombia, a city with a population of more than 8 million people. In 2006, the mayor of Bogotá adopted a Food Supply and Security Master Plan to make food supplies more accessible to the city’s inhabitants and improve nutrition for these citizens. The plan proposed the creation of a new general food supply system based on a modern logistics network that facilitates the flow of product and matches supply with demand.
CLI participated in the plan’s analysis in mid-2009. One of the research findings is that stakeholders along the supply chain seek to optimize their results rather than the performance of the supply chain as a whole. In fact, the research suggested that without some level of integration across all stakeholders, initiatives to increase supply chain efficiency may bear no fruit or, in some cases, even be counterproductive. (For more information, see Big City Food Supply Serves Up a Complex Menu, Frontiers issue number 40).
The Bogotá project also highlights a feature of megacity supply chains that is central to Blanco’s new research: the importance of public-private partnerships. Past studies of big city logistics have tended to focus on the mobility of people and passenger transportation. “We need more research on the intersection between public policy and the movement of freight in these huge areas,” says Blanco.
Meanwhile, the research team is organizing three workshops in the summer and fall of 2012 in Bogotá, Colombia; Mexico City, Mexico; and São Paulo, Brazil, on how to design supply chains and logistics operations for megacities of the future. Academic institutions in Africa, Asia, and Europe are also involved in the events.
A multidisciplinary class scheduled for this fall at MIT CTL will include a student exchange with Brazilian students at USP in São Paulo. The international collaboration has already secured grants from MISTI Brazil and the Itaú Fund at MIT. Students will use the megacity environment not only to generate ideas on how to operate effectively in this environment, but also to explore how to design urban centers with supply chains in mind.
“It is an exciting area. Beyond the business aspects, megacity logistics operations have social and environmental implications we are planning to explore,” says Blanco. He is also co-advising doctoral students in Brazil and Mexico who will join the research team on the MIT campus starting in 2013.
In addition, a series of case studies on supply chain management in megacities is planned. The research team is inviting companies to provide information and data on their operations in megacity environments.
The challenges posed by megacity supply chains will be discussed in a presentation to be given by Dr. Edgar Blanco at the MIT CTL Crossroads 2012 conference, Supply Chains in Transition: The Driving Forces of Change, which will take place on June 28, 2012, in the Stata Center, MIT Campus, Cambridge, MA, USA. For more information and to register, go to: http://ctl.mit.edu/events/crossroads_2012. Contact Dr. Edgar Blanco for more information on the Megacity Logistics Lab, or go to: (http://edgarblanco.mit.edu/megacities/).