PURDUE UNIVERSITY PROPOSAL

FOR

TRANSPORTATION, DISTRIBUTION AND LOGISTICS: A STRATEGIC OPPORTUNITY FOR INDIANA AND PURDUE

TO THE

CENTRAL INDIANA CORPORATE PARTNERSHIP

April 22, 2003

PURDUE UNIVERSITY PROPOSAL

FOR

TRANSPORTATION, DISTRIBUTION AND LOGISTICS: A STRATEGIC OPPORTUNITY FOR INDIANA AND PURDUE

EXECUTIVE SUMMARY

            A recent study of the Transportation, Distribution and Logistics (TDL) industry in Central Indiana by the Battelle Memorial Institute (Battelle Memorial Institute 2002) has shown that this industry is a major economic presence in this area, exceeding in size both Life Sciences and Information Technology, and comparable in size to the Manufacturing and Advanced Manufacturing sectors.  Furthermore, economic trends are making integration of TDL considerations with supply chain and manufacturing operations a business necessity.  This integration is being accomplished with a combination of technology and new business models.  As such, the time appears ripe for a major initiative that will leverage Purdue’s strengths in the areas of engineering, management and information technology to create a multi-university research and teaching center in partnership with industry, state economic development agencies, and other universities in the state that will assume a leading role in this sector. The establishment of Discovery Park, especially the e-Enterprise Center, provides a strong infrastructure to support such an effort at Purdue. We propose a comprehensive TDL initiative, addressing the need to build closer relationships between industrial and academic partners, develop both on and off-campus educational opportunities, and the eventual establishment of a multi-university research and teaching environment in this area.  This TDL initiative will provide Indiana companies a unique environment to address the evolving challenges in next generation TDL and will be synergistic with Purdue and state efforts in advanced manufacturing, life sciences and information technology.

Introduction

            A recent study conducted by the Battelle Memorial Institute for the Central Indiana Corporate Partnership (CICP) has revealed that the Transportation, Distribution and Logistics industry is a major driver of economic activity in the Central Indiana region, involving the five metropolitan statistical areas of Indianapolis, Bloomington, Lafayette, Kokomo and Muncie. This sector currently is made up of more than six hundred companies that employ almost 90,000 people, constituting approximately 7% of all private sector employment in the area.  It is interesting to note that this sector exceeds both the Life Sciences and Information Technology sectors in size, and is comparable in size to both the Manufacturing and Advanced Manufacturing sectors. As with Purdue’s extensive ongoing and past efforts in these latter sectors, such as the Indiana Proteomics Initiative, the Indiana Consortium for Database Systems, and the Center for Collaborative Manufacturing (previously the Engineering Research Center for Intelligent Manufacturing), there is a significant opportunity for Purdue to become involved in this area in a substantial and systematic way.  In particular, Discovery Park offers a means to coordinate the interdisciplinary, multi-institutional, and industry efforts required to have an impact at the state and national level.

            However, we believe that the importance of the TDL sector to the state economy goes beyond the mere fact of its size. The increasing integration of inventory management, production planning and control and transportation and distribution systems into information-technology-enabled supply chains makes effective management of TDL operations a potential source of significant competitive advantage for companies in other industries. Hence the presence of a network of effective TDL firms in the state provides a critical infrastructure to companies in other industrial sectors that may locate in the state.  The ability to coordinate the production and delivery of goods and services from raw materials to final consumer can be a critical cost advantage to both established and newly launched startup companies, and can allow them to develop and deploy novel business models that will fuel growth and new markets. Examples of such business models might be a biotechnology company working with a TDL service provider to develop the capability to ship human tissue anywhere in the country within 24 hours or a manufacturing company shipping products to its customers that are customized in the truck during shipping. These issues are of paramount importance for startup companies, which by their nature focus on the specific intellectual property they have developed and do not have the resources to devote to extensive analyses of logistics problems. The presence of world-class, information-technology-enabled TDL providers in the state provides a major benefit to such firms, substantially improving their chance to develop into true industry leaders.

Developments in the TDL Industry

The TDL industry has been undergoing a rapid series of changes over the last two decades.  The first of these major changes has been deregulation, which has opened the door to a flood of innovative new business models such as guaranteed time distribution, co-operative transport arrangements and logistics consulting services by transport firms and transportation exchanges. A key feature has been the emergence of detailed transactional databases that provide opportunities for extensive analysis and model-building that was impossible even a few years ago.

Another major driver of change has been the steady deployment of information technology in this industry such as the widespread adoption of Global Positioning Systems (GPS) on trucks, links to planning systems, Vendor Managed Inventory (VMI) agreements, etc.  All of these tools are expected to continue to drive cost reduction as well as the provision of new and innovative services.  More and more frequently, TDL companies are not merely in the business of moving and storing goods, but using information technology and related decision technologies to provide comprehensive services such as merge in transit, cross-docking, vendor managed inventory, and even some product customization and repair activities. Many such companies have spun off consulting firms to leverage their competencies in information technology and optimization by providing services to other companies.  The result of these developments has been the emergence of a sector of the TDL industry that is driven by high technology and the associated value-added by effective deployment of information and optimization technologies, in contrast to the mainly labor-based economics of the more conventional areas.

As a result of this latter trend, the previously distinct areas of production planning and control (often otherwise referred to as manufacturing management or operations management), warehousing, distribution, transportation, and inventory management are becoming more and more integrated into supply chain or extended enterprise systems, where advanced information technology provides firms the ability to develop better business decisions through increased visibility of both their own and their partner’s operations, and a better understanding of both. For example, the development of cross-docking facilities and extensive supplier management capability, including various types of electronic data interchange, lies at the heart of many of the success stories in recent years, such as General Motors’ efforts to reduce the lead time for a new vehicle from 60 days to five, Wal-Mart’s dominance in the retail sector and Dell’s dominance in the personal computer industry.

Of particular importance to Indiana is an aspect of this technology that we believe has not yet been widely recognized or developed– the ability to employ information technology and advanced logistics capabilities to give small to medium companies some of the advantages of larger firms. In many industries in the state, including the TDL sector itself, many companies with similar capabilities compete with each other for limited business opportunities, driving down prices and often reducing the level of service they are able to provide due to the pressure to provide unrealistic bids in order to “win the business”. The ability to use information technology tools like multiparty secure computing, that would allow these firms to share benefits and risks without compromising their confidential information beyond reasonable bounds, would be extremely useful in maintaining the viability of this important sector of the state economy.

TDL Work at Purdue

            Over the years Purdue has had a number of research and teaching efforts with potential applications in this area. The Transportation group in the School of Civil Engineering has historically been the focus of these efforts. This group specializes in infrastructure modeling, which is an important input to the operation of TDL systems.  Historically, the School of Industrial Engineering has had a focus on intelligent manufacturing systems, but in recent years has taken a leading role in the Laboratory for Extended Enterprises at Purdue (LEEAP), developing significant activities in the TDL and supply chain management areas. Faculty in the Operations Management group in the Krannert School of Management have strong research interests in the logistics and supply chain management area but have primarily pursued individual research projects whose focus has been on linking capacity, inventory, routing and lead time optimization decisions within supply chains. The close linkages of these different efforts to the TDL industry are ripe for more systematic and integrated development. The Center for Education and Research in Information Assurance and Security (CERIAS) has unique strengths in secure collaboration protocols, whose applications to supply chain management and TDL are being developed by several groups of Purdue faculty. There are also a number of related efforts in other areas, such as the Digital Enterprise Center within the School of Technology. These existing individual faculty teaching and research efforts provide significant raw material to develop a Purdue-wide framework for TDL that can anchor statewide academic and industry efforts.

With the emergence of supply chain management as a field in its own right over the last decade, the stage has been set for the integration of many of these previously disparate areas into a more coherent effort. The establishment of a number of interdisciplinary research groups, such as the Laboratory for Extended Enterprises at Purdue (LEEAP) and the e-Enterprise Center at Discovery Park provide a focus for TDL related activities.  The development of an integrated set of such activities with a clear institutional framework within the university would serve a number of objectives:

1)      It would provide a unique technical resource to state industry to help cut costs, use TDL to become more competitive, and exploit Indiana’s geographic advantages.

2)      It would complement research and development efforts in advanced manufacturing, life sciences and information technology. Advanced manufacturing and life sciences companies will require world-class TDL services to be competitive, while information technology provides the ability to integrate TDL with supply chain and inventory management activities to develop new business models and better manage existing ones. Hence the presence of an active TDL sector may well provide significant business opportunities to active information technology firms in the state.

3)      It would provide another significant intellectual area where Indiana universities could collaborate.

4)      It would allow the expertise of university faculty and staff to be deployed in a manner that would support companies within the state, providing additional incentive for such companies to locate within the state.

5)      It would provide students and faculty with access to interesting, challenging research problems that will move Indiana to a leading position in the TDL domain in the Midwest region, and, eventually, nationally.

6)      It would greatly facilitate access to national research funding by increasing the Purdue’s visibility and providing significant opportunities for cost sharing with a variety of organizations such as Discovery Park and the Indiana 21^st Century Research and Technology Fund, as well as foundations and industrial partners.

7)      It would provide a focus and financial support for novel learning experiences aimed at both students in degree programs as well as more encapsulated, shorter lifelong learning activities aimed at practitioners in the field.

8)      It would complement a number of ongoing interdisciplinary activities at Purdue in the areas of manufacturing management, collaborative manufacturing, supply chain management and logistics and e-business.

            The challenges associated with developing such an activity center around two main issues: how to motivate faculty to participate, and how to motivate companies to participate.  There are two principal incentives for faculty participation: intellectual capital development with the availability of comprehensive datasets, support for research projects and access to interesting research problems; and financial gain through overload assignments and summer salary. Incentives for companies include access to learning experiences for their personnel, access to new ideas in their industry through their interactions with Purdue faculty and staff, access to students with a background in TDL, and insights into operational and strategic problems that may provide cost savings and competitive advantage.

            A central theme of any effort that hopes to be sustainable in the long-term must be to develop a long-term, strategic partnership with industrial partners as well as between the different groups at Purdue that will be involved. The e-Enterprise Center at Discovery Park provides an excellent base of operations for this effort due to its ongoing funding and interdisciplinary charter. In addition, we believe that the e-Enterprise Center includes among its associated faculty members many of the current Purdue faculty with interest in this area. There is clearly a strong need to identify other institutions of higher education around the state with capabilities relevant to the TDL sector, and possible synergies with these institutions and industrial partners.

Proposal Objectives

1)    Determine the best way in which to deploy the intellectual and physical assets of the state’s universities and community colleges to create an environment that will attract the best of the next generation of information technology enabled, high-value-added TDL companies to locate in Indiana.

2)    Develop an ongoing dialog with TDL companies in the state, as well as users of TDL services, to identify a core set of industrial partners in such an effort.

3)    Develop a business plan considering Purdue, other academic institutions within the sate and industrial partners that examines the financial resources needed to achieve the above aims.

Proposed Project Activities

            In order to achieve the proposal objectives, we believe a coordinated TDL effort with the following activities should be launched under the auspices of the e-Enterprise Center at Discovery Park:

1)      Organization of an annual conference for TDL professionals in the state and perhaps, eventually, from the Midwest region. The objective of this conference is to provide a forum for practitioners to interact with each other as well as faculty and staff, expose faculty to industry’s current problems and provide opportunities for tutorials and similar sessions. This activity is especially important in the context of this proposal, where it can be used as a forum for focus groups and discussions that will elicit industry needs and university resources in the TDL area. One such opportunity may already exist in the form of the L. L. Waters Conference that was formerly run by IUPUI, but has not been held in recent years. The organization of such an event on a recurring, annual basis will help make Purdue an established part of the TDL scenery within the state and will provide many fruitful opportunities for interacting with a variety of constituents in this area. The financial aspects of this conference would need to be analyzed in more detail, but cost-sharing opportunities may well exist, both from industrial partners as well as from professional societies such as the Council for Logistics Management, the American Society of Transportation and Logistics and the Central Indiana Corporate Partnership.

2)      Assess the benefits of a center expressly aimed at supporting TDL activities. A key feature of the TDL industry, especially the companies where TDL is integrated with the supply chain as a whole, is that the large transactional databases that accompany such environments provide a natural meeting point for industry and universities. Purdue faculty expertise can be used to “mine” the data and develop modeling capabilities and associated deployment insights to advance the TDL engineering and management skills in this industry.  The purpose of such a center would be threefold:

a.       To provide a home for large transactional datasets that can be used as a training environment as well as a research environment.  Indeed, the availability of a central repository of such information regarding all logistics possibilities for shipment around Indiana could be an asset to the state.  Furthermore, given the typical size of small and midsize Indiana firms, such a center may permit co-operative agreements to be evaluated in a neutral environment here at Purdue.

b.      To serve as a research test bed by providing a forum where researchers from different disciplines could bring their work, integrate it with that of other researchers, and expose their models to industrial data sets.

c.       To provide a forum where novel-learning experiences for students and practitioners can be hosted, including research demos, interactive coursework, multiple person games for the purposes of teaching, etc.

      Such a center would not need to be particularly expensive to be useful – a number of high-end computer workstations together with good visualization and networking capabilities would probably be sufficient.  It is likely that much of the computational infrastructure, as well a much of the required technical staff support, is already present in the e-Enterprise Center and Information Technology at Purdue (ITaP). The Envision visualization facility under development by ITaP will also provide a valuable resource in this area.

3)      Provide a framework for faculty to develop coursework directly related to TDL issues. A significant amount of such coursework already exists in various programs at Purdue. However, much of the existing coursework is aimed at on-campus students in degree programs.  We believe there is a significant market for short courses aimed at supporting practitioners’ lifelong learning. These opportunities are likely to be significantly enhanced if a number of short course modules can be integrated into a coherent certificate program in the TDL area. Development of such courses provides financial incentives for faculty to become involved in the activity, and brings industrial personnel to campus who may well later become involved in research and other activities. This activity should eventually become financially self-supporting at a minimum. Purdue’s Continuing Engineering education office has long been a pioneer in the area of distance education, and is already offering a large variety of courses over television, videotapes, and the Internet.

4)      Develop a detailed inventory of TDL activities currently ongoing at Purdue. Given the many different faculty and academic units that may well have an interest in TDL issues, there is a need to develop as comprehensive an inventory as possible of current activities at Purdue in this area, as well as at other institutions in the state. Of particular importance here to the long-term success of the effort is to examine the number of faculty with potential interests in this area, and determine whether additional faculty hires need to be made.  Given the high degree of complementarity of TDL activities with ongoing efforts in manufacturing management, supply chain management and logistics, it is likely that a relatively few new hires in the TDL area would be sufficient to significantly expand Purdue’s capabilities.

5)      Identify a set of core industrial partners with a long-term interest in working with Purdue in the TDL area. Active, close participation by industrial partners will be essential for the TDL activity to succeed as envisioned. Hence there is a need to identify a set of industrial partners who are willing to participate for the long haul, contributing not just a sum of money but also some potentially significant amounts of time from their employees. Efforts to identify such companies should begin within the state, and efforts should be made to obtain representation from small to medium sized firms operating in this area. A number of such companies are already present in the state, notably Fedex and UPS, with whom the Laboratory for Extended Enterprises already has substantial interaction, and North American Logistics, based in Fort Wayne.  An interdisciplinary university-focused effort can offer these companies several capabilities such as a neutral forum to exchange best practices, solutions to technical problems, approaches to use TDL to make manufacturing more effective, and access to new business models and technology.

6)      Identify state and regional agencies with an interest in such an activity. Obvious candidates are state economic development agencies such as the Indiana 21^st Century Research and Technology Fund, but other opportunities need to be explored, particularly within the context of the Indiana economic development programs currently being discussed.

7)      Identify potential partners in other universities within the state. The Battelle Report points out that there are a number of TDL related programs at other universities in the state, all of which have a somewhat different emphasis from each other. For example, the program at IUPUI has been focused more on marketing, while business management programs with a TDL emphasis exist in several community college institutions. The long-term objective would be to develop a multi-university research center with the e-Enterprise Center at Discovery Park playing a leading role. This activity has rather more potential than just for research; for example, universities could share courses at each others’ campuses using the IHETS network, and Purdue faculty could become involved in offering short courses at regional campuses.

8)      Develop a framework for evaluating the economic impact of the proposed multi-university research center on the TDL sector and other industries within the state. An initiative of the scale of a multi-university research center will clearly require the commitment of substantial resources from a variety of parties, including CICP, Purdue, industrial partners and state funding agencies. Hence it is imperative, especially in the current economic climate, to determine whether this investment will have a reasonable return in terms of enhanced economic activity within the state. The development of such estimates is fraught with difficulties stemming from lack of available data and the difficulty of quantifying many related activities. In particular, a successful TDL/supply chain activity will have many indirect benefits to other sectors, such as advanced manufacturing and the life sciences, by making their operations easier and hence making Indiana a more attractive location for such firms. It is notable that specific estimates of economic impact were absent from the Battelle reports. However, the Purdue team will attempt to develop at least a number of scenarios that examine the potential economic benefits of the proposed activity, which will have the additional benefit of focusing discussion of possible activities on those most likely to benefit all stakeholders.  Of course given the size of the logistics sector within the state, the potential impact of advancing technology on improving efficiency, and the synergistic effect of better TDL on manufacturing the expected benefits of the proposed effort are substantial.  The difficulty with the detailed economic analysis lies in quantifying the indirect benefits and the timing and economic nature of new TDL paradigms.  Certainly given the nationally competitive nature of the TDL industry and the rapidly changing nature of technology, the proposed effort will help Indiana stave off competition and grow its relatively large TDL sector.

Project Organization and Timelines:

            We envision the project described above being carried out over a period of one year by a group of Purdue faculty from a number of related disciplines with basic administrative and staff support. The staff support will be divided between permanent staff in the e-Enterprise Center at Discovery Park and the Laboratory for Extended Enterprises at Purdue, and three graduate research assistants.

It is evident from the above discussion that an effective approach to linking universities, companies and state agencies to provide the environment the next generation of TDL companies will require to succeed in Indiana is a multi-faceted problem whose effective solution requires the collaboration of many different academic disciplines and industrial segments. In order to develop a thorough understanding of the needs of the TDL industry in the state, as well as the resources available in the state’s universities, community colleges and industrial organizations, the project team will need to become familiar with the concerns of industrial partners, epitomized by CICP members, policy issues at the state level and the capabilities and resources of universities around the state in related areas. Hence the project team must involve faculty from all related disciplines, each of which brings a unique perspective.  The School of Civil Engineering is strong in the areas of econometric assessments of the transportation needs and infrastructure development and maintenance. The Laboratory for Extended Enterprises at Purdue has a track record of interdisciplinary research in the area of supply chain management and logistics, especially supply chain network design, inventory modeling, collaboration in supply chains and distribution management.  The School of Technology has strong links to the industrial base in the state, and many faculty with a strong interest in both the logistics and information technology aspects of TDL. The School of Agricultural Economics has close interactions with TDL issues in the food processing and agricultural sectors. The State Utility Forecasting Group is a resource whose personnel have a long history of working with the State government on policy issues. The critical role of information technology as the integration mechanism between TDL and supply chain management requires the participation of the School of Computer Science.  Finally, but not least, the Continuing Engineering Education office’s participation is required since an important component of this project is to develop the mean to provide better education to practitioners in the field, as well as personnel wishing to enter the workforce in this industry. The availability of faculty from these different disciplines with an interest in participating in this activity is a strong indicator of the potential success of the project. Table 1 summarizes the academic and center affiliations of the faculty involved in the project team.

Table 1: Academic and Center Affiliations of Project Faculty

            The main role of the faculty participants will be to gather information on TDL activities in the state in their various disciplinary areas, working through existing contacts in the state university systems, industrial partners, professional societies and state agencies with interest in this area. This will require extensive visits and interviews throughout the state, compilation of the results of these interviews and extensive discussions with the project team and CICP and other external participants to refine and extend the conclusions. Hence active participation by CICP personnel will be critical to the project’s success, both in ensuring that the perspectives of all stakeholders are taken into account and in allowing the team to make contact with appropriate individuals. We would thus strongly encourage CICP to designate a project liaison who will become a permanent member of the project team, participating at the same level as the faculty.

            In order for the faculty to actively participate in this project over its duration, we expect each School involved to devote approximately 10% of a faculty member’s academic year time to this project. In cases where there are multiple faculty members from the same school, this is equally divided between them.  Reha Uzsoy will be involved at a higher level due to his role as project leader. A formal budget is attached.

Project Deliverables

            In order to achieve its objectives, this project requires a continuing dialog between the Purdue team and CICP personnel. To this end, the Purdue team will present a formal written and oral report to CICP approximately every three months, with specific dates to be jointly determined. The objective of these reports is to communicate results to CICP as quickly as possible for CICP to take advantage of the information, and for the Purdue team to obtain CICP feedback in a timely manner to guide ongoing activities.

References

Battelle Memorial Institute, Prospectus for the Central Indiana Transportation, Distribution and Logistics Cluster, Final Report, October 2001.

Management and Personnel

The principal investigator (PI) will be Reha Uzsoy, Professor of Industrial Engineering, Purdue University.  The co-PI will be Joseph F. Pekny, Professor of Chemical Engineering and Director of the e-Enterprise Center at the Discovery Park, Purdue University.  The statewide conference will be coordinated by John A. Schneider, Assistant Vice President of Industry Research.

The following individuals will also be participants: