Book Review: Logistics Clusters by Yossi Sheffi

A couple of months ago, I asked one question on Quora about how 3pl companies select a warehouse or facility location. The question got 4-5 followers, but there is still no reply. Recently, I've found a new book called "Logistics Clusters: Delivering Value and Driving Growth". Then, this post will explain how this book helps to solve my question.

Author of the Book
Professor Yossi Sheffi is the director and founder of the Master of Engineering in Logistics Program at MIT. If you have an engineering background, I'm certain that you know well about his work in various areas of logistics and SCM. Dr. Sheffi also has another award-winning book called "The Resilient Enterprise".  While industrial clusters are extensively covered in many economic pieces of literature, logistics clusters which focus on various activities in procurement, inventory management, transportation, and distribution is the uncharted territory. His latest book is the multi-year primary research to examine certain characteristics of successful Logistics Clusters around the world.

Facility Location Problem
The facility location decision is a critical issue in strategic supply chain network design. Based on my literature search, solution methods can be classified as below,

- Analysis of demand/supply data: company needs to gather the data, then determine if they want to have a facility located near the source of supply, near demand points or something in between. One of the most extensive data sources is Commodity Flow Survey data which provides transportation volume by origin/destination/mode of transportation/type of commodities and so on. The problem is, the data is so huge (500,000 rows in excel file) then it's not easy to analyze.

- Criteria based decision-making: the company develops the list of selection criteria, assign a weight to each criterion and select a final location based on total score. This seems to be a very straightforward method, but the selection criteria can be very complicated. There are more than 60 selection criteria, more than overwhelming.

- Facility Location Algorithm: this method uses a certain math calculation to determine the best facility location. This is the least practical solutions because there are too many algorithms to choose from.

According to Dr. Sheffi, "Such models are typically incapable of finding real business optimal solutions because of both their mathematical shortcomings and the inherent forecasting challenges".

The Story of Logistics Clusters
"Why do certain locations are more attractive than others?", Dr. Sheffi explains in this book why Logistics Clusters can thrive and grow. Lesson learned from Logistics Clusters he visited along with extensive data collection from experts around the world is summarized below,

Location Strategy
Chapter 1: a case study of Zara who is the world-leading fashion retailer is presented.  Zara chose Zaragoza, Spain for its new distribution center because the location is in the center of the population. Another reason is a good transportation network. Moreover, Dr. Sheffi reveals how Zara uses location strategy to balance demand and supply of short life cycle products and to support overall operations.

Chapter 2: Dr. Sheffi describes the characteristics of the successful Logistics Clusters, namely Port of Rotterdam, Singapore, Panama Canal, and Memphis. At the end of this chapter, he also analyzes how various natural factors play an important role in the success and failure of a certain location.

Chapter 3: Florence, which is one type of clusters are examined. Dr. Sheffi suggests that there are 2 types of relationship and there are ways to improve the relationship between companies who share the same location.

Chapter 4: after an establishing relationship with co-located companies, collaboration can result in more efficient operations and competitive advantage. A collaboration between SC Johnson & Son Inc and The Energizer Battery Company is a very good example.

Chapter 5: Dr. Sheffield demonstrates how companies can add value to products and customer services. Some international business ideas for non-logistics businesses are also presented here.

The difference between a traditional facility location problem and the lesson learned from the story of Logistics Clusters is that real business value is more important than the location with the lowest cost.

This book is quite different from books about the industrial clusters. Chapter 1-5 of this book is very practical and the concept can be applied to the actual business situation. I found that Chapter 6-10 will be very useful if you are policy-makers. If you are an undergraduate student, Chapter 4 will be interesting for you because some logistics theories are covered in an easy to understand manner. In short, there is something for everyone and I strongly believe that readers will enjoy this book the same as I do.

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Last review and update: January 30, 2020
All contents are written by Ben Benjabutr unless marked as [Guest Commentary]

About the Author and Editor:
Ben Benjabutr is the author and editor of SupplyChainOpz. He holds an M.Sc. in Logistics Management with 10+ years of experience in supply chain management. You can connect with Ben via Twitter, and Quora or drop him a line via e-mail.