Smart cities and Tech Evolution - XIX Connectivity Infrastructure - Logistics and Production

The supply chain although finely tuned and perfected over decades is being stressed by new challenges, in particularly it is becoming fractured as more and more nodes are inserted to accommodate for faster delivery, pushing to shift from commodity to a strategic asset, getting more and more dominated by e-commerce and changed to face disruptive events. Credit: Inbound logistics Trends April 2016

A physical city has its replica in the data it creates. All together they can interact with supply and production processes and be part of their governance. Credit: Elcio M. Tachizawa et al

The goods transportation infrastructure is much more complex than just the containers/vehicles used to move goods from the production to the user point. These infrastructures have achieved a level of sophistication that is unbelievable. It is because of the resulting efficiency that production was offshored starting from the 80ies. Bringing a t-shirt produced in China to US, sold for 14$ in a US shop, cost 1$ and that includes duty fees (the pure shipping cost is measured in cents…). So if labour cost is low (a worker makes 12c for manufacturing the tshirt in Bangladesh, 14c in Vietnam) it makes economic sense to offshore production even if that is far away.

This amazingly low supply chain cost is the result of fine tuning of hundreds of processes and it has been made possible by ICT.  Municipalities have not been involved in the management of the supply and distribution chains in any significant way so far, although it has been recognised that there is an important link between a (smart) city, the associated big data and the Supply Chain Management (SCM).

Many cities grew as response to job demand, either they were hosting manufacturing activities or they were nodes in the supply chain (tipical of port cities). Over time their “reason d’etre” failed and they started to decline. Actually, one of the big problems for cities is to remain an attraction point, to remain engines of wealth creation even when their production engine slows down. This should cast a completely new light on the relation between a city and the supply/production chain.

A smart city shall be able to fuel production, attract investment on manufacturing and for that it should provide the best conditions for the supply chain. I would go even further: a smart city shall become a living lab for innovation in production and logistics.

Production continues to evolve. The two main trends I am seeing are:


  • softwarization of products and their progressive morphing into services, and
  • custom manufacturing towards the market of one

The first trend is the result of the embedding of processing power inside products. Companies produce a sort of blueprint that is transformed into a product by features provided by software (similarly to what happens when you buy a PC). We have seen this happening for tablets, smartphones, and more recently with televisions. There are first signs in this direction with digital cameras…  The product sold becomes a platform supporting features that are delivered via software, often coupled with the web (and the Cloud). This creates a strong relation with the product manufacturer (if it is able to create a market place, like Apple is doing) and de facto transform the product into a service. A Municipality should start thinking of its city as a marketplace and develop its city platforms to create and support marketplaces. In other words the Municipalities have the opportunity of creating (part of) the production fabric enabling third parties to develp and deliver services.

The second trend (longer time frame, probably second part of the next decade) is related to Industry 4.0 and to the decentralisation of production along the supply and distribution chain, taking advantage both of the product softwarization (that makes it possible to disseminate production) and of 3D printers. All together this will change the logistics and Municipalities shall have their saying in this.

Finally, the Internet of Things will become a pervasive monitoring fabric that in a city can be used to futher improve the efficiency of the logistic processes. Again, this is an area where a Municipality can play a significant role. 

At EIT Digital we are looking at these issues from different viewpoints: Industry 4.0, Digital Cities and Digital Infrastructures partnering with stakeholders (cities) to bring them all together.

Author - Roberto Saracco

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