Smart cities. What impact does urbanization have on supply chain management?

Term Paper, 2019
18 Pages, Grade: 1,5


Table of contents

List of abbreviations

List of illustrations

List of tables

1 Introduction
1.1 Issue statement
1.2 Goal and approach

2 Smart Cities and SCM
2.1 Characteristics of smart cities
2.2 Opportunities and challenges for SCM

3 Managerial implications

4 Conclusion


Appendix 1. Overview of the six smart city characteristics

Appendix 2. Other relevant definitions

List of references

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of illustrations

Illustration 1. Smart cities world map

Illustration 2. Three-level definition of a smart city

List of tables

Table 1. Role of IoT in SCM

1 Introduction

1.1 Issue statement

According to UN projections, it is expected that 68% of the world’s population will live in urban areas by 2050. This could add another 2.5 billion people to cities around our globe. Additionally, the number of mega cities such as Tokyo, New Delhi and Shanghai is projected to increase from 33 today to 43 in 2030 (United Nations 2018). By looking at these numbers, we can observe a mega trend which will unquestionably shape our future. Due to urbanization, our cities face enhanced pressure to invest in urban infrastructure and to facilitate the flow of goods and people (Montes-Sancho et al. 2015). An increasing number of cities notably in the US, Europe and East Asia (see Illustration 1) currently adopt the concept of a so-called “smart city” in order to manage urbanization.

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Illustration 1. Smart cities world map (Smart Cities 2025 n.d.)

For the economy this concept implies that especially supply chains1 will become a crucial part of a company’s success. Without adapting supply chain designs to the new market conditions, our economy will produce more traffic congestion, higher carbon dioxide emissions and increased levels of noise and pollution (Reaves 2018). Hence, the main challenge for supply chain management (SCM) is to establish a diligent infrastructure within cities while also ensuring sustainability and using existing technologies to increase efficiencies.

1.2 Goal and approach

The goal of the case study is to give an overview of the opportunities and challenges of smart cities related to urban SCM and what approaches already have arisen in order to successfully operate in smart cities. The question will be addressed by conducting a literature review underpinned by practical examples. In this way we can find relevant factors for businesses concerning smart city supply chains. It is noteworthy to mention that we will look at this issue from a manager’s, not from the city’s or citizen’s perspective, so appropriate courses of actions can be given at the end of the case study.

Firstly, a detailed definition of the term “smart city” will be given by pointing out the main characteristics of the concept. It this context, three major smart city landscape properties will be explained with the corresponding opportunities and challenges for businesses and their supply chain designs. Secondly, managerial implications to manage operations in smart cities will be given, supported by best practice examples from different industries. Thirdly and lastly, the findings will be summarized shortly and an outlook on the topic will be given.

2 Smart Cities and SCM

2.1 Characteristics of smart cities

Smart cities evolve in several variants, types and sizes and are still relatively new, which is why literature does not provide one consistent definition. Nonetheless, a general definition will be given to comprehend the basic concept. A smart city is defined as “a city seeking to address public issues via information and communication technology-based solutions on the basis of a multi-stakeholder, municipally based partnership.” (Cochrane et al. 2014, p.6).

To capture the various aspects of smart cities, a definition onion has been developed and is shown in Illustration 2 on the following page.

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Illustration 2. Three-level definition of a smart city (Jaekel and Bronnert 2013)

The first layer describes the four basic requirements for cities to be “smart”. Intelligent stands for innovative methods and the use of new information and communication tools. Integrative means extreme and cross-functional networking. Efficient in this case implies that energy consumption is reduced and attractive is a requirement by people and businesses, as the concept should lead to improved quality of life (Jaekel and Bronnert 2013).

The second layer names the six axes or dimensions along which smart cities can take action: Economy, Mobility, Environment, People, Living and Governance (Cochrane et al. 2014; Jaekel and Bronnert 2013). A detailed description of the different fields of action can be found in Appendix 1.

Then the last layer states superordinate characteristics which are relevant for smart cities. These are (1) utilization of a network-infrastructure in order to increase economic and cultural efficiency and to allow social, cultural and urban development, (2) orientation on the economic competitiveness and (3) support of social inclusion, (4) emphasis on the role of high-tech and the creative industry for long-term growth, (5) consideration of social inequalities and (6) social and ecological sustainability as an important strategic component (Caragliu et al. 2009).

There is a considerable overlap of the concept with other terms such as “sustainable city” or “digital city” (Cochrane et al. 2014). The three layers of the definition onion may explain the reason why there are also similar terms arising to describe the cities of the future.

2.2 Opportunities and challenges for SCM

The landscape of smart cities is characterized by several factors. In the following we will have a look at the most influential ones for SCM, which are closely intertwined: big data, new infrastructure systems and IoT. Firstly, the most essential smart city landscape property is the Internet of Things (IoT). While in urban life we associate IoT with smart phones, smart cars, smart televisions, and many more connected devices; IoT simultaneously gains importance in the supply chain of companies.

Before evaluating IoT of smart cities for companies, we will give a definition of the term linked to SCM: “The Internet of Things is a network of physical objects that are digitally connected to sense, monitor and interact within a company and between the company and its supply chain enabling agility, visibility, tracking and information sharing to facilitate timely planning, control and coordination of the supply chain processes.” (Ben-Daya et al. 2017, p.3). An overview of what role IoT plays in different parts of a supply chain is shown in Table 1.

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Table 1. Role of IoT in SCM (Ben-Daya et al. 2017)

Table 1 demonstrates that there are various opportunities where IoT can help optimizing a businesses’ supply chain. As IoT is representing a main feature of smart cities, companies must take advantage of that and should also start incorporating IoT into their systems in order to fit in the city’s ecosystem. However, many companies are still lagging in IoT readiness. Internal gaps in technical skills and management know-how needed to deploy IoT into operations and new products are a major barrier for businesses at the moment. As of today, only 9% of executives from a global study dealing with this topic say that their industry has begun with a widespread adoption of IoT and less than 2% say they have a clear vision for how to move forward (Burnson 2017).

Secondly, companies in the future will be dependent on collecting and managing the right kinds of data, analyzing patterns and optimizing system functions The digitization of cities generates unprecedented amounts of operational and supply chain data. Big data can therefore be both opportunity and challenge. Big data analytics can provide insights for product launch and release planning which allow optimized and shorter planning cycles. It can also enhance customer segmentation allowing better scalability and mass personalization of products. Additionally, field data from devices, customer data and supplier suggestions can also enhance innovation and product design (Kache and Seuring 2017). Although big data is necessary for success in smart cities, there are also several concerns related to it. Risks for false correlations and inaccurate data input will be evident. Another concern is new piracy surveillance and data misuse challenges (Öberg and Graham 2016). This is why government authorities maybe do not make their big data available for businesses (Ismail 2018), which would be an enormous setback for the economy.

Thirdly, we will look at the potential of new infrastructure systems for supply chain management within smart cities. With the previously described urbanization, a city’s need for infrastructure to support the flow of goods and people will increase in line with other resource needs of urban population. Thus, more road capacity is required, either by building new roads or by maintaining existing ones. Besides finding solutions for people transport, for businesses it is most crucial to find appropriate ways of freight for their goods . The majority of businesses and households in cities receive freight every day. Exemplarily, malls, hospitals and grocery stores are supplied by several trucks, but they may drop of only one pallet or parcel. This is because of the fragmented nature of the industry and the norm of buying from multiple suppliers. Trucks are becoming “moving bottlenecks” on our roads, due to their slower acceleration and speed compared to regular cars. Certainly, it is not possible to remove the trucks from the roads, but a more focused approach to city freight planning could create a sustainable infrastructure. A smart city’s infrastructure capacity could be increased by consolidating freight traffic outside of the city with the help of smart solutions and ensuring only full trucks move through it (Lierow 2012).

While this concept would be a great chance for companies to efficiently transport and deliver their goods, it can likewise have its downsides. Practices such as congestion charges, low emission zones or car free policies may be implemented in smart cities and would generate a huge obstacle for supply chain designs (Öberg and Graham 2016). But if businesses, especially logistic firms, can use the potential of a smart infrastructure, they can achieve greater efficiency in their operations. Improved traffic management will yield improved delivery times, smart lighting may improve footfall in specific areas which could boost sales in shops and restaurants (Ismail 2018).


1 A definition of the term “supply chain” and related terms can be found in Appendix 2.

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Smart cities. What impact does urbanization have on supply chain management?
Reutlingen University
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