Sustainability of an Activity Node in Global Supply Chains

Abstract

Urban shrinkage is a remarkable phenomenon that cannot be convincingly explained by existing theories on urban growth and is closely linked to the global supply chain (SC) nodes in the labour market. This paper shows how a municipality in which an activity SC cell (production or service) is located as a node in the SC graph can be made more attractive for industrial activities and human resources, more sustainable, and less shrinking, through appropriate tax policies and investments in the infrastructure of the central places—cities where production or services are located. To this end, we developed the decision support model for the joint control of urban rightsizing by SC managers and local authorities. In the model we linked the extended material requirements problem (MRP) with a normalised asymmetric gravity model. The paper outlines how local authorities and institutions, when planning for the growing intensity of production or services, in a city where the number of workers is insufficient, should take into account the impact of taxation as well as investment in the infrastructure of a municipality, and not just net wages, in order to attract human resources. They need a decision support model for their negotiations on the rightsizing of the city. The objective was to develop a model of fiscal mechanisms in the interactive decision making processes of local authorities and SC managers to control the availability of labour in the city where production or services are running and need to grow because SC managers want to increase production or services but the available labour force is shrinking. A case study in Slovenia shows how local authorities and SC managers should work together to maintain a sustainable activity cell in a functional region of the urban agglomeration where this production or service is located. It models how to plan the rightsizing. Such an integrated policy best achieves the desired intensity of the supply chain, thereby avoiding the relocation of activities outside the region, which allows unsustainable flows of human resources and uncontrolled shrinking of a city or region.