Logistics News: Supply chain redesign still top priority
Nearly 80 percent of LM survey respondents indicate supply chain redesign is essential, even as oil and fuel prices decline.
By Jeff Berman, Group News Editor -- Logistics Management, 6/1/2009
Waltham, Mass. —
Waltham, Mass.—When the price of a barrel of oil hovered around $150 and diesel was nearly $5 per gallon less than a year ago, the subject of re-designing supply chain operations to cut down on transportation expenses gained a lot of steam.
Since that time, the economy suffered through the near collapse of the financial markets and the recession gained momentum—which in turn led to oil and fuel prices plummeting in conjunction with the economy. This leads to the question of whether shippers are still focusing on supply chain redesign strategies since energy prices have tailed off from the record levels reached in 2008.
According to the results of a recent Logistics Management reader survey of more than 130 transportation and logistics executives, supply chain re-design strategies are still top of mind, with more than 100—or 78 percent of respondents—indicating supply chain redesign is a priority for them. This matches up with the 79 percent that indicated they were considering making changes when oil and gas prices first began to spike.
Our data clearly supports how supply chain redesign has become an essential tool for success in the new economy, even when they are facing major obstacles such as weak demand and tonnage volumes, coupled with oil and fuel prices slowly inching back up.
Some of the supply chain redesign steps LM readers said they are currently taking include modal shifts, consolidating shipments from suppliers, renegotiating fuel surcharges, and transportation network restructuring, among others. Meanwhile, those respondents that said they're not considering making changes cited reasons such as a viable lack of options and contractual obligations.
Regardless of where oil and fuel prices go, many shippers said it's imperative to find ways to reduce expenses during a time when there are many triggers that can alter logistics operations.
"Supply chain redesign is still a high priority within our company," said Tom Vollmuth, vice president of operations at Printex Packaging Corporation in Islandia, N.Y. "Wherever we can save time and money in the supply chain we can lower our costs and hopefully increase our profitability while passing on some cost savings to our customers."
John Larkin, managing director of the Stifel Nicolaus transportation and logistics group, said that a major component of supply chain re-design centers around re-evaluating product design by removing weight or volume from a product, looking at more efficient packaging processes, and re-evaluating suppliers and manufacturing locations, too. Another component cited by Larkin is environmental sustainability, even if lower energy prices make supply chain redesign plans less economically compelling. But he noted that this mindset is typically reserved for larger shippers that are better equipped to handle supply chain redesign processes.
"Some of the larger shippers who typically have very well-developed strategic planning efforts, business plans, and sustainability plans are more likely to continue to redesign their supply chains and also realize that the recession we're in, and these relatively low fuel prices, are not likely to be with us for very long," said Larkin. "The more sophisticated and larger shippers are often the ones pushing supply chain redesign to become more energy efficient to reduce their carbon footprint even if it costs them in the interim."
While Larkin maintains that supply chain redesign efforts are underway to a certain extent, a prominent economist said that there is no widespread evidence of supply chain redesign just to reduce transportation and logistics expenses at this time.
"With the drop in energy prices and the downward shift in transportation rates since last summer, the primary cause of redesign of networks now is the need to react to the closure of factories and changes in source supply conditions quite separate from transportation and logistics expenses," said Paul Bingham, an economist at IHS Global Insight. "Appropriate risk management calls for shippers to understand their vulnerability to an eventual rebound in transportation energy prices, but there is little pressure today to design their networks solely around minimization of this one cost element."
The Next Generation Supply Chain
10/11/2009
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