Mike Regan Sounds Off (page 6)
-- Logistics Management, 11/1/2005
Page 6 of 6 You’re suggesting shippers need to overhaul their entire approach to supply chain execution in order to prepare for the future?
Yes. We’re looking at a substantive change in the way companies must execute their supply chain capabilities. This runs contrary to who I am, I like to be optimistic; but right now I ask this question: You operate your business based on the expectation that the carriers are going to be able get it there quicker and cheaper. Is that a realistic assumption looking out 24 – 36 months? If I base my business plan on those realizations, then what does it tell you? It tells you that you’re in denial.
What role will surcharges play in a shippers planning scheme moving forward?
This whole topic fascinates me. I spoke with one of the large carriers and I asked why don’t you just start incorporating higher fuel costs in your base rate and take down your fuel surcharges? They answer was, “We like surcharges. I can get two to three percent increases in my surcharges whereas I have to fight to get half a percent increase in my rates.”
If that’s the case, and carriers are addicted to surcharges, I say that the era of cheap transportation is coming to close. You see security surcharges now, you see congestion surcharges, you see fuel surcharges, you see them coming for additional insurance. If you have a security incident you a mechanism through which additional carrier cost can be passed through to shippers. In an era where capacity is limited, shippers have to look at alternatives in order to mitigate the impact of those surcharges.
You mention that this is the end of cheap transportation. Well, what’s the logistics landscape going to look like five to 10 years from now?
Let me be humble enough to say I don’t know. But as I look at things, there are some realities that I think will come into existence five to 10 years out. First of all, information and data is going to be as important as the goods you’re shipping and it will be important in helping you understand your options.
The problem I see going on today is that companies are using a distribution network and a supply chain process that is relevant for a business model that passed out of existence five to ten years ago. With that thought in mind: How do I upgrade my distribution network and how do I change my supply chain process to reflect the business realities that I’m experiencing on a day to day basis and am likely to experience in the future.
When I heard Lee Scott (CEO) of Wal-Mart speak a few months ago he said the retailer is looking at reducing its supply chain from days into hours. If that’s the case, and if cheaper and faster is going to be more difficult to do, then it’s hard to believe that’s possible. But we need to understand what all of our options and alternatives look like for we say it’s impossible.
Companies will have to upgrade their distribution networks and supply chain process to reflect business reality that I live in 12-24-36 months out. That’s not just where I locate my DCs, that’s taking a look at changes my carrier base. Today, I have UPS that has Overnite under its belt, and is likely to have additional LTL resources under its belt. That means I now have options that I didn’t have a year ago. I know how the DPW/Excel acquisition. It’s changes like that that may present an opportunity for my business.
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