Capturing in-transit inventory on rail

According to the Association of American Railroads (AAR), intermodal rail traffic in March 2017 jumped 21% over February totaling almost 1.3 million units, representing a 4% increase over 2016 traffic and a new record in U.S. intermodal volumes.

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Shippers should be noting that rail is increasingly carrying inventory that’s fueling a growing U.S. economy. According to the Association of American Railroads (AAR), intermodal rail traffic in March 2017 jumped 21% over February totaling almost 1.3 million units, representing a 4% increase over 2016 traffic and a new record in U.S. intermodal volumes.

Further, rail is making an impact on bulk shippers, as carload originations also jumped over 22% in March over the previous month and were 7% ahead of the same period in 2016. In fact, the railroads have enjoyed five years of steady growth in the carload volumes, according to the AAR.

Indeed, there’s a clear need for visibility into inventory in transit as we move to shorter and shorter delivery cycles. However, rail has historically been a separate, less visible supply chain, as we could only trace at the car/container number level. In order to effectively use rail in our in-transit inventory solution, it has to be affordable, capable of being planned, predictable, visible and flexible.

Affordable seems like a no-brainer for rail because it’s so energy efficient and well established. Unfortunately, competition for portions of the railroads’ market is very limited, as consolidations have transpired over the past several decades. In fact, many markets have only one railroad serving them.

We’ve seen the railroads push price increases with the rationale that those industries that depend on them should share margin with them. This rationale can push shippers to painful profit levels and act as a disincentive to capital investment in rail-dependent plants.

Capable of being planned refers to the ability to generate information that can be made visible through forecasting models. With the ability to collect data at the item level inside the railcar/container and tie that to the demand in real time, shippers and their customers could rely on inventory status while in motion. In turn, this reliability will allow the substitution of virtual inventory—that which is still coming, or fixed safety stocks. This can be modeled in an inexpensive, Cloud-based network optimization tool.

Predictable is critical for in-transit inventory items, as we’re literally promising usability at a given time and place for our customers. Can we predict the transit time on rail? Yes we can. Rail car location messages with a history back to the EDI realm are linked in sophisticated systems that can statistically predict transit times. These are adjusted many times a day as rail freight passes intermediate points.

Visible refers to tracking at the item level. As noted above, with more recent systems we know where the product is on a given trailer or railcar and we can make that product and order information available to our customer through a push-based information service. Bottom line: The infrastructure of rail is in place and the software for making a dashboard for customers is still improving.

It’s important to keep in mind that we need flexibility both on an emergency route-change basis and on a sustainability, re-planning basis. Flexibility has not been associated with inventory on rail in the past; however, we’re seeing improved methods for tracking and a move to paperless waybills and other documentation is enabling faster response to changes by operations.

It won’t be as flexible as highway, but rail is operating vastly better than it was just a decade ago. Thus, shippers can plan alternate solutions should there be a disruption in service.

Shippers can, in fact, make an impact on overall inventory levels by being able to promise delivery and allocate inventory while in motion on rail. It may be past time to integrate on-rail item level inventory into the capable-to-promise equation for customer service.

About the Author

Peter Moore
Peter Moore is Adjunct Professor of Supply Chain at Georgia College EMBA Program, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at [email protected]

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Article Topics

Inventory · Pricing · Rail · All Topics
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