Subscribe to our free, weekly email newsletter!


Logistics news: Reducing inventory can disrupt supply chain, say some experts

By Patrick Burnson, Executive Editor
October 05, 2010

Businesses that scaled back on supply during the recession may find themselves or their suppliers suddenly unable to accommodate increased demand as the economy begins to recover, some experts warn.

“While reducing supply inventory during the recession may have been an economic necessity, many businesses are now faced with the risk of being unable to reestablish the supplies needed to deliver when the economy begins to turn around,” said Michael Kerner, CEO for Zurich Global Corporate in North America. “As one of the largest property and casualty insurers globally, Zurich urges its customers to evaluate their supply chains now so as not to be caught off guard in the weeks and months to come.”

A similar point was raised by Carlos Gutierrez, chairman of Global Political Strategies. Speaking at the Council of Supply Chain Management Professional’s (CSCMP) annual meeting in San Diego last week, he stated that U.S. trade protectionism is also keeping shippers from making any bold decisions.

But businesses waiting for an “all-clear” to resume pre-recession production and supply inventories may be missing the boat, said Dr. Robert P. Hartwig, economist and president of the Insurance Information Institute (III).

“There likely won’t be a universal signal indicating that the economy is recovering, so businesses may not know when to adjust their models back to pre-recession levels,” he said. “Businesses often consider the costly consequences of facing a supply chain interruption, but having a supply chain that is not sufficiently prepared for increased demand can also present financial and reputational costs.”

Those costs can add up. A recent study by Vinod Singhal of Georgia Tech and Yossi Sheffi of MIT indicates that companies experiencing a supply chain disruption suffered between a 33 percent and 40 percent decline in stock price, compared with industry peers over a three year period.

“Historically, disruptions can lead to seven percent lower sales and 11 percent higher costs,” cited Linda Conrad, director of strategic business risk, Zurich Global Corporate. “Combined with the increased costs of securing additional supply at the last minute, it’s not surprising that approximately 40 percent of companies with extended interruptions never recover from supply chain disruption.”

About the Author

image
Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Seasonally-adjusted (SA) for-hire truck tonnage in July headed up 1.3 percent on the heels of a 0.8 percent increase in June. The ATA’s not seasonally-adjusted (NSA) index, which represents the change in tonnage actually hauled by fleets before any seasonal adjustment, was 133.3 in July, which outpaced June’s 132.3 by 0.8 percent, and was up 2.8 percent annually.

Volumes for the month of July at the Port of Long Beach (POLB) and the Port of Los Angeles (POLA) were mixed, according to data recently issued by the ports. Unlike May and June, which saw higher than usual seasonal volumes, due to the West Coast port labor situation, July was down as retailers had completed filling inventories for back-to-school shopping.

With a 0.8 cent decrease, this week’s average price per gallon is $3.835 and stands as the lowest price since hitting $3.844 the week of November 25, 2013.

LTL carriers are rapidly investing in expensive, on-dock, three-dimensional size measurement capturing machinery, and they are hoping one day of being able to more accurately charge shippers rates based on the actual dimensions of their shipments, rather than the traditional weight-and-distance-based formula that has been in effect since the 1930s or even earlier.

The Department of Transportation’s Bureau of Transportation Statistics (BTS) recently reported that its Freight Transportation Services Index (TSI) dipped 0.9 percent from May to June.

Article Topics

News · CSCMP · Zurich Capital · All topics

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA