Transportation Best Practices/Trends: Driving change in the global supply chain (Part 1)
October 01, 2012 - LM Editorial
The vernacular of international trade has been enhanced by terms like near-shoring, off-shoring, outsourcing, and insourcing, but none come close to explaining the complexity of today’s global transportation network. To that end, we have convened a roundtable of experts who will share their views and insights on transportation factors driving change in the global supply chain.
Our panel of industry experts includes J. Paul Dittmann, Ph.D. and executive director of the Global Supply Chain Institute at the University of Tennessee, Knoxville; IDC Manufacturing Insights Practice Director Kimberly Knickle; and on the practitioner side, we welcome Steve Harmon, vice president of transportation for Kimberly Clark. Harmon is responsible for all transportation services within the company’s supply chain and has been with Kimberly Clark for over 30 years.
Logistics Management (LM): What are the biggest challenges faced by transportation professionals today?
Steve Harmon: From a practitioner’s perspective, the most urgent concern is with constrained truckload supply during peak demand periods. With less buffer inventory, we really must have higher on-time delivery performance. Another challenge we’re confronting is with ever-changing export regulations and compliance. Finally, there’s the tactical problem of saving money while selling internal supply chain partners on transportation capability as a value-added service.
Paul Dittmann: Shippers like Steve face a perfect storm driving up cost, yet are expected to find ways to hold the line. The perfect storm is brought on by the well-known factors of fuel volatility, driver shortages, government regulations, and environmental challenges. In addition, shippers find themselves at the tip of the spear in the fight to reduce their carbon footprint.
Kimberly Knickle: Paul is right. Our research indicates that manufacturers may be trying to do too much at once, and transportation managers are left with vague directives to cut cost while increasing efficiency. At the same time, we are hearing that customer service is key.
LM: Those are the big challenges, but how about new and emerging challenges?
Knickle: We see a trend toward mostly managing procurement costs. Manufacturers evaluate carriers for what they give them for their money. The scope of carrier operations is important to some shippers, but this does not necessarily mean shippers are more comfortable with asset-based carriers, however. It means there’s more of a focus on efficiency.
Dittmann: Transportation professionals are constantly finding creative ways to offset the cost pressures. They are redesigning the network flows, maximizing cube (or weight) utilization, optimizing routes, and applying Lean and Six Sigma principles. They are also making sure that the organization understands the total landed cost of all moves in the network, not just the out-of-pocket freight cost. For example, a faster, more responsive transportation operation helps firms reduce inventory (working capital), and that must be considered in evaluating any changes in flow.
Harmon: I agree. First, you want to educate and engage internal supply chain players in problem solving. At the same time, you are giving them preferred shipper status by offering stability and leveraging scale. This sustains a network for prioritization and transparency for the on-time delivery performance management process.
LM: What are some of the major trends you’re seeing in global transportation?
Dittmann: The economics of global outsourcing is changing due to labor cost increases, fuel volatility, and currency changes. Companies will have to reevaluate their outsourcing models in this environment, and the transportation professional will be central to this discussion. For those global moves being made today, supply chain professionals must find ways to speed the flows to reduce inventory requirements and improve customer service. They must also be world class in import/export excellence, constantly finding ways to avoid cost increases.
Knickle: Paul is absolutely right. Across the board, manufacturers are increasing their global and low-cost country sourcing. At the same time, we see trade with Canada, Mexico, the Caribbean, and South America ramping up. Paul makes another good point here: cost arbitrage. Shippers have to leverage their expenses related to taxes and energy. This might more easily be managed in cross-border moves.
Harmon: I agree with Kimberly, but until we address the problems related to the inflationary domestic trucking market, other “global” trends become less urgent. We are also very concerned about the regulatory compliance spend. It’s becoming increasingly expensive to navigate through new regulations.
LM: As emerging nations play a larger role in global trade, how will they attract shippers and transportation providers?
Harmon: By investing in transportation infrastructure, emerging nations in any given part of the world will benefit. Efficient and sustainable movement of goods is critical, irrespective of mode.
Knickle: And shippers soon discover which regions are capable of reliably serving their needs. As Steve points out, mode selection is reliant on how good the roads are. Can the seaports handle dense delivery? Can the airport accommodate five flights a day? What is the labor situation? Security will always be key. It’s all about infrastructure.
LM: Steve, as a large, international shipper, what modal strategies are best when it comes to responding to sudden shifts in the global demand cycle?
Harmon: Shippers will want to leverage the global scale on ocean carriage, taking advantage of underutilized capacity, for example. Shippers can also counter U.S. trucking supply constraints with by using more intermodal alternatives.
LM: Risk management has been an ongoing concern for supply chain leaders. How is this issue being addressed, and can supply chain managers mitigate risk with a deeper mix of modal providers?
Dittmann: Firms are increasingly coming to grips with the risk associated with global transportation moves. In the early days of outsourcing, many firms ignored these risks. But, with enough experience, the risk associated with global moves has become increasingly apparent. Unexpected delays, catastrophic events, lost or damaged containers, even pirate attacks make it essential that transportation professionals identify, prioritize, and find ways to mitigate the risks that their supply chain faces. It is not acceptable to engage in global commerce today without a formal, documented risk mitigation plan.
Knickle: Having a formal mitigation plan is certainly ideal, but shippers still seem to have a problem spending for it. Part of the solution is having a more segmented supply chain. This is especially crucial for products that simply must be delivered on time. I always use the example of surgical gloves. Here’s a really inexpensive item that hospitals can’t do without, and if a shipment of surgical globes is late or interrupted, all things come to an immediate halt.
Harmon: Having a plan is essential, but shippers will have to be creative when it comes to putting one together with a manageable budget. A good plan should address risk and become part of the company’s culture.
LM:What are your thoughts on the economics of global freight transportation as a percentage of total product cost, and how can transportation be leveraged as a competitive advantage?
Harmon: Shippers must identify business service requirements and the transportation costs required to achieve their objectives. Having done that, they can meet the challenges that may come to the surface anywhere in the supply chain.
Dittmann: Transportation professionals need to take a clean sheet and evaluate the redesign of all of the flow in their networks. They need to find creative ways to consolidate shipments and maximize cube utilization of their equipment, as well as maximize the utilization of their equipment in general. They need to work with their 3PLs in a collaborative win/win environment, sharing benefits to achieve breakthrough improvements together, and they need to work with the product design people on dimensions and packaging to optimize trailer loading. They need to fully utilize the optimization capabilities of modern TMS systems, a move that will require new skills sets in transportation well beyond those found traditionally.
Knickle: I think what we are all saying is that process innovation is just as important as product innovation. Creativity is simply undervalued today, and transportation professionals want to drive change with more strategic planning and efficiency. We see a greater emphasis placed on creativity in the future—especially when addressing the global supply chain.
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