Executive Briefings

With Deconsolidation, You Can Ship When the Latest Demand Trends Are Clear

Since early 2002, an estimated $50bn in manufacturing investment has moved to China-and that doesn't even begin to factor in what's moved to other thriving production venues such as Vietnam and India. As more companies pursue global manufacturing economies, container ocean transportation has become an increasingly larger part of their overall supply chain. Furthermore, getting international freight to the right place, at the right time, in the right condition, and as cost effectively as it is in North America has become a big challenge.

If your supply chain has gone global, perhaps one of the logistics industry's most effective international strain relievers-a service known as deconsolidation-can save you a few headaches.

Deconsolidation is the act of breaking down a single shipment or multiple large ones (such as an ocean container) into several smaller shipments and timing and organizing those shipments for delivery, all with the goal of achieving greater efficiency and economy.

Many companies, including retailers and apparel manufacturers, use this service to bypass distribution centers and ship direct to retail outlets. Others use it to optimize the flow of imports to their distribution centers or to augment their distribution network with an additional facility.

One of the most challenging things about today's global manufacturing scenario is the fact that so many things have to be planned far in advance-including where inventory currently being loaded aboard ocean vessels is going to be shipped, once it reaches North America. Considering that some ocean transits can take weeks and that recent congestion challenges have added more time to the global supply chain, considerable pressure has been placed on companies' forecasting skills, with potentially dubious results.

You might realistically assume, for example, that folks in Florida will want more of your short-sleeved T-shirts than folks in Chicago. However what you can't necessarily see is that Florida is about to have an extended cold snap while the Midwest is about to have a heat wave. Or imagine that you manufacture umbrellas in Vietnam. In most cases, your biggest market might be rainy Seattle, which is where you've planned to send your latest shipment once it reaches the U.S. But what might happen if Seattle has just begun experiencing a rare dry spell during the time your goods were crossing the ocean while arid Phoenix had an equally unusual deluge?

Deconsolidation allows companies to postpone inland shipping decisions until goods reach port, so they can take advantage of the latest demand trends. They can sort and aggregate the contents of ocean containers to match any distribution pattern but without the guesswork.

Contrary to how it may look, all containers and trailers are not created equal. Most ocean containers measure 40 feet while most inland transportation trailers measure 53 feet. This is a substantial difference, especially since it's possible to get the contents of nearly two ocean containers onto one inland transportation trailer. The potential advantages and cost savings realized by unloading cargo from ocean containers and transloading cargo onto inland trailers are obvious. By using fewer trailers, you'll save considerable time and money on transportation, especially if you're dealing with the lower-weight items typically carried by the retail sector.

This cross-docking benefit has become even more relevant considering two major challenges facing supply chain management professionals today: the continuing truck driver shortage and the recent double-digit increases in annual fuel costs.

Another plus to this practice is the fact that it helps keep ocean containers closer to ports, reducing the problem of delays in container returns.

Suppose that you're bringing your internationally manufactured goods into the Port of Long Beach. Furthermore, let's say that your Western region distribution center is in Dallas, and you have a vast number of customers in Salt Lake City and Denver.

In a traditional distribution scenario-one that doesn't include deconsolidation-any inventory destined for your customers in Utah and Colorado would have to cross the region twice, first to reach the distribution center and second to reach your end customers' retail or distribution outlets. Furthermore, your freight bill would be twice as high.

However, with the deconsolidation service known as DC bypass (also known in the retail industry as direct-to-store distribution), you could eliminate the transit to and from the distribution center. Freight would arrive at the deconsolidation center, where it would be sorted and sent directly to customers' stores or distribution centers, reducing your use of redundant transportation.

As a result, you could reduce your freight bills and your transit time. Just as important, you would be making your own small contribution toward the delivery of a solution to the growing problem of transportation congestion, because each step any one of us takes to reduce the pressure on the world's major ports and transportation lanes is a step in the right direction.

There's no doubt that inventory carrying cost as a percentage of product price is higher than it once was. After all, products manufactured in countries such as China and India, yet consumed in North America, inevitably spend more time traveling from production line to end user. Naturally, extra time equals extra inventory carrying costs.

While deconsolidation can't turn the clock back to the old days when supply chains were measured in hours or a few days, it can help you trim several days off your supply chain when you use the DC bypass or fulfillment function, because you'll have shaved off the transit time to and from distribution centers. The net result is lower inventory carrying costs and a higher speed to market.

You also can lower your inventory carrying costs through the aforementioned postponement ability which a deconsolidation service offers, since you won't have to keep as much stock on hand at your distribution centers "just in case" demand trends change.

Although much of the freight that travels through deconsolidation centers is rapidly transloaded and shipped out, there are occasions when goods are unloaded, sorted and put away in the deconsolidation center for shipping at a later date-essentially turning that deconsolidation center into an extra warehouse for the freight's owner. This is a practice known to many as deconsolidation fulfillment.

Deconsolidation fulfillment can provide you with an invaluable distribution entrée into another region. For example, you can use a West Coast distribution center to complement your East Coast and Midwestern locations. You can use a location in Northeastern hot spots such as New York to supplement distribution centers in Chicago and Dallas. Or you can use it to support a port diversification strategy-bringing Asian-sourced goods into an East Coast port, for example. Best of all, you can do so without being tied into long-term capital commitments. In addition, you'll get your foot in the door of these distribution markets far more rapidly than you'd otherwise be able to do on your own.

Another potential advantage of deconsolidation fulfillment is the ability to build up safety stock here in North America even if you don't have room to store it at your existing distribution centers. (Much like public warehouses, deconsolidation centers can be excellent sites for overflow storage). This advantage is especially potent when substantial shipping delays could result in lower profit margins due to penalties and lost sales.

As with any distribution strategy, deconsolidation isn't for everyone-any more than just-in-time is a practical production scenario for every company. It clearly suits some companies and industries better than others. It's certainly not a panacea for the higher costs and congestion issues that most of us have experienced (although it is a help). And in some cases, it does add another layer of material handling to an already complex supply chain.

However, in most cases it may just be the solution you need to marry the economies of international manufacturing with the realities of domestic demand-and to create the additional speed and customer service excellence that will keep your company ahead of the competition. In fact, with the right deconsolidation partner complementing your supply chain initiatives, it could make your job easier.

Thomas Hickey is vice president of Consolidation and Deconsolidation Services for APL Logistics, Oakland, Calif. Visit www.apllogistics.com for more information.

Since early 2002, an estimated $50bn in manufacturing investment has moved to China-and that doesn't even begin to factor in what's moved to other thriving production venues such as Vietnam and India. As more companies pursue global manufacturing economies, container ocean transportation has become an increasingly larger part of their overall supply chain. Furthermore, getting international freight to the right place, at the right time, in the right condition, and as cost effectively as it is in North America has become a big challenge.

If your supply chain has gone global, perhaps one of the logistics industry's most effective international strain relievers-a service known as deconsolidation-can save you a few headaches.

Deconsolidation is the act of breaking down a single shipment or multiple large ones (such as an ocean container) into several smaller shipments and timing and organizing those shipments for delivery, all with the goal of achieving greater efficiency and economy.

Many companies, including retailers and apparel manufacturers, use this service to bypass distribution centers and ship direct to retail outlets. Others use it to optimize the flow of imports to their distribution centers or to augment their distribution network with an additional facility.

One of the most challenging things about today's global manufacturing scenario is the fact that so many things have to be planned far in advance-including where inventory currently being loaded aboard ocean vessels is going to be shipped, once it reaches North America. Considering that some ocean transits can take weeks and that recent congestion challenges have added more time to the global supply chain, considerable pressure has been placed on companies' forecasting skills, with potentially dubious results.

You might realistically assume, for example, that folks in Florida will want more of your short-sleeved T-shirts than folks in Chicago. However what you can't necessarily see is that Florida is about to have an extended cold snap while the Midwest is about to have a heat wave. Or imagine that you manufacture umbrellas in Vietnam. In most cases, your biggest market might be rainy Seattle, which is where you've planned to send your latest shipment once it reaches the U.S. But what might happen if Seattle has just begun experiencing a rare dry spell during the time your goods were crossing the ocean while arid Phoenix had an equally unusual deluge?

Deconsolidation allows companies to postpone inland shipping decisions until goods reach port, so they can take advantage of the latest demand trends. They can sort and aggregate the contents of ocean containers to match any distribution pattern but without the guesswork.

Contrary to how it may look, all containers and trailers are not created equal. Most ocean containers measure 40 feet while most inland transportation trailers measure 53 feet. This is a substantial difference, especially since it's possible to get the contents of nearly two ocean containers onto one inland transportation trailer. The potential advantages and cost savings realized by unloading cargo from ocean containers and transloading cargo onto inland trailers are obvious. By using fewer trailers, you'll save considerable time and money on transportation, especially if you're dealing with the lower-weight items typically carried by the retail sector.

This cross-docking benefit has become even more relevant considering two major challenges facing supply chain management professionals today: the continuing truck driver shortage and the recent double-digit increases in annual fuel costs.

Another plus to this practice is the fact that it helps keep ocean containers closer to ports, reducing the problem of delays in container returns.

Suppose that you're bringing your internationally manufactured goods into the Port of Long Beach. Furthermore, let's say that your Western region distribution center is in Dallas, and you have a vast number of customers in Salt Lake City and Denver.

In a traditional distribution scenario-one that doesn't include deconsolidation-any inventory destined for your customers in Utah and Colorado would have to cross the region twice, first to reach the distribution center and second to reach your end customers' retail or distribution outlets. Furthermore, your freight bill would be twice as high.

However, with the deconsolidation service known as DC bypass (also known in the retail industry as direct-to-store distribution), you could eliminate the transit to and from the distribution center. Freight would arrive at the deconsolidation center, where it would be sorted and sent directly to customers' stores or distribution centers, reducing your use of redundant transportation.

As a result, you could reduce your freight bills and your transit time. Just as important, you would be making your own small contribution toward the delivery of a solution to the growing problem of transportation congestion, because each step any one of us takes to reduce the pressure on the world's major ports and transportation lanes is a step in the right direction.

There's no doubt that inventory carrying cost as a percentage of product price is higher than it once was. After all, products manufactured in countries such as China and India, yet consumed in North America, inevitably spend more time traveling from production line to end user. Naturally, extra time equals extra inventory carrying costs.

While deconsolidation can't turn the clock back to the old days when supply chains were measured in hours or a few days, it can help you trim several days off your supply chain when you use the DC bypass or fulfillment function, because you'll have shaved off the transit time to and from distribution centers. The net result is lower inventory carrying costs and a higher speed to market.

You also can lower your inventory carrying costs through the aforementioned postponement ability which a deconsolidation service offers, since you won't have to keep as much stock on hand at your distribution centers "just in case" demand trends change.

Although much of the freight that travels through deconsolidation centers is rapidly transloaded and shipped out, there are occasions when goods are unloaded, sorted and put away in the deconsolidation center for shipping at a later date-essentially turning that deconsolidation center into an extra warehouse for the freight's owner. This is a practice known to many as deconsolidation fulfillment.

Deconsolidation fulfillment can provide you with an invaluable distribution entrée into another region. For example, you can use a West Coast distribution center to complement your East Coast and Midwestern locations. You can use a location in Northeastern hot spots such as New York to supplement distribution centers in Chicago and Dallas. Or you can use it to support a port diversification strategy-bringing Asian-sourced goods into an East Coast port, for example. Best of all, you can do so without being tied into long-term capital commitments. In addition, you'll get your foot in the door of these distribution markets far more rapidly than you'd otherwise be able to do on your own.

Another potential advantage of deconsolidation fulfillment is the ability to build up safety stock here in North America even if you don't have room to store it at your existing distribution centers. (Much like public warehouses, deconsolidation centers can be excellent sites for overflow storage). This advantage is especially potent when substantial shipping delays could result in lower profit margins due to penalties and lost sales.

As with any distribution strategy, deconsolidation isn't for everyone-any more than just-in-time is a practical production scenario for every company. It clearly suits some companies and industries better than others. It's certainly not a panacea for the higher costs and congestion issues that most of us have experienced (although it is a help). And in some cases, it does add another layer of material handling to an already complex supply chain.

However, in most cases it may just be the solution you need to marry the economies of international manufacturing with the realities of domestic demand-and to create the additional speed and customer service excellence that will keep your company ahead of the competition. In fact, with the right deconsolidation partner complementing your supply chain initiatives, it could make your job easier.

Thomas Hickey is vice president of Consolidation and Deconsolidation Services for APL Logistics, Oakland, Calif. Visit www.apllogistics.com for more information.