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Transportation prices are not indicative of logistics costs. Such transport cost factors as fuel, warehousing and freight rates are highly variable. However, when it comes to logistics, efficiency and reliability are the long-term competitive cost edge, and these are synonymous with planning and integration. Making supply chain decisions on transport costs alone is ultimately counterproductive, because it does not address the fundamental logistics cost drivers.
There are numerous key performance indicators (KPIs) by which logistics performance can be measured. Freight rates on a per-unit basis, load utilization and aggregation, cost of warehousing and insurance, inventory carrying cost - all of these are transport expenses that can be accurately computed. However, in today's logistics world, one all-embracing measurement determines shipping cost: time. Just-in-time shipping requirements and expense from wasted fuel and delayed customs or security clearance make on-time performance the number one KPI. Through creative supply chain management, an integrated supply chain will improve both efficiency and cost effectiveness, because it eliminates the guesswork, backtracking and delays that waste time, resources and money. When a logistics system is focused on measuring and achieving on-time delivery, all other KPI measurements fall into place.
Top Cost Determinants
With the expansion of global sourcing, transportation and distribution networks have stretched the resources of all but the largest multinational corporations. Demanding service levels and high costs for everything from fuel to regulatory compliance make supply chain management even more of a top priority in tough competitive conditions. Producers that have made cutbacks in their own organizations to reduce costs may as a result lack adequate logistics infrastructure, capable decision support tools, necessary capital and operating scale. This worsens the tendency in virtually all industries to neglect in their strategic planning the transportation logistics of getting globally sourced materials and components to the production line, and subsequently getting the final product in the hands of the distributor and ultimately the customer.
Reliability, visibility, and real-time reporting of KPIs, are emerging as the top determinants of supply chain and freight cost-effectiveness, while a lack of integration can generate substantial costs and delays. That's why, rather than concentrating on freight rates alone, carrier selection should emphasize maximum operational service and reliability. The selection goal is to empower manufacturers and importers, using cutting-edge transportation systems and services, to optimize consolidation of freight while aggregating shipments, in order to lower their costs and carbon footprint and deliver reliability in the supply chain. Complete and timely delivery is the ultimate measurement of service and reliability, and this is synonymous with an integrated transport management system that coordinates every phase of the process - from contractual activity, to delivery and cost finalizations.
Effective supply chain integration also requires detailed familiarity with each shipper's industry requirements and practices, in addition to understanding the associated service parameters and costs. When it comes to challenges such as throughput, security, customs and other regulations, and product tracking, industry insight is essential. Logistics companies until now have largely emphasized general freight forwarding experience. Supply chain management, by contrast, requires in-depth logistics and purchasing knowledge as it relates to an industry itself, creating a value proposition directly focused on the industry's freight requirements.
So, if on-time delivery is the number one KPI measure for any industry's logistics needs, is 100-percent reliability a reasonable expectation? Certainly many factors remain outside a carrier's direct control: adverse weather conditions, terminal congestion and equipment failures, shipping accidents, natural disasters and more. However, the real problem is poorly integrated supply systems with inadequate organization that creates unnecessary storage and demurrage charges at airports and other freight terminals, reflecting information snags, missing or ill-prepared shipping documents, and inappropriate cargo routing. Inadequate packaging, incomplete documentation, and other such lapses in supply chain responsibilities can bring rejection of goods during border crossings, customs delays, cargo loss, and theft - all of which create huge and unexpected cost penalties that the shipping customer has in the past been expected to absorb.
A transportation management system should be expected to coordinate, and provide visibility to, every phase of the process to eliminate delays and errors and reduce costs. From transport contracting to trip closure, with storage and shipment in between, there are numerous action points where cost-effectiveness can be measured and documented. With transportation systems that allow for "vetting" interactions for the smooth flow of clearance data from one operational activity to the next, shippers will receive assurance that their transactions will be fully transparent and operationally efficient.
Establishing measurable standards and aligning them to the shipper's requirements is a step-by-step process that allows logistics companies to improve capabilities to:
* Schedule deliveries
* Receive, verify and transfer product
* Manage inventory and import/export requirements
* Process customer inquiries, select carriers and route shipments
* Identify all customs and security regimes that apply to the shipment
* Undertake warehouse and inventory management
Putting such a detailed process in place can be an effective foundation for supply chain efficiency. The use of such best practices in supply, scheduling, transportation, stocking, and quality enables suppliers and shippers to build a common framework for understanding what is expected of them, and makes such issues as cross-border tariffs, taxes, regulatory and licensing requirements easier to deal with. When combined with effective use of International Commercial Terms (Incoterms) and modern electronic tracking systems, the entire process can bring predictability and consistency to logistics performance.
In the world of global sourcing and shipping, reliability is synonymous with planning and preparation. Inadequate preparation, reflecting incomplete information, is the most preventable, and most costly, problem when it comes to inefficiencies in global sourcing. Conversely, planning and information control are essential to creating an efficient global supply chain where accurate and instantaneous supply chain management creates maximum flexibility and efficiency. Strategic thinking with logistics as a key element is the only way to make sure mission critical factors in the supply chain are not neglected. The logistics paradigm has changed from emphasizing cost alone to emphasizing service and reliability as cost drivers, and the most successful supply chain professionals integrate constant awareness of that change into their entire planning process, because they know the cost of buying cheaply is too expensive.
Source: Jaguar Freight Services
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