Tracking financial flow is vital because transportation and other supply chain costs keep increasing, says Chris Cassidy, executive vice president of Trax Technologies.
Understanding terms and processes such as the “cost of goods manufactured” is important, but getting visibility to the so-called “cost to serve” is critical to successfully managing levels of inventory, says Cassidy.
To do that, he says, one needs visibility to shipments. It simply isn’t sufficient to understand what the links are in a supply chain. Each one carries what he calls “financials.” How are you moving the raw materials, parts, finished goods, whatever? What mode of transportation is used? Where are things stored?
“From that perspective, cost to serve is becoming one of the largest buckets of expenses for shippers,” Cassidy says. For instance, ocean freight cost 10 times what it did just two or three years ago; air freight capacity is costly and tight, and the truck driver shortage continues in North America and Europe. “So how we think about creating value is absolutely critical.”
What to do? Begin, first, with getting visibility to all carrier contracts. Track that financial flow in parallel with the physical flow.
Cassidy advises a “three-S” method comprising spend, speed and sustainability. Your spend turns on how inventory should move — air, ocean, truck — because cost varies considerably. Speed refers to the agility and velocity of a shipment. When do you need it? How do you avoid out-of-stocks? How do you keep it on time?
The third “S” is sustainability, or what Cassidy calls the social economics of shipping. “What is the flexibility, agility and responsiveness I need?” he says. “Ultimately, what's the social economics or the responsibility, things like sustainability, for that?”
In fact, Cassidy says, a provider should endeavor to see that a shipper factors sustainability into its transportation management.
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