Congestion and inflation appear to be easing and schedule reliability has improved, but market signals suggest more of a lull in the current supply chain chaos than an end in sight. New strategies and digital tools are still the key to long-term market success.
After more than two years of intense supply chain disruption — labor and equipment shortages, extended dwell times, stranded or lost inventory — freight shippers and logistics providers are acknowledging the need for better end-to-end visibility, to continuously predict and update ETAs and manage exceptions in real time.
Customers expect on-time, in-full delivery and are unforgiving; surveys indicate a more than 80% churn rate after one failed attempt. But supply managers and service providers are finding that, as technology advances and real-time visibility improves, the bar is being raised. Increasingly, the goal is predictive visibility into broader supply chain operations, processes and organizational structure, to measure system performance and identify areas needing improvement based on current and historical shipment patterns.
Finally, companies are turning to analytics driven by artificial intelligence and machine learning to build prescriptive visibility that can assess optimization steps and strategies in real time, and make automated recommendations tailored to a company’s distinct situation, capabilities and business objectives.
Optimization Starts with Metrics
A common problem that businesses face as they begin to integrate digital transformation into their operations is defining benchmarks against which to measure their performance. “You don’t know what you don’t know, starting with how you’re performing,” explains Mathew Witte, senior vice president with Atlanta-based supply chain optimization platform ORTEC. As an example, he offers an operation with 10 to 50 trucks, each making 10 to 20 deliveries a day, assigning each 20 stops. If they miss a combined 10 % of total stops that day, the same costs will come up again tomorrow, effectively doubling the cost per mile.
“Am I filling my routes? What does full even look like?” Witte says. “It’s important to set benchmarks and standards, because if you’re not tracking performance you can’t improve.” Without metrics, he adds, a business can’t undertake strategic planning. A company that has maxed out on its annual capex, for example, might want to find ways to fill 1,000 new orders with the fewest trucks. Knowing that its routes historically run 72% full and are spread out over wide areas, the company can then fine-tune service frequency to accommodate the new business with existing trucks and drivers.
Creative Resource Planning Solutions
Nowhere is this more important than on the last mile, where costs and complexity have multiplied with the rise of e-commerce and with sheltering in place during COVID-19, and customer expectations run high.
In the e-grocery category, for example, last-mile fulfillment typically accounts for 25%–40% of total logistics costs. Shoppers select over 70 items, on average, out of more than 10,000 on offer. Products may be perishable and ship at varying temperatures.
Customers need to be at home to receive the delivery. More than half of customers are happy to switch to another retailer offering faster delivery, and more than 80 % say they don’t want to pay more than $5 for same-day delivery. Matching people, processes and assets to that kind of profile is no simple matter in good times, especially adding in labor shortages and inflationary pressures. Not surprisingly, few e-grocery delivery companies operate profitably.
All of this makes resource planning a top priority, to continuously monitor day-to-day operations for demand signals and make adjustments in real time. A solid resource planning capability helps to avoid stockouts and ensures that staff and assets are properly allocated and scaled to workflow, minimizing downtime and managing surges.
Prescriptive visibility offers insights which can, at times, lead to out-of-the-box thinking and fresh approaches. Witte points to two clients in the early days of COVID. When the pandemic hit and industries went into lockdown, one company reactively laid off 80% of its workforce and parked its trucks, expecting the crisis to last months. When demand suddenly snapped back, the company was unable to re-hire many of its former drivers, who by that point had migrated to other work.
By contrast, a second company considered the present volatility and began scenario planning against a future baseline of 10% more or less business. In that context, rather than furlough or layoff drivers, it outsourced its drivers to grocery stores and to FEMA and brought them back once conditions changed again.
One bright spot Witte has seen in the past five years is the ability of fleet managers to spot final-mile value in improving utilization. A notable example: private retail fleets building backhaul loads with reverse logistics returns from unrelated partners. “The companies that came out ahead during COVID,” he says, “had the right technology stack, understood the importance of change management throughout the organization, and were able at the executive level to ask ‘What if?’”
Resource planning, whether it’s enterprise resource planning (ERP) on the business side or materials requirements planning (MRP) on the production and inventory control side, integrates back-end processes under a single, centralized platform and serves three critical functions:
After more than two years of rolling pandemic, natural disasters and misaligned capacity and demand, shippers have a better understanding of the root causes of disruption, and have adopted best practices to prepare and adapt. But the strategy to date has been largely defensive, reacting to challenges rather than getting out in front of them in a comprehensive way.
The trick going forward will be unearthing the smaller, less obvious optimization gains that add up to longer-term competitive advantage. As the saying goes in football, it’s a game of inches — one that’s being played out in the final mile, as parcel freight is picked and orders are assembled and packaged closer to destination, then handed off to local carriers and drivers drop-shipping to multiple pickup locations offered to customers.
A conventional transportation management system (TMS) alone isn’t going to capture the necessary data to facilitate those moves — either at the warehouse or on the truck. A TMS must increasingly be supported by an integrated, modular set of cloud-based digital tools to orchestrate multiple parties over short distances and compressed timeframes in high-density areas.
“Companies know there’s a problem but they don’t know where to go,” Witte explains. “The real value of a TMS is in the middle mile, inbound freight audit and payment, while the last mile is still an afterthought, but that’s where the cost is, where investment in new equipment is needed, where they really need to make an impact. People need to be thinking about optimizing capacity, route performance and reducing delivery failures.”
Prior to COVID, he says, companies were looking to consolidate a TMS with a visibility platform, often a mix of hybrid solutions hosted on their own servers or in a public or private cloud. Today, with the constant tension between time-definite demand and strained capacity, visibility is no longer enough. How a truck is loaded; how deliveries are routed to maximize stops and save fuel; how orders are packed to optimize utilization, eliminate waste and lower parcel freight charges; how workflow is scheduled to boost on-time-in full (OTIF) scores, minimize error and ease workplace stress — in short, doing more, smarter, with less — are imperative, not just to retaining advantage but often to survival.
Better shipment visibility is a good start, but real-time system monitoring and data-sharing to identify potential failures early, and the use of analytics to recommend proactive steps to keep capacity and demand in closer alignment are equally, if not more, critical.
Still Early Days for Transformation
Ask most supply chain managers how far along industry has come in the transition to a frictionless, more automated supply chain driven by prescriptive analytics, and they typically estimate a take-up rate of around 20%. Despite a proliferation of service providers and cloud-based solutions in the market, small and mid-sized freight shippers who stand to benefit most often hesitate over perceptions about costs, integration complexity and lead times.
At the same time, bottom-up and top-down market pressures are building from strict service-level agreement terms and key performance indicators (KPIs) imposed on suppliers by large manufacturers and retailers, and as retail consumers downstream demand ever faster, cheaper, sustainable order fulfillment.
Third-party expertise in operations, business, organizational structure and technology can help bridge the knowledge gap for companies of all sizes grappling with where to start with transformation. Is the moment of peak Excel spreadsheet at last upon us?
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