How to BEAT the peak-season BLUES
Two long-time transportation consultants tell how shippers can ensure they have sufficient capacity, even when demand is at its greatest.
Choked highways. Crumbling bridges. Congested ports. Overcrowded airports. Railroads that are short of equipment, crews, and track capacity. Shippers and carriers are facing a mountain of multimodal transportation problems, all of them magnified during the peak shipping season that stretches from early summer through the fall.
The United States has the world's largest and most prosperous economy, yet we have woefully underinvested in transportation infrastructure. And we have done so for such an extended period that reversing course would be painfully time-consuming and enormously expensive.
These issues require concerted action by both the government and the private sector and, ideally, the development of a national transportation vision. Who knows when—or if—that will happen?
In the meantime, shippers can't afford to succumb to the "peak-season blues" and simply wait for a solution. They need to take action now to cope with the capacity challenges that lie immediately ahead. But they also need to plan for the future: The old approach of reacting to peak-season problems as, or after, they occur is simply not an effective, long-term strategy. With transportation-infrastructure issues becoming more troubling, logistics professionals must develop the ability to think strategically—and that they must act earlier in advance of impending problems.
This isn't easy. As outlined here, meeting peak-season capacity challenges requires a change in mind-set as well as the development of enhanced capabilities in information, business processes, and technology.
Information reduces stress
Generally speaking, freight rates for all modes have been on a sustained upswing, spurred by rising fuel prices; shortages of truck drivers, rail equipment, and train crews; and insufficient track, airlift, port, and highway capacity.
Most economists would say that there is no such thing as a shortage of capacity—the market ameliorates shortages through higher prices, which lead to a reduction in demand. Does that mean companies whose sales peak at certain times of the year are doomed to pay increasingly higher prices? Not if they plan ahead. The secret to avoiding that situation is anticipating difficulties and keeping negative outcomes from happening in the first place.
What makes that so challenging is the need to acquire timely information. In fact, real-time supply chain visibility is the single most important component of a transportation system that is both fault-tolerant and fault-anticipating.
Consider the hypothetical example of a shipment of Korean-made, "fashion forward" merchandise that must be in stores in time for a major holiday. Suppose that shipment arrived at the dock in Korea after its assigned vessel had sailed for Long Beach. Those with a "need to know" probably wouldn't find out about the delay until they heard that the shipment wasn't on board or after they initiated a trace when it failed to arrive on time. In either case, it probably would be too late to remedy the problem satisfactorily.
True innovators, however, would have established a system that included specified event milestones and "predictive markers" (indicators of the likely outcome of events).
This type of system has two important benefits: It alerts the shipper when an expected milestone or transaction point has been missed, and it predicts the consequences of that development on the supply chain. As a result, the true innovators are able to respond effectively because they know when a shipment is in trouble—not after the vessel has sailed, but before it has even left the dock.
Thus, a shipper using such a system would have the option, for instance, to airfreight enough units to cover short-term demand until sufficient volume arrived by ocean. Without real-time information, the shipper's only choice would be to react to the problem, and no wholly acceptable alternative would likely be available.
Capacity management steps
A related challenge is capacity management. Here shippers frequently encounter conflicting objectives, such as reducing costs and accelerating delivery to improve sales and customer retention. However, there are several steps shippers can take to help relieve capacity pressures.
Examine your freight-flow networks.
Too many buyers of transportation services see their mission as securing a favorable rate from Point A to Point B. A better approach would be to leverage the value of overlapping networks. This is basically a matter of integrating both buyers' and sellers' objectives: Buyers of transportation services are looking for freight capacity that aligns with their inbound and outbound freight flows; sellers that have capacity want volume that aligns with their networks.
The key is to overlay these networks by illuminating and comparing objectives, sharing data, understanding each side's capabilities and requirements, and then working together to put the right freight together with the right carriers at the right prices.
Share information.
Optimizing networks and rationalizing carrier bases are important. But benefits increase when shippers collaborate with carriers in a more integrated way. A big step is providing carriers with volume forecasts. This doesn't mean telling them you plan to move 5,000 truckloads next year from Los Angeles to Chicago. Rather, it means providing detailed information based on historical data, with adjustments for anticipated increases or decreases by month-of-year, week-of-month, and day-of-week.
With that kind of detail, carriers won't be guessing that your 5,000 loads means 20 loads a day. Instead, they'll know that you move 70 percent of your volume in the last week of a typical month, and that in an average week, you ship 100 loads but 30 of them go out on Monday. Such detailed forecasts also help you plan staffing levels for warehouse and yard operations.
Lock up capacity.
Even shippers that have negotiated good contracts with carriers may run into trouble during peak season. Often the problem is "disappearing capacity": When demand is highest, carriers will seek out shippers that pay the highest rates, and will often leave those that negotiated low prices waiting until there is a lull.
Part of the solution includes tying contract awards to capacity commitments. This is a complex process that should begin at the onset of any sourcing initiative. The concept is based on carriers receiving (and making offers that reflect) complete, accurate information about shippers' business. The quid pro quo is that carriers only bid on lanes and freight volumes that they are willing to cover completely.
Optimize mode selection.
Accenture's observations are that most shippers employ static freight-routing strategies: If it goes by air, it always goes by air; if it goes by truck, it always goes by truck; and so on. A modest amount of demand planning and forecasting can help shippers kick this expensive habit and replace it with "blended service" that dynamically routes freight via multiple modes, based on service demands, providers' capabilities, and cost/service trade-offs.
For example, the first four weeks of inventory for a particular product might move by air from Asia while replenishment stock is en route by ocean. The first two-week allotment of the replenishment stock could move over the road with team drivers while the balance is shipped via intermodal service. The cost advantages of this method of transportation management are significant, but enabling it requires much more information and attention to detail than does the traditional approach to mode selection.
Elements of success
The real and most enduring source of peak-season success is a fully integrated network of supply chain capabilities, stitched together with enabling technology. Let's consider the capabilities needed for managing peak-season constraints and how many companies have positioned themselves to succeed in those areas.
Transportation network management:
Successful shippers have a comprehensive, real-time view of their supply chains and of the available transportation alternatives, including service options, cost/service trade-offs, and preferred providers, with cross-network visibility for all affected managers.
Strategic sourcing and procurement of transportation services:
They systematically procure transportation services on a holistic, multimodal basis, and they leverage overlapping capacity and demand networks to optimize costs and service.
Demand planning and forecasting:
They continually feed updated demand data to all trading partners, with a meaningful degree of granularity (variability by month-of-year, week-of-month, and day-of-week) to enable proactive planning of capacity and service requirements.
Processes for maximizing supply chain visibility and event management:
They provide real-time visibility at the SKU (stock-keeping unit) level so that inventory can be tracked, diverted, or reallocated as needed. This allows them to detect potential disruptions, effect remediation, and track performance, all of which ultimately enable them to identify and address repetitive bottlenecks.
None of these solutions is rocket science, but they do require a level of coordinated strategy, visibility, planning, and execution to which most shippers are not wholly accustomed. Still, "the facts are in evidence," as Perry Mason would say. Those "facts"—infrastructure limitations, insufficient inbound capacity, personnel shortages, and inadequate federal oversight of transportation strategy—took years to develop. And they will take years longer to remedy, in whole or in part.
Despite the daunting and potentially permanent nature of such problems, shippers need to continue seeking aggressive, innovative solutions. Companies that are committed to achieving and maintaining high performance through building differentiating capabilities that are focused on efficiency and growth understand that success demands it.
Author Information
Brooks A. Bentz is a senior executive in Accenture's Supply Chain Management Practice. Gary R. Godfrey is a senior executive in Accenture's Supply Chain Strategy Practice.
© 2006, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.
Choked highways. Crumbling bridges. Congested ports. Overcrowded airports. Railroads that are short of equipment, crews, and track capacity. Shippers and carriers are facing a mountain of multimodal transportation problems, all of them magnified during the peak shipping season that stretches from early summer through the fall.
The United States has the world's largest and most prosperous economy, yet we have woefully underinvested in transportation infrastructure. And we have done so for such an extended period that reversing course would be painfully time-consuming and enormously expensive.
These issues require concerted action by both the government and the private sector and, ideally, the development of a national transportation vision. Who knows when—or if—that will happen?
In the meantime, shippers can't afford to succumb to the "peak-season blues" and simply wait for a solution. They need to take action now to cope with the capacity challenges that lie immediately ahead. But they also need to plan for the future: The old approach of reacting to peak-season problems as, or after, they occur is simply not an effective, long-term strategy. With transportation-infrastructure issues becoming more troubling, logistics professionals must develop the ability to think strategically—and that they must act earlier in advance of impending problems.
This isn't easy. As outlined here, meeting peak-season capacity challenges requires a change in mind-set as well as the development of enhanced capabilities in information, business processes, and technology.
Information reduces stress
Generally speaking, freight rates for all modes have been on a sustained upswing, spurred by rising fuel prices; shortages of truck drivers, rail equipment, and train crews; and insufficient track, airlift, port, and highway capacity.
Most economists would say that there is no such thing as a shortage of capacity—the market ameliorates shortages through higher prices, which lead to a reduction in demand. Does that mean companies whose sales peak at certain times of the year are doomed to pay increasingly higher prices? Not if they plan ahead. The secret to avoiding that situation is anticipating difficulties and keeping negative outcomes from happening in the first place.
What makes that so challenging is the need to acquire timely information. In fact, real-time supply chain visibility is the single most important component of a transportation system that is both fault-tolerant and fault-anticipating.
Consider the hypothetical example of a shipment of Korean-made, "fashion forward" merchandise that must be in stores in time for a major holiday. Suppose that shipment arrived at the dock in Korea after its assigned vessel had sailed for Long Beach. Those with a "need to know" probably wouldn't find out about the delay until they heard that the shipment wasn't on board or after they initiated a trace when it failed to arrive on time. In either case, it probably would be too late to remedy the problem satisfactorily.
True innovators, however, would have established a system that included specified event milestones and "predictive markers" (indicators of the likely outcome of events).
This type of system has two important benefits: It alerts the shipper when an expected milestone or transaction point has been missed, and it predicts the consequences of that development on the supply chain. As a result, the true innovators are able to respond effectively because they know when a shipment is in trouble—not after the vessel has sailed, but before it has even left the dock.
Thus, a shipper using such a system would have the option, for instance, to airfreight enough units to cover short-term demand until sufficient volume arrived by ocean. Without real-time information, the shipper's only choice would be to react to the problem, and no wholly acceptable alternative would likely be available.
Capacity management steps
A related challenge is capacity management. Here shippers frequently encounter conflicting objectives, such as reducing costs and accelerating delivery to improve sales and customer retention. However, there are several steps shippers can take to help relieve capacity pressures.
Examine your freight-flow networks.
Too many buyers of transportation services see their mission as securing a favorable rate from Point A to Point B. A better approach would be to leverage the value of overlapping networks. This is basically a matter of integrating both buyers' and sellers' objectives: Buyers of transportation services are looking for freight capacity that aligns with their inbound and outbound freight flows; sellers that have capacity want volume that aligns with their networks.
The key is to overlay these networks by illuminating and comparing objectives, sharing data, understanding each side's capabilities and requirements, and then working together to put the right freight together with the right carriers at the right prices.
Share information.
Optimizing networks and rationalizing carrier bases are important. But benefits increase when shippers collaborate with carriers in a more integrated way. A big step is providing carriers with volume forecasts. This doesn't mean telling them you plan to move 5,000 truckloads next year from Los Angeles to Chicago. Rather, it means providing detailed information based on historical data, with adjustments for anticipated increases or decreases by month-of-year, week-of-month, and day-of-week.
With that kind of detail, carriers won't be guessing that your 5,000 loads means 20 loads a day. Instead, they'll know that you move 70 percent of your volume in the last week of a typical month, and that in an average week, you ship 100 loads but 30 of them go out on Monday. Such detailed forecasts also help you plan staffing levels for warehouse and yard operations.
Lock up capacity.
Even shippers that have negotiated good contracts with carriers may run into trouble during peak season. Often the problem is "disappearing capacity": When demand is highest, carriers will seek out shippers that pay the highest rates, and will often leave those that negotiated low prices waiting until there is a lull.
Part of the solution includes tying contract awards to capacity commitments. This is a complex process that should begin at the onset of any sourcing initiative. The concept is based on carriers receiving (and making offers that reflect) complete, accurate information about shippers' business. The quid pro quo is that carriers only bid on lanes and freight volumes that they are willing to cover completely.
Optimize mode selection.
Accenture's observations are that most shippers employ static freight-routing strategies: If it goes by air, it always goes by air; if it goes by truck, it always goes by truck; and so on. A modest amount of demand planning and forecasting can help shippers kick this expensive habit and replace it with "blended service" that dynamically routes freight via multiple modes, based on service demands, providers' capabilities, and cost/service trade-offs.
For example, the first four weeks of inventory for a particular product might move by air from Asia while replenishment stock is en route by ocean. The first two-week allotment of the replenishment stock could move over the road with team drivers while the balance is shipped via intermodal service. The cost advantages of this method of transportation management are significant, but enabling it requires much more information and attention to detail than does the traditional approach to mode selection.
Elements of success
The real and most enduring source of peak-season success is a fully integrated network of supply chain capabilities, stitched together with enabling technology. Let's consider the capabilities needed for managing peak-season constraints and how many companies have positioned themselves to succeed in those areas.
Transportation network management:
Successful shippers have a comprehensive, real-time view of their supply chains and of the available transportation alternatives, including service options, cost/service trade-offs, and preferred providers, with cross-network visibility for all affected managers.
Strategic sourcing and procurement of transportation services:
They systematically procure transportation services on a holistic, multimodal basis, and they leverage overlapping capacity and demand networks to optimize costs and service.
Demand planning and forecasting:
They continually feed updated demand data to all trading partners, with a meaningful degree of granularity (variability by month-of-year, week-of-month, and day-of-week) to enable proactive planning of capacity and service requirements.
Processes for maximizing supply chain visibility and event management:
They provide real-time visibility at the SKU (stock-keeping unit) level so that inventory can be tracked, diverted, or reallocated as needed. This allows them to detect potential disruptions, effect remediation, and track performance, all of which ultimately enable them to identify and address repetitive bottlenecks.
None of these solutions is rocket science, but they do require a level of coordinated strategy, visibility, planning, and execution to which most shippers are not wholly accustomed. Still, "the facts are in evidence," as Perry Mason would say. Those "facts"—infrastructure limitations, insufficient inbound capacity, personnel shortages, and inadequate federal oversight of transportation strategy—took years to develop. And they will take years longer to remedy, in whole or in part.
Despite the daunting and potentially permanent nature of such problems, shippers need to continue seeking aggressive, innovative solutions. Companies that are committed to achieving and maintaining high performance through building differentiating capabilities that are focused on efficiency and growth understand that success demands it.
Author Information
Brooks A. Bentz is a senior executive in Accenture's Supply Chain Management Practice. Gary R. Godfrey is a senior executive in Accenture's Supply Chain Strategy Practice.
© 2006, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.
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