After decades of obscurity, supply chain management is now receiving significant attention from executive management and boards of directors. But for most companies, the supply chain remains solely a way to lower costs and improve delivery reliability.
For years, efficiency and cost reduction were considered sufficient goals for supporting profit growth, but the competitive environment and investors have come to demand much more. Now companies need to be looking at how to position their products and services competitively, drive long-term differentiation, achieve targeted customer satisfaction, and build exceptional customer relationships. Yet overwhelmingly, supply chain organizations are still focused on "getting it here and/or there" or at best on addressing the many complexities and issues that occur in production, sales planning and promotion, procurement, and/or operations. While these are noble objectives, they are, for the most part, nonstrategic ones. Consequently, supply chain's value within an enterprise is often far less significant than it could be.
There are a few leading-edge companies that see their supply chain as an integral part of their corporate strategies and are using it strategically to differentiate themselves. These leaders include Amazon, Unilever, McDonald's, General Mills, Nike, 3M, Wal-Mart, and Johnson & Johnson. By integrating the supply chain into their strategies, they are using it not only to expand revenues and support both short- and long-term strategic objectives but also to add value for customers in ways that their competitors will not, cannot, or can only do at a significant cost differential. In other words, they make their supply chain the competitive differentiator that drives superior shareholder value. In spite of these examples of success, most companies still have not considered the strategic value that can be garnered through leveraging the supply chain.
Keep an eye on the competition
In today's world, it's critical that companies get the supply chain options on the table before key decisions are made and a strategy is developed. That's because supply chains are radically different and more complex than they were in the past. They can no longer focus on managing conventional, predictable shipments. Instead, they have to deal with far more demanding delivery times, a volatile array of suppliers and customers that are often scattered around the globe, frequent order returns, and the complexities of integrating operations and technology with supply, retail, and distribution partners.
Supply chains can play a critical role in resolving many of the salient strategic issues of today. Consider, for example, the Internet, which has introduced a new sales channel that has created immense challenges for retailers. These challenges are all being driven by new consumer preferences for such things as direct shipping, an explosive increase in stock-keeping unit (SKU) offerings, quick order turnarounds, free shipping, immediate accessibility of SKU details, frequent (and easy) returns, increasing packaging requirements, and an amazingly "long tail" of slow-moving but necessary SKUs to serve a highly fragmented end market. With the exception of SKU selection and pricing, every bit of this new competitive environment depends on the supply chain as its strategic backbone.
To respond to these challenges, companies should look at things differently and understand what is driving their supply chain costs and performance metrics. They need to focus on everything that differs from the average as well as everything that affects value for their company, their supply chain partners, and their competitors. This requirement that companies understand their competitors' supply chains and how potential changes could impact them represents a paradigm shift. After all, being low-cost, or even having the highest market share, will not drive profits. But competitive differentiation will, and the supply chain is one of the best opportunities to differentiate because it affects timeliness, geographic availability, and customer perception.
Yet most companies are making decisions about how to fulfill Internet sales in a reactionary or tactical way. All too often they are choosing to support online sales by carving off a portion of a distribution center (DC) for Internet fulfillment or setting up a fulfillment center as a separate "store" off a DC and fulfilling from there. While expedient, this method is rarely the most efficient or highest-service model. Nor is it one that will allow a company to differentiate itself to serve unique Internet segments.
The better way to address Internet sales is to determine what the target customer experiences should be and what service aspects and levels are desired under what circumstances, and then assess how your supply chain can meet those needs. Moreover, it's important to understand how Internet sales growth will impact the entire supply chain—inbound and outbound, online and brick-and-mortar. This understanding is critical because these costs will scale with volume. Once you have this understanding, you can then design your supply chain based on what you want the business to be, and not based simply on the lowest cost or what would require the least amount of change today.
And again, you have to be able to respond to what your competitors are doing, what you must do to keep up, and how you can differentiate—all while being sensitive to the fact that these targets are volatile and may be constantly changing. For example, Zappos does not offer free returns because returns are free, and Amazon does not keep moving to free delivery with shorter order-to-delivery times because it lowers costs. They do it because they either have to do so to make their business model work or because competitors with less scale and a smaller distribution network can't afford to match them—a winning differentiation strategy.
Another example of how supply chain decisions should be considered from a strategic perspective is the question of whether to invest in new, cutting-edge technologies such as driverless vehicles, "Uber" and other sharing models, drones, and the Internet of Things (IoT). Consider, for example, the IoT. Supply chain is a natural candidate for such applications, and they make sense from a tactical, operational perspective. They certainly can help to increase efficiency and minimize costs by improving such things as scheduling, maintenance, fuel purchasing, and customer interface. But far more importantly, they can also play a strategic role by providing added value to customers and helping to differentiate a company's supply chain. By using IoT applications, companies are able to tell customers not only where their order is but also what its temperature was and is, whether it has been dropped, and other status and condition updates. However, companies may want to provide such information only where it makes strategic sense. For example, sophisticated customers may see timeliness, reliability, and "perfect order" information as a differentiator. Less sophisticated customers may only see it as an added cost. Matching supply chain information to customer and segment requirements will provide strategic differentiation for winning corporations.
Confronting 21st century challenges
The 21st century market is a challenging one of low growth, global competition, and thin margins. At the same time, the operating environment is becoming more complex—with increased volatility, shorter product cycles, shifting international competition patterns, trade uncertainty, and customers that are more and more demanding. The companies that succeed will do so not because of the software they are using or the changes they have made to their physical infrastructure, but because they have made the paradigm shift from thinking about supply chain as being purely operational to being critically strategic.
It is important that supply chain considerations be included in the trade-off decisions a company faces, including capacity planning, channel and sales strategy, procurement strategy, geographic strategies, acquisition strategies, and product portfolio and segmentation strategies. While this may add complexity to these decisions, it is absolutely worth the effort.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
A new survey finds a disconnect in organizations’ approach to maintenance, repair, and operations (MRO), as specialists call for greater focus than executives are providing, according to a report from Verusen, a provider of inventory optimization software.
Nearly three-quarters (71%) of the 250 procurement and operations leaders surveyed think MRO procurement/operations should be treated as a strategic initiative for continuous improvement and a potential innovation source. However, just over half (58%) of respondents note that MRO procurement/operations are treated as strategic organizational initiatives.
That result comes from “Future Strategies for MRO Inventory Optimization,” a survey produced by Atlanta-based Verusen along with WBR Insights and ProcureCon MRO.
Balancing MRO working capital and risk has become increasingly important as large asset-intensive industries such as oil and gas, mining, energy and utilities, resources, and heavy manufacturing seek solutions to optimize their MRO inventories, spend, and risk with deeper intelligence. Roughly half of organizations need to take a risk-based approach, as the survey found that 46% of organizations do not include asset criticality (spare parts deemed the most critical to continuous operations) in their materials planning process.
“Rather than merely seeing the MRO function as a necessary project or cost, businesses now see it as a mission-critical deliverable, and companies are more apt to explore new methods and technologies, including AI, to enhance this capability and drive innovation,” Scott Matthews, CEO of Verusen, said in a release. “This is because improving MRO, while addressing asset criticality, delivers tangible results by removing risk and expense from procurement initiatives.”
Survey respondents expressed specific challenges with product data inconsistencies and inaccuracies from different systems and sources. A lack of standardized data formats and incomplete information hampers efficient inventory management. The problem is further compounded by the complexity of integrating legacy systems with modern data management, leading to fragmented/siloed data. Centralizing inventory management and optimizing procurement without standardized product data is especially challenging.
In fact, only 39% of survey respondents report full data uniformity across all materials, and many respondents do not regularly review asset criticality, which adds to the challenges.