Supply chain professionals are going to have to deal with a shortage of transport capacity relative to demand. What impact will that have on business?
If you’re in procurement, you have a number of responsibilities, but one of the most important ones is making sure the company has the inventory necessary to conduct business. Back orders and out of stock inventory harms revenues and reduces customer goodwill. But it’s not just manufacturing and sourcing issues that can wreak havoc…it’s also a transportation issue.
A recent article in the Harvard Business Review, “Is Your Supply Chain Ready for the Congestion Crisis?” deals with the specific issue of congestion. Although the article deals with port, rail, and airway issues, as well as trucking and infrastructure, it does paint a picture of how this problem impacts planning in the supply chain function. The writers, George Stalk and Petros Paranikas, both of the Boston Consulting Group, explore how this congestion should be causing companies to rethink their entire supply chain and logistics planning. As the article states, “With growing congestion a global megatrend, companies have a choice. Either accept it (and its higher costs and lower profits) or take control of your fate with strategic, game-changing actions that cut time and costs from the supply chain.”
The article goes on to list the main drivers of the coming crisis: not enough port container capacity; railway systems that are already near capacity; a woefully inadequate and expensive airport system; and, of course, highways that can’t keep up with demand. In the last category, and the one of most importance to the trucking industry, the article notes that the last great U.S. highway expansion occurred in the 70’s. That’s anywhere between 35 and 45 years ago, and it’s slowed considerably since then. But traffic just keeps growing. In fact, as the authors state, “the load factor (total vehicle miles traveled divided by lane miles) is growing 10 times faster than capacity is.”
The impact on business is frightening, especially to those responsible for making sure supply meets demand. Congestion can lead to an overstock or out-of-stock situation and that leads to significant costs. Overstock can lead to discounted prices, which leads to margin losses. Out-of-stock is even worse…not only are there lost sales, there’s also the good possibility of lost good will with customers and that has an even longer-term impact. According to the authors, companies may not be able to totally eliminate the effects of congestion on their supply chain, but they can mitigate them with four actions: improve process efficiency; improve information flows across the entire supply chain network; reduce variability in both suppliers and distribution centers; and compress transit times. Supply chain professionals should work closely with their transportation suppliers, finding ways to reduce the impact of traffic congestion by enhancing logistics capabilities and more.
Image source: https://hbr.org/2015/06/is-your-supply-chain-ready-for-the-congestion-crisis