10 tips for reducing supply chain logistics costs

As companies continue to manufacture and source materials from overseas, controlling costs remains a top priority for those involved in international trade. One key factor that should be monitored more closely is logistics management, which covers all activities relating to the procurement, transport, transshipment and storage of goods. Depending on the industry sector, supply chain logistics costs account from 5% to 50% of a product’s total landed cost.

Some issues effecting logistics costs: Fuel prices remain high and ports continue to experience delays, resulting in higher transportation fees. Increasingly complex international trade laws and security measurements threaten to lengthen delivery times and increase warehousing costs. According to a recent report by Technology Evaluation.com, a typical air-freight shipment takes eight to twelve days. Of this, the cargo is en route only 5% of the time. The rest is spent sitting in warehouses waiting for the required documents and compliance checks.

Following are 10 Tips on Reducing Supply Chain Logistics Costs:

1. Understand the true costs of sourcing overseas. Calculate freight, duty, brokerage, and inventory carrying costs to support these lengthened supply chains. Also factor in such items as the costs of engineers flying overseas. Once you understand the true total landed cost and total impact to the business, that domestic buy may look a lot better. Sourcing from Ohio to your U.S. plant, distribution center or customer may, in the long run, be more cost effective than sourcing from China.

2. Focus on eliminating the variability out of transit times. The more variable the transit times are, the more likely it is that the receiving party is using more premium freight, building buffers of inventory, or ordering more often and more quantity than necessary to compensate for the uncertainty. Understanding these dynamics can lead to the conclusion that paying higher freight costs to insure higher variability actually saves your company in total costs.

3. Tariff engineering. Strategically source and manufacture products to take advantage of classification duty rates and eligibility for special trade programs such as NAFTA.

4. Consolidate. If you have multiple suppliers in one country, consolidate their goods into one shipment. In addition, if you always have LCL (less than container load) shipments out of one country, try to find another LCL importer of goods from that country. You may be able to partner and consolidate to a more cost-effective FCL (full container load) shipment.

5. Informed decision-making. Provide to the decision-makers/customers of your logistics network the cost of freight for each service level, the reliability of each lane for each service level, and the true cost of carrying inventory so they can make informed decisions. People generally want to be good corporate citizens and will select the less expensive option that still meets their needs.

6. Sometimes insurance doesn’t pay. Often when a company has a shipment of premium goods they tend to use the Carrier’s Insurance. Carriers Insurance is very expensive. If the company is self-insured, which most companies are, they should check their insurance policy to see if it covers shipment of goods. If it does, then they do not need to add the extra cost of Carrier’s Insurance.

7. Automate compliance processes. Companies that implement software solutions to automate trade compliance are able to speed the cycle times associated with tasks being performed manually, such as document preparation, and eliminate the associated errors. Automated compliance procedures also bring fewer delays at border crossings, resulting in on-time delivery, adequate inventory levels, increased customer satisfaction, and the avoidance of fines.

8. Control your express shipping costs. Typically when a company runs into a supply chain issue, it will have an entire shipment sent on an express/expedited (highest cost) service level basis. Panicking often results in higher costs. If the company would just do a little bit of calculating it can determine the amount of goods that are needed immediately and have that amount sent using express/expedited service level, while the balance of the shipment can be sent using a standard (lower cost) service level.

9. Planes, trains and automobiles. Which is cheapest? In general, rail is more cost-effective than trucking or air. Water is cheaper than air shipment. No matter the mode of delivery, always try to get three quotes for movements.

10. Be aware of non-tariff trade barriers. Companies need to be more aware of the increasing level of non-tariff trade barriers that are in force to reduce sweat shop labor and support human rights and animal welfare issues. These restrictions can bring importers increased liability and compliance costs.

Spend More to Save More in SCM & Logistics

Managers who want to reduce supply chain costs need to spend more on transportation. The key to lower supply chain costs is holding less inventory. Buying more transportation lets you reduce inventory safely.

The greatest mistake that manufacturers make today is equating transportation cost reductions with total available supply chain savings. In fact, transportation savings do not even correlate with overall supply chain savings. The largest economies come from inventory reductions that often result from buying more transportation.

INVENTORY IS THE ISSUE

Inventory levels, not transportation costs, drive supply chain savings. For most manufactured products, transportation is only two to five percent of total cost. In contrast, raw materials, components, and subassemblies typically constitute 55 to 75 percent of total cost.

This reality helps explain why large cost savings result from complete supply chain solutions that reduce raw material and finished goods inventories.

Actual experience in managing supply chains highlights the strong correlation between total supply chain costs and inventory carrying costs. The 2001 Logistics Cost Surveyconducted by Herbert W. Davis found that "the difference between the 20 percent of companies that reduced cost and the 50 percent that had an increase was almost fully explained by the inventory level performance."

Current economic pressures, however, are causing some companies to buy transportation for the lowest possible price and neglect inventory management.

Mismanagement and mismeasurement are two factors encouraging this dysfunctional behavior. Most companies concentrate on reducing transportation costs because that goal fits how they manage. Even today, most transportation departments are cost centers that are not involved with inventory management. For them, success is defined as negotiating greater discounts from carriers.

Companies that concentrate on optimizing transportation discounts miss out on larger inventory savings. These companies often trade down on service levels. The most common strategies are to ship less often or to switch to slower, less-reliable modes. Each of these actions increases inventory holdings. The costs of this extra inventory more than offset any transportation savings. Thus, cutting transportation costs is a sub-optimization that produces false savings.

Another reason why companies focus on reducing transportation costs is that changes are easily measured. In contrast, measuring amounts of inventory and calculating changes in inventory carrying costs are much more difficult tasks. Companies often fail to go after inventory savings simply because they cannot measure the amount of inventory in their supply chain.

Companies can lower their supply chain costs by using new management strategies to reduce inventory safely.

First, they must stop treating transportation as a management "silo" that is separate from inventory management.

Second, companies should install technologies that provide detailed inventory visibility throughout their supply chain. These are the prerequisites for lowering inventory and achieving supply chain cost reductions.

AVOIDING FALSE SAVINGS

The largest required management change is a willingness to pay higher transportation costs in exchange for lower inventory levels and carrying costs. To succeed, managers must focus on the total cost of the supply chain rather than just transportation costs.

To avoid false savings, managers must measure and manage all costs together. Transportation decisions that do not account for changes in inventory will often result in overall cost increases while delivering apparent savings.

It is imperative that companies broaden their performance measures to include inventory investment and carrying costs so that total expenses are managed. Then, buying fast, reliable transportation will allow managers to operate supply chains with the lowest possible safety stocks.

Wellcome to Stess Logistics & E-Solutions Ltd: Reducing supply chain logistics costs

Wellcome to Stess Logistics & E-Solutions Ltd: Reducing supply chain logistics costs: As companies continue to manufacture and source materials from overseas, controlling costs remains a top priority for those involved in int...

Reducing supply chain logistics costs

As companies continue to manufacture and source materials from overseas, controlling costs remains a top priority for those involved in international trade. One key factor that should be monitored more closely is logistics management, which covers all activities relating to the procurement, transport, transshipment and storage of goods. Depending on the industry sector, supply chain logistics costs account from 5% to 50% of a product’s total landed cost.

Some issues effecting logistics costs: Fuel prices remain high and ports continue to experience delays, resulting in higher transportation fees. Increasingly complex international trade laws and security measurements threaten to lengthen delivery times and increase warehousing costs. According to a recent report by TechnologyEvaluation.com, a typical air-freight shipment takes eight to twelve days. Of this, the cargo is en route only 5% of the time. The rest is spent sitting in warehouses waiting for the required documents and compliance checks.

Following are 10 Tips on Reducing Supply Chain Logistics Costs:

1. Understand the true costs of sourcing overseas. Calculate freight, duty, brokerage, and inventory carrying costs to support these lengthened supply chains. Also factor in such items as the costs of engineers flying overseas. Once you understand the true total landed cost and total impact to the business, that domestic buy may look a lot better. Sourcing from Ohio to your U.S. plant, distribution center or customer may, in the long run, be more cost effective than sourcing from China.

2. Focus on eliminating the variability out of transit times. The more variable the transit times are, the more likely it is that the receiving party is using more premium freight, building buffers of inventory, or ordering more often and more quantity than necessary to compensate for the uncertainty. Understanding these dynamics can lead to the conclusion that paying higher freight costs to insure higher variability actually saves your company in total costs.

3. Tariff engineering. Strategically source and manufacture products to take advantage of classification duty rates and eligibility for special trade programs such as NAFTA.

4. Consolidate. If you have multiple suppliers in one country, consolidate their goods into one shipment. In addition, if you always have LCL (less than container load) shipments out of one country, try to find another LCL importer of goods from that country. You may be able to partner and consolidate to a more cost-effective FCL (full container load) shipment.

5. Informed decision-making. Provide to the decision-makers/customers of your logistics network the cost of freight for each service level, the reliability of each lane for each service level, and the true cost of carrying inventory so they can make informed decisions. People generally want to be good corporate citizens and will select the less expensive option that still meets their needs.

6. Sometimes insurance doesn’t pay. Often when a company has a shipment of premium goods they tend to use the Carrier’s Insurance. Carriers Insurance is very expensive. If the company is self insured, which most companies are, they should check their insurance policy to see if it covers shipment of goods. If it does, then they do not need to add the extra cost of Carrier’s Insurance.

7. Automate compliance processes. Companies that implement software solutions to automate trade compliance are able to speed the cycle times associated with tasks being performed manually, such as document preparation, and eliminate the associated errors. Automated compliance procedures also bring fewer delays at border crossings, resulting in on-time delivery, adequate inventory levels, increased customer satisfaction, and the avoidance of fines.

8. Control your express shipping costs. Typically when a company runs into a supply chain issue, it will have an entire shipment sent on an express/expedited (highest cost) service level basis. Panicking often results in higher costs. If the company would just do a little bit of calculating it can determine the amount of goods that are needed immediately and have that amount sent using express/expedited service level, while the balance of the shipment can be sent using a standard (lower cost) service level.

9. Planes, trains and automobiles. Which is cheapest? In general, rail is more cost-effective than trucking or air. Water is cheaper than air shipment. No matter the mode of delivery, always try to get three quotes for movements.

10. Be aware of non-tariff trade barriers. Companies need to be more aware of the increasing level of non-tariff trade barriers that are in force to reduce sweat shop labor and support human rights and animal welfare issues. These restrictions can bring importers increased liability and compliance costs.

global-logistics News

http://www.inboundlogistics.com/cms/article-type/news/global-logistics/

Smart Strategies for Logistics Cost Optimization

The graphic illustration of any global logistics operation, with its complex web of vendors, warehouses, distribution centers, service operations, transportation routes and hubs, can reveal an intricate map where individual costs are difficult to separate and understand. In a world where logistical expenses typically comprise up to four to five percent of total costs for a manufacturing firm, the increasing complexity of the global supply chain applies increased pressure on margins.

Enterprises usually implement transformation technology solutions or partner with a third-party provider to manage costs. Yet, many organizations find themselves falling short of their savings goals. Why?

Growth is Good, But...

As supply chains have become more global, the logistics network has been augmented with new routes and locations. Each new link in the supply chain brings its own local complexities regarding the availability of logistics assets, local laws and regulations, and infrastructure, among others.

Other factors offer increased challenges. Finding appropriate service providers, for example, is a more complicated process than it used to be. Plus, manufacturers need to conduct periodic risk assessments to ensure that natural disasters, political developments and other factors beyond their control are not looming as an incipient threat to production and fulfillment.

A Three-Pronged Weapon Against Complexity

Most organizations try to tame complex supply chains by deploying expensive technology tools, hiring consultants for business process re-engineering, or, more recently, deploying exotic analytics frameworks.

Alone, none of these solutions can produce the type of savings needed to outcompete in this new, more complex and more competitive economy. What is required is a smart mix of process, analytics and technology to simplify the logistics networks, mitigate logistics risk and optimize the associated costs. We call this a three-pronged holistic approach

1. Process Design and Development

“Smarter” processes are the key to more cost-effective operations. This means that organizations serious about creating more streamlined and more effective networks need to look at their operations in detail before beginning any redesign of logistics processes. This involves deep analysis to:

·         Develop a granular view of the process activities (carrier identification, logistics spend analysis, etc.);

·         Define key performance indicators such as asset utilization and median loading time and then link them to the business outcome of particular costs;

·         Identify the drivers of outstanding cost performance; for instance, building multiple “what if” scenarios for networks to estimate impact on costs;

·         Benchmark against industry standards for cost management in order to understand current performance gaps;

·         Implement best practices to improve costs and sustain process performance.

Businesses that take the time to do a detailed and thorough analysis of operations from end-to-end and across the global footprint can yield deep insights that will support a new, more effective—and less costly—logistics network. By analyzing current processes, organizations can identify process steps where cost leakages occur. Some process steps may add little or no value; others may need enabling technology tools in order to maximize efficiency and increase cost effectiveness.

Here are a few real-world examples from deep analysis:

·         After a pharmaceutical major conducted a thorough analysis of logistics processes for an acquired company and standardized processes, it was able to identify cost optimization opportunities of 25 percent.

·         A chemicals leader achieved five to seven percent cost savings through revisiting processes related to shipping frequency, reassignment of supplier-warehouse combinations and set up of ‘milk-runs.’

·         A life sciences major identified 13 percent potential baseline freight cost savings by analyzing logistics management processes and finding opportunities to increase consolidation of shipments.

2. Analytics

Leveraging analytics frameworks for analyzing cost performance is a powerful driver for lowering overall costs. Network design analysis, route/mode selection, and logistics spend analysis are a few of the areas where analytics can be leveraged. For businesses to be most effective, they should use tools that can simulate different scenarios of various parameters such as lanes, routes, infrastructure constraints, customs clearance practices, logistics modes and asset utilization. With this data in hand, the logistics organization can better understand the impact of costs from various combinations and design their networks accordingly.

A number of tools are currently available to analyze costs, including network optimization, carrier sourcing and freight lane analysis. Selection of a logistics analytics tool should be based on: 1) its ability to rapidly study various “what if” scenarios in order to make processes more effective in achieving the business outcomes of cost, and 2) its ability to identify risks and assess the cost impact of such risks on logistics networks.

For instance, one chemical manufacturer created and analyzed multiple scenarios for distribution centers, an optimization effort that generated savings of 17 percent. Another manufacturer leveraged analysis to identify recoverable costs from suppliers, then set up detailed reports and dashboards to increase visibility into various logistics costs components.

3. Enabling Technology

Technology in the absence of deep understanding of processes may not be effective in optimizing logistics costs. Simply upgrading the software, without better processes, may actually make the problem worse as employees try to make old processes work with new tools rather than using the tools to support more effective standardized global processes. The selection of technology therefore must be driven by the tool’s potential to:

·         Simplify processes (reduce hand-offs, approvals, automate process steps);

·         Expedite exception handling (reduce the number of exceptions, auto-resolve commonly occurring exceptions);

·         Reduce systems/applications complexity (standard interface, fewer middleware applications required, better workflows).

New Challenges, New Approach

Global logistics networks are an integrated, evolving creation. If a business wants to create a best-in-class network, it needs to develop a deep understanding of the risks and costs associated with multiple logistics partners, geographies, products and technology tools. At the same time, an organization cannot depend on process or technology alone to provide the end-to-end improvements that drive true cost savings.

Consistently reducing and optimizing costs without increasing logistics risk can only be achieved by intelligently combining industry-specific analytics frameworks, the right technology tools and logistics processes engineered for effectiveness as well as greater efficiency.

Improving Cost & Efficiency in the Energy Supply Chain

Maintenance, logistics, and materials management professionals in upstream and downstream production are facing challenging times. Price volatility and increasing operating costs are causing energy companies to scrutinize sourcing strategies and the costs associated with vendor managed inventory (VMI), consignment, and integrated supplier programs. Additionally, more difficult oil and gas extraction methods — such as tar sands extraction and hydraulic fracturing — require large capital investments in order to maintain adequate reserves and meet the increasing need for energy. On top of these added complexities and expenses, safety regulations have become more stringent, driving up production and personnel costs. Energy companies have responded to the escalating cost of doing business by looking for savings in the indirect material supply chain. Unfortunately, cutting costs can defeat efforts to develop a more efficient indirect material supply chain that meets changing marketplace requirements. As a result, companies are struggling to optimize maintenance, repair, and operations (MRO) functions. In order to achieve performance goals, improve productivity, and make sound business decisions, it is critical that companies have robust and timely information. In the MRO industry, three trends address the increased pressure to gather this vital information: Critical KPIs for materials management. Today, few organizations have robust visibility into the components of their materials management performance and MRO spend. Because discreet supply chain nodes are not fully controlled and measured by product, it is challenging to isolate end-to-end cost management and performance improvements. To truly understand how efficiently or inefficiently an indirect supply chain is working, companies need a big-picture view of its processes and costs. Having the right metrics in place can track and provide the depth and breadth of data needed to manage the indirect materials supply chain. Comprehensive key performance indicators (KPIs) serve to establish cost-effectiveness and identify areas for improvement in productivity. For a more robust tracking and panoramic supply chain view, a 3PL can provide Level 1 KPIs (such as total inventory value and inventory accuracy), plus those that demonstrate a more integrated supply chain management perspective (such as warehouse productivity, stock outs, and receiving/shipping accuracy). C-level focus on supply chain. MRO has great potential to contribute to business goals. Since significant cost savings can typically be found in the indirect material supply chain, C-level awareness and focus on this part of the business is growing. In order to pave the way for that success, the need to identify and eliminate waste, improve supply chain productivity and standardize effective processes across sites has become vital. Drive for external expertise. Projects in the energy industry now involve cross-border supply chains, work in remote sites, and the use of unconventional extraction methods. As a result of the evolving business environment in the gas and oil sector, many companies are realizing they do not have adequate MRO expertise to accommodate the increased expectations. One approach to address these challenges involves hiring people with extensive MRO oversight skills, or investing the time in training current employees in a range of specific disciplines. BE READY FOR WHAT'S NEXT Capital projects such as well completions, small and large construction, pipeline expansions, and other projects involve significant amounts of high-value materials being direct-charged in a non-stock status. Energy companies are recognizing that material stewardship and preservation in these environments can significantly reduce over-buying, expedited transportation, and wasted downtime at the job site. Having a partner that can help manage the paperwork and materials process, allows companies to eliminate the need to reorder lost materials that can delay projects. Many companies will compensate for lost parts by overbuying by as much as 20 percent to ensure they have the inventory when they are ready for the part. Particularly in emerging markets, it is critical to have a partner that can take control of the paperwork, manage material effectively to new sites, and understand the local environment. Dealing with the ever-increasing internal and external pressures to meet both business goals and regulations, many oil and gas professionals are choosing to outsource areas of the supply chain to third-party logistics providers that have the expertise to offer custom solutions based on best practices. As the energy industry moves into its next phase of development, a company needs full confidence that its partner will be able to provide the support and expertise in indirect material supply chain management.

Why Is Continuous Improvement in Logistics Important?

In business, logistics refers to the network of systems that controls how resources flow through a business and from one firm to another over the course of a supply chain or production process. The field of business logistics is its own course of study and expertise for managers who understand the benefits of controlling logistics. Logistics professionals concern themselves with the goal of continuous improvement, which can have a significant impact on a company's bottom line. Controlling Costs One of the most visible and valuable benefits of continuous improvement in business logistics is the ability for a firm to control its costs. Many costs tend to rise over time, such as labor, raw materials and energy. Rising costs cut into profits unless businesses can raise prices without hurting consumer demand. By continuously improving logistics, a business can take control of its costs. For example, pursuing energy-saving manufacturing methods helps a business guard against the rising price of energy. Utilizing Production Capacity Logistics supply a business with the materials and other resources it needs to produce goods for sale. Improvements in logistics allow a firm to utilize the fullest extent of its production capacity. Any shortages or slowdowns of raw materials or labor could mean idle factories and production that can't satisfy demand or meet sales targets. Managing logistics can ensure there is a steady stream of resources available, regardless of market conditions. This will be the case when a business identifies and invests in new suppliers of essential goods or pursues a vertical integration strategy to take more control of the upstream supply chain. Improved Quality Quality is a major element of business logistics. Having access to the right materials at the right time is of little use to a business if the materials are of poor quality and unusable. Continuous improvement in logistics strives to supply firms with rising percentages of quality resources. This is especially important for specialty goods, where there is a low tolerance for error and customer returns or rejected products are costly. Facing Competition Every business faces competition in some form from another company. While there are numerous ways in which businesses can compete, logistics ranks high among them. Improving logistics to a point and then taking a passive approach to the system allows competitors to gain advantages in terms of cost savings, improved quality and production capacity. Even incremental improvements in logistics can translate into significant savings over time and lay the foundation for further improvements in the future.

REAL Money 24-hours a day - Global, World - Free Classifieds Sites

REAL Money 24-hours a day - Global, World - Free Classifieds Sites

Cost Reduction Strategies for Manufacturing Industries

Procurement or Purchasing  plays an important role in  any  manufacturing industry . Savings can be 
achieved during procurement process by  implementing  ideas mentioned below . Suppliers /Vendors  can also contribute  in suggesting cost reduction' s ideas .Raw material, services   constitutes  major part of cost of product .Procurement  department  has now  prime role  in contributing savings in company .It is obvious from the above table that major expense for any manufacturing unit is  buying raw material .these contribution are approx and vary industry to industry..



Given are few ideas which  can result  in savings
.

• BULK BUYING-The companies which have  greater geographical  presence or are multi location can achieve better price by buying bigger volumes  instead of buying for individual units. Central buying policies are recommended for such unit .Bulk buying results in  annual contracts for a period of six - twelve months for entire year requirement with prices being finalised  for the entire period .
  

• OPPORTUNITY  BUYING-Most of the commodities  and raw material  has seasonal  cycle  of prices  as they peak and fall in intervals .Hence we can book maximum amount of our requirement  when prices are low .
  

• LOCAL   VENDORS -Vendors should be located  in close vicinity of company  which helps in keeping low inventory as well as low freight cost .
  

• PARTNERSHIPS  WITH MAJOR VENDORS-It  is highly recommended  to have  partnership  with vendors  in either having equity or technical collaboration so as to pass on savings to  the  customer . Which results in   cost reduction in manufacturing cost. Most of the Automobiles Majors has this kind of arrangement  with  their  vendors .Vendors are assured of business .
  

• E PROCUREMENT-Putting up tenders and requirement  on Internet  and setting up auction for  requirement on web  which helps in reaching out more numbers of  vendor base . This  also helps in cutting cost  when we opt for conventional  way of asking tender /quotation . Most popular  way of procurement strategy is reverse auction , where the lowest price bidder takes away the order
  

.

• BUYING  MATERIAL FROM  TAX EXEMPTED AREA .-In several countries the federal/ State govts provide  tax heavens for manufactures for certain period say 10- 15 years .Hence buying from these area s helps in cutting cost .In common parlance it is called TAX HOLIDAYS . Look out for such places prior to placing orders.
  

• ALTERNATE MATERIAL-Select high cost items  and replace it by  some  low cost material . eg ; steel by plastic/aluminium .
  

• TRY MERGE IN TRANSIT- The concept of in-transit product merging—where, for example, two things are shipped from different locations and then married in transit so that they reach the customer as a single shipment—can be seen as a technique for reducing inventory if the need for the customer to simultaneously receive multiple SKUs is a given. To some extent, merge-in-transit represents an extension of postponement beyond the distribution center walls.
  

• VENDOR MANAGED INVENTORY (VMI). With the appropriate incentives, allowing suppliers to assume the responsibility for replenishment of your inventory, because of their visibility into both their own inventory and production schedule and your demand data, can almost always reduce your inventory.
  

• VENDOR STOCKING PROGRAM (VSP). Used primarily for maintenance inventories but applicable to all, VSPs require a supplier to commit to an extremely high service level for delivery of specific SKUs within a fixed time at a predefined markup. VSPs can reduce or eliminate inventories for slow-moving products. There are numerous ways to take better control of inventory and decrease its associated costs. The key to managing inventory successfully is to continuously measure your performance and look for new ways to improve. These 25 strategies should get your organization thinking about what it can do to lower inventory costs.

5 Tips to Manage Logistics Efficiently

Logistics deals with the questions of what, where, how and when materials must be supplied from where to where, how should it be transported, and when must it arrive for the entire operation to progress smoothly with minimal interruptions. The logistics chain in any operation is difficult to manage, and unless you’re extremely efficient, prepared to anticipate problems and execute contingency plans, you’re going to find it stressful. So it’s important that you keep yourself sharp and continue to hone your skills. Efficient logistics managers generally adopt the following practices in order to excel at their jobs:

• Plan ahead: The hallmark of an efficient logistics manager lies in the planning process. When the plan is foolproof, there is minimal chance of failure or a breakdown in the chain, unless there are extenuating circumstances. So a good logistics manager will know how to plan well head to eliminate the possibility of any delays in the supply chain.

• Don’t be overconfident: Even though the plan may be foolproof, logistics managers worth their salt know that they can never be overconfident that nothing can go wrong. They always keep in mind Murphy’s Law: if something can go wrong, it will. So, have contingency plans lined up. They know that it’s foolish to depend on only one supplier or vendor and generally have a broad network of sources for the products and services they need.

• Never panic: Keeping a cool head in the face of a disaster is essential if you want to improve your logistics management skills. If you panic or worse, show that you’re losing control, the situation could go haywire and your entire operation could end up in shambles. To become a better logistics manager, you must be able to think on the fly and come up with temporary solutions instead of going into a tizzy and losing your cool. When you know how to make the best of a bad situation, you don’t tend to panic and upset everyone else working with you too.

• Cultivate strong relationships along the supply chain: Logistics managers know that their entire operation is only as strong as the weakest link in the supply chain. So they take great pains to forge strong and honest relationships with their suppliers and vendors so that the goodwill they earn keeps their operations moving flawlessly. They know that even one bad relationship can sour the entire supply chain and cause failure.

• Learn from mistakes: And finally, the best logistics managers know and accept that they are bound to make mistakes. They don’t make excuses for them, rather, they use them as stepping stones to success, learn from their mistakes and chalk it up to experience.

Logistics Transportation Decision-Making in an Integrated Supply Chain

Economic uncertainty, fluctuating fuel prices, increased safety and social regulation, escalating customer expectations, globalization, improved technologies, labor and equipment shortages, a changing transportation service industry…today’s managers are faced with an array of challenges and opportunities that contrast dramatically with those of a decade ago.

It is not surprising, then, that many managers have failed to fully adapt to the changing environment, resulting in performance shortcomings and lost opportunities. Prominent among the list of lost opportunities is fully leveraging the transportation function as a critical strategic element within the supply chain. 

Transportation plays a central role in seamless supply chain operations, moving inbound materials from supply sites to manufacturing facilities, re positioning inventory among different plants and distribution centers, and delivering finished products to customers. Benefits that should result from world-class operations at the points of supply, production, and customer locations will never be realized without the accompaniment of excellent transportation planning and execution. Having inventory positioned and available for delivery is not enough if it cannot be cost effectively delivered when and where needed.

This article addresses the key decision levels that need to be addressed for transportation to make its greatest impact in the integrated supply chain. These levels address long-term decisions, lane operations, choice of mode or carrier, and dock level operations.

Long-Term Decisions
At the highest strategic decision level, transportation managers must fully understand total supply chain freight flows and have input into network design. At this level, long-term decisions related to the appropriateness and availability of transportation modes for freight movement are be made. Managers need to decide, for example, which primary mode of transportation is appropriate for each general flow (i.e., inbound, interfacility, outbound) by product and/or location, paying careful attention to consolidation opportunities where feasible.

Plans should indicate the general nature of product flows, including volume, frequency, seasonality, physical characteristics, and special handling requirements. Strategic mode and carrier-sourcing decisions should be considered part of a long-term network design, identifying core carriers in each relevant mode to enhance service quality commitments and increase bargaining power. Additionally, managers need to make decisions regarding the level of outsourcing desired for each major product flow—ranging from providing the transportation through the company’s own assets (e.g., private fleets) to latch-key turnover of transportation operations to third-party providers.

Network and lane design decisions at the strategic level should examine tradeoffs with other operational cost areas such as inventory and distribution center costs. In conducting this analysis, companies should keep in mind that networks need not be fixed or constant.  Rather,  substantial service improvements and cost reductions can be achieved by critically examining existing networks and associated flows. For instance, it may become apparent that stock locations can be centralized by using contract transportation providers to move volume freight to regional cross-dock facilities for sorting, packaging, and brokering small loads to individual customers.

Lane Operation Decisions
The second level of decision-making regards lane operation decisions.  Where network design decisions are concerned with long-term planning, these decisions focus on daily operational freight transactions.  At this level, transportation managers armed with real-time information on product needs at various system nodes must coordinate product movements along inbound, interfacility, and outbound shipping lanes to meet service requirements at lowest total costs.  Decision-makers who are adept at managing information can take advantage of consolidation opportunities, while ensuring that products arrive where they are needed in the quantities they are needed just in time to facilitate other value-added activities. At the same time, they are realizing transportation cost savings. 

The primary opportunities associated with lane operation decisions include inbound/outbound consolidation, temporal consolidation, vehicle consolidation, and carrier consolidation. If managers have access to inbound and outbound freight movement plans, they can identify opportunities to combine freight to build volume shipments. An inbound shipment may arrive from a supplier located in Philadelphia, for example, on the same day that a production order destined for a customer in Wilmington, Del., becomes available for movement. If this information is known to transportation planners far enough in advance, arrangements could be made for the inbound carrier to haul the outbound load back to Wilmington.

In many cases the inbound carrier would be willing to negotiate lower roundtrip rates to avoid deadhead miles on the backhaul.  This is particularly true if the carrier and/or driver are headquartered in the Philadelphia area. If this happens to be a heavy traffic lane, the firm may consider strategically sourcing a core carrier in this geographic region to capitalize on this opportunity.

Similarly, less-than-volume-load (LVL) shipments moving to the same geographic region on consecutive days may be detained until sufficient volumes exists to justify a full load on one carrier with multiple stops (temporal consolidation). By avoiding the LVL terminal system, the detained freight often arrives at the same time or earlier than the original LVL shipment—and at a lower cost.  Multiple, small shipments inbound from suppliers or outbound to customers in the same geographic region scheduled for delivery on the same day may also be combined on one vehicle at full-volume rates, paying stop-off charges but saving on multiple LVL rates (vehicle consolidation).

Another consolidation opportunity springs from the core carrier concept. Assigning greater shipping volumes to fewer carriers should result in lower per-unit transportation costs and higher priority assigned to the shipper’s increased freight. In addition to consolidating the carrier base, the shipper can identify reliable carriers in need of backhaul miles.

For instance, a plastics distributor identifies carriers that operate a high percentage of deadhead miles in lanes over which the firm regularly moves freight. The firm negotiates advantageous rates with these carriers in exchange for guaranteed backhaul revenue miles. If the plastics firm plans to move significant amounts of product from Texas to Florida, the transportation manager will find a Florida carrier that moves a large volume of product from Florida to Texas. Given sufficient planning information, the transportation manager can use guaranteed volumes on the backhaul to negotiate attractive rates. 

Choice of Mode and Carrier
A third level of transportation decision-making involves the choice of mode and carrier for a particular freight transaction. Due to the blurring of service capabilities among traditional transportation modes, options that in the past would not be considered feasible may now emerge as the preferred choice. For example, rail container service may offer a cost-effective alternative to longhaul motor transport while yielding equivalent service.  Similarly, package delivery carriers are competing with traditional LTL operators. Truckload carriers, on the other hand, are increasingly bidding for low-volume shipments as well as for overnight freight movements. For the shipper seeking 24-hour delivery, truckload carriers may offer an alternative to air carriers at significantly lower rates—and, quite possibly, higher reliability. 

In an integrated mode/carrier decision-making scenario, each shipment would be evaluated based upon the service criteria that must be met, (for example, delivery date/time or special handling requirements) as well as the movement’s cost constraints.  All core carriers, regardless of mode, that could possibly meet the service and cost criteria would be pulled from the database.  Managers would then choose the carrier from this multi-modal set based on availability and existing rates.

Dock Level Operations
The final set of transportation decisions involves dock level operations, such as load planning, routing, and scheduling. These activities encompass the operational execution of the higher-level planning decisions. While the fundamental purpose of shipping docks may not have changed much over the years, the manner in which work is done certainly has. One obvious change is the common usage of advanced IT and decision support systems. These tools help the dock personnel to make better use of the transportation vehicle space; to identify the most efficient routes; and to better schedule equipment, facilities and drivers on a given day.

Transportation departments that avail themselves of better and more timely information can derive significant benefits from more efficient and effective load planning, routing, and scheduling. For example, if a vehicle is being loaded with multiple customer orders, dock-level managers must ensure that the driver is informed of the most efficient route and that loads are placed in the order of the planned stops. Transportation managers, even at the dock level, must develop expertise in using the information tools available to aid in these decisions.

Successful managers today require a broad view of transportation management’s role and responsibilities in an integrated supply chain. Managers will continue to encounter significant challenges as their firms proceed down the road toward supply chain integration, particularly as external environmental characteristics such as fuel costs and the overall economy wax and wane.

Regardless of external conditions, however, managers must encourage their firms to avoid the temptation of making transportation decisions with an eye toward short-term gain. Rather, they need to view the total cost and total value provided by the function not only in relation to operating expenses but also in terms of the impact on customer service and inventory reduction. The influence on total economic value added is significant.

Purchasing and supply in oil and gas

Purchasing and supply in oil and gas

The oil and gas industry is divided into the ‘upstream’ and ‘downstream’ operations. Upstream involves exploring for oil and gas and extracting it safely. The downstream part of the industry is concerned with refining, distribution and sales.

The supply chain

The oil and gas industry has very long supply chains. Many companies may be involved in supplying the materials, components and services at different stages and across the various processes involved in extracting, refining and distributing oil and gas. Procurement becomes even more important in this type of global operation. A company such as BP sources services and supplies from many different countries. These include mechanical and electrical parts, to professional services such as project management or legal expertise for drawing up contracts.

Reliability is a crucial factor in supply, both of quality and timing. If supplies are of poor quality, delivered late or cost more than was agreed, this will affect productivity and profitability. If production is delayed or faulty products need to be scrapped, this can reduce profits. Poor quality inputs could also affect the safety of the process – a major consideration in the oil and gas industry.

For example, to help improve safety and quality of supply, BP is introducing safety performance indicators into contracts of suppliers involved in high-risk activities. Suppliers who do not meet these standards may be removed from contracts. As part of this safety focus, BP is also planning to reduce use of agency staff in procurement roles and boost its in-house expertise in supply chain management.

'Make or buy'

An important decision for many businesses is whether to carry out a particular part of its process itself (‘make’) or buy in the components or expertise it needs. This decision might depend on, for example, whether the skills and capacity are available in-house; whether there is a need for high security of supply; or whether it is simply cheaper to outsource.

For example, an oil company could choose to rent or own an oil platform. If it rents, its costs are limited to the rental period, with repairs and maintenance the responsibility of the owner. Buying outright might cost more initially but the company has the benefit of the asset. However, it also has the issues and costs of maintenance and ultimately, disposal. Purchasing managers work with operational managers to consider these issues and find the most cost-effective and efficient solution for the business.