Category Archives: Logistics

One Hundred and Fourteen Years Ago

The United States took over, and began, construction of the Panama Canal. Then, a little over ten years later, it was completed and for the first time ships could travel between the mid-Atlantic and mid-Pacific from at least 10 days, and typically two to three weeks (depending on how fast the ship was and the weather) to less than a day, as it saves ships a 7,872 mile voyage.

It revolutionized ocean freight and although we now take it for granted, it was a historic achievement.

Just a To-The-Point Reminder of Why Shipping Costs So Much

Empty pallets, empty containers, empty loads.

It’s essentially the same reason (airport) taxis usually cost more than Ubers. Empty space one way (in the form of seats).

Think about it. If a truck is coming empty from a big city 300 miles away to your plant to carry product back, every week, that’s over 15,000 empty miles a year on that one truck. A truck which takes a driver (who needs to be paid by the hour), gas (which costs by the gallon), maintenance, and replacement parts on an accelerated schedule. That means that you’re paying twice what you would be paying if the truck wasn’t empty for the majority of that 300 miles.

And even if you sub your shipping out to a logistics company, if the logistics company isn’t working hard enough on your behalf, that’s why certain lanes could be too high. And that’s also why you shouldn’t let a supplier or a single carrier manage your shipping. All carriers are going to have long empty lanes. You need to make sure that you’re cargo is not on these. You need to be sure that the truck isn’t driving more than a few hours from it’s drop off to your pickup (or your drop-off to it’s next pickup) so that the carrier is able to give you the lowest cost possible on the lane.

That’s why the best companies do global lane analysis (using decision optimization) and award contracts to multiple carriers that minimize costs across all lanes (by directly or indirectly eliminating the empty lanes).

So if you want to lower costs in your supply chain, just like you would avoid the empty calories in your diet, avoid the empty loads on your lanes.

There is No Free Lunch, and There is No Free Shipping Either!

Even though shipping is not, or should not, be that complicated anymore, it’s still relatively human intensive (as even technology-driven shipping requires someone to scan the labels, read the response, and load the products into the right boxes and then into the right truck for delivery to the right recipient) and will always costly. Why?

  • Every form of transportation requires a vehicle

    and all vehicles have acquisition and maintenance costs

  • Every form of vehicle requires some form of power

    and all forms of power have a cost, even if they are based on some form of renewable resource (as windmills have to be maintained and biomass has to be grown) — so energy costs will never go to zero

  • Every vehicle requires an operator

    even if the operator is the programmer maintaining the system that controls the drone or the self-driving truck

And not all goods are simple consumer goods that can be put in a box on a truck and handed to you by an average FedEx delivery driver. Some are fragile and require extra packaging. Some need to stay cold or frozen. Some are hazardous materials. Sometimes shipping a single small item can cost thousands, especially when you add in the extra costs in packaging, handling, pick-up, and delivery.

In other words, shipping is expensive. And anyone giving you free shipping is including it in the price, probably at a padded mark-up. So don’t fret the shipping, fret the total cost of the purchase relative to the value received. Sometimes if you shop around you can get a better product at a lower overall price, shipping included.

This is especially true if you’re buying from online marketplaces, Amazon NOT excluded. (Going back to Amazon, as the doctor has noted before, by now consumers should have caught on to the fact that many of the less-reputable third party merchants that use Amazon Prime Shipping mark up their merchandise to cover the shipping costs. the doctor has seen $40 to $60 mark-up on small items that probably only cost $10 to ship with Amazon’s massive shipping discounts.)

Logistics is the new Black, but Procurement is the Rodney Dangerfield of the corporation!

the doctor recently stumbled on a piece published last year by Jeff Ashcroft over on LinkedIn where he said Logistics is the New Black where he noted that the word “logistics” has subtly worked its way further and further into the common lexicon thanks to massive marketing campaigns of courier, rail, and forwarding companies. This is making it the new black.

However, while it was never the Rodney Dangerfield of the Corporate World, as that distinction is reserved for Procurement, it was the black sheep. Needed, but kept at arms length … just in case.

However, now that savvy merchants are realizing that in their logistics function may lurk the well spring of the truly exceptional customer experience they seek, and must now deliver, logistics is taking center stage. This is good, and bad.

It’s great in that good logistics is a necessary condition for supply chain success, and if it’s not successful, the supply chain will never be, but it’s bad in that it’s only one half of the coin for supply chain success, the other being good Procurement. But, as SI has been saying for years, Procurement is the Rodney Dangerfield that don’t get no respect in the average organization (otherwise, why would almost half of Procurement organizations be without modern platforms).

When there is no easy correlation to the average consumer, when organizations like the Dairy Farmers of Canada say they are supply management, when HR organizations say they do Sourcing, and when even Apple, which has been repeatedly recognized to have the best supply chain in the world doesn’t talk about it (with the closest they come being Supplier Responsibility, probably as a result of breathing all that California smug), how is anyone to be expected to understand what a modern Purchasing, or Procurement, organization does? Especially when the term procure is often used in stories about rebels procuring supplies from the government (and this is the example of procure used on the urban dictionary, the military procuring what it needs from the private sector, or, even worse, often linked to prostitution. And purchasing, that’s what the office manager (in charge of office supplies) does.

In fact, all things considered, Procurement is probably lucky to even be the Rodney Dangerfield of the corporate world. While it might not get any respect, at least it gets recognition.

Maybe someday someone will find a way to bring sexy back to Procurement and then it will get some respect, and take the first step towards becoming the new black.

The More Things Change … Roll On!


Roll on highway, roll on along
Roll on daddy till you get back home
Roll on family, roll on crew
Roll on momma like I asked you to do
And roll on eighteen-wheeler, roll on (roll on)
Alabama

We’re still being promised drone delivery, but the reality is most goods still move over land by truck (even if rail is more environmentally friendly and uses less fuel and could be built to use renewable energy, especially for short haul or common lanes, if we went back to a powered track … ) … and those trucks Roll On!

Ten years ago we noted that, despite the fact you need those trucks to Roll On, your logistics could come to a screeching halt. You could wake up and there could be no one to drive the truck (due to a continuing driver shortage or a unionized strike), no fuel to gas it up (due to shortages caused by a natural disaster, etc.), or, worse yet, no truck at all (because your delivery company can’t afford the new insurance premiums, which is a harsh reality — a few years ago minimum insurance requirements were jacked up across the board and small mom-and-pop shops had to shut down, and it could happen again).

And the situation has’t changed. The sky isn’t falling, but without proper planning, that includes contingency plans, with the continual driver shortage, constantly rising fuel prices (and seemingly regular shortages due to poor planning and resiliency on the part of the providers and an increasing array of governmental regulations in developed countries), and increasing thefts of expensive automobile — and truck — parts (with restricted supply) to take advantage of high (scrap) metal prices, any company could find itself in a situation where the sky might as well be falling.

And the eight pieces of advice given by Lora Cecere (the supply chain shaman), then of AMR and now of Supply Chain Insights, are just as relevant now as then.

  • Plan for tighter capacity
  • Make Fuel Management Part of Risk Management
  • Get the Right Supply Chain Planning (SCP) Master Data
  • Rethink Customer-PickUp (CPU) Programs
  • Diversify Entry Ports
  • Face Reality — (Re)Design Your Network for Efficiency
  • Get Help from a Good Partner
  • Make U.S. Transportation Infrastructure an Item on the National Agenda*

As are the three pieces of advice the doctor gave you ten years ago:

  • Use Decision Optimization
  • Don’t Forget Security
  • Invest in Visibility

And the only thing we’d add is that when you have to spot-buy, spot-buy smartly. Use new services like Freightos. Don’t know who they are? Better find out … NOW! (SI Freightos intro … and they are Flippin’ Freight Quotes Faster than a Fleet-Footed Feline on GuaranaStill!)

*Best of luck getting anything accomplished with your current administration — hard to buy American to build American when there are no more American-made options!