Category Archives: Logistics

Cargo Costs Getting You Down? Go Fly a Kite!

It takes a lot of fuel to carry a (post/new) Panamax vessel across the ocean and the 3,001 to 14,500 TEU (twenty-foot equivalent units) of cargo they contain. Even though they might be more fuel efficient than air transport, and account for 90% of international trade, they’re still a very dirty mode of transportation. A single contain ship can emit more chemicals than 50 Million cars and the ocean shipping industry as a whole, which is mostly unregulated from a clean-air standpoint, emits 6,000 times the emissions of every single automobile on the planet. (Source)

That’s why I was thrilled to see this article over on Industry Week on how “Cargill is Flying a Kite to Reduce Fuel Consumption”. According to the article, Cargill is in the process of installing a 320 square meter computer-controlled kite on an ocean cargo ship that will function 100 to 420 meters above the ship and generate enough propulsion under ideal sailing conditions to reduce fuel consumption by 35%. Working with German-based SkySails, Cargill plans to have the kite based propulsion up and running by 2012. Given that Cargill alone transports more than 185 Million metric tons of cargo a year, this will have a significant impact on its carbon footprint.

Advantages of Home Country Sourcing

In some industries, the US is now a low-cost country due to high transit costs, rising low-cost country labor costs, and high productivity when compared to certain low-cost and emerging economies. As a result, it is not only making sense to pull manufacturing back from China to Mexico for many North American operations, but to also pull manufacturing back to the US. Why is this? In a nutshell:

  • Lower Freight Costs
    With oil rices back to $100 a barrel and rising again, the cost of ocean freight is climbing again, transportation and logistics providers are slapping fuel surcharges on your invoices again, and air is out of the question for anything but high-value, high-density, short life-span goods (like laptops and smartphones).
  • High Speed-to-Market Times
    Insetad of waiting an averge of 3 weeks for the container ship to come in, you’re generally at most 3 days, by road, to get your product from your DC to your most remote store or customer location.
  • Lower Inventory Times
    No need to have product in intermediate warehouses waiting for enough product to fill a TEU or to carry a month (or more) worth of safety stock in the event that an ocean shipment is lost or a supplier misses a ship date.
  • Time Zone Advantages
    Follow-the-sun might be good for service operations, but it’s not good for managers who have to quote production in multiple time zones, work twelve hours a day, and never get enough sleep.
  • Lower Labor Costs per Unit
    A modern factory with a significant amount of automation and highly skilled workers can produce more units per worker hour than an off-shore factory that is only patially automated and run by poorly educated low-skilled workers. So even though the workes might be making 15 – 25 an hour compared to the 3 – 5 an hour, US, that you’d be paying a foreign worker, if they can crank out 5 – 10 times as many units per worker hour, it’s actually cheaper to produce at home. And in many US small towns hit hard by the recessions in recent years, labour really isn’t that expensive to begin with — and loyalty is higher than bustling India industrial centers where your workers leave as soon as a job across the street where they can get 5% more opens up.
  • No Culture Clashes
    If an organization has a low CQ (cultural quotient), working with offshore teams can be a challenge and overall efficiency can be low, and if the organization is not selling its products and services abroad, it’s sometimes not worth the effort to manuacture offshore.
  • Low-Cost Factory Repair
    If the product is complex or requires specialized machinery to repair, that is typically only available on a factory floor, and the factory is half a world away, chances are that a faulty product is just going to end up in the trash and increase overall costs. But if the product can be cheaply shipped back to the factory, chances are it will get repaired or refurbished, and losses will be minimized.

Your Global Supply Chain is Getting More Dangerous By the Day

As per this recent blog post over on the Supply Chain Management Review on how escalation in piracy places supply chain under pressure, ocean piracy has it an all time-high with 142 attacks worldwide in the first three months of of 2011. Yikes!

The International Maritime Bureau ( IMB ) has been tracking piracy worldwide since 1991 and the number of attacks in the first three months of this year are higher than any number ever recorded. To be precise, there were 142 attacks that resulted in 45 vessels being fired upon, 45 boardings, 18 hijackings, 344 hostages, and 6 kidnappings.

If the trend continues, energy AND insurance prices are going to go through the roof, or, in this case, the stern.

Transportation Network Optimization Requires Technology

Although it saddens me that most companies will not adopt optimization technology until they realize they cannot “solve the transportation network puzzle” without it, totally missing the savings opportunities that lie in sourcing, I was glad to see that the recent article on “solving the transportation network puzzle” in Logistics Management relayed the need for optimization technology in transportation network optimization. It is the case that that the sheer size and complexity of these networks means technology is required to perform the analytics that enable harvesting the value.

Furthermore, it is no longer the case that a carrier will give you discounted rates just because you have lots of freight. Given the current, and almost continually rising, price of fuel, the cost to maintain their fleet, and the relatively low rates many of them quote the first time around (to try and shave a round or two off negotiation and keep their trucks moving), many providers are no longer able to offer deep discounts unless they want to go out of business, like many of their financially weak breathren have done over the past few years.

Unless the carrier has excess capacity to fill, chances are the buyer will not be ble to wrangle the deal they’re looking for. And, as the article points out, unless the buyer exposes enough information about their needs, and allows the carriers to bid on specific lanes or flows, the buyer will never know that a carrier could have offered a better price in that region and the carrier will never know that they can be guaranteed the specific slice of the business that they can serve cost effectively — and keep quotes down.

And unless the buyer has the right tool to analyze the bids at the lane level, the buyer will never be able to slice the award properly as a large model will have hundreds, if not thousands, of lanes and dozens of carriers bidding on lanes in one or more groups. This generally results in tens of thousands of quotes, depending on volume, which is impossible to analyze in a spreadsheet when regional or volume discounts are also being offered by larger carriers for a minimum percentage of the business. But a modern decision optimization solution can analyze such a scenario in minutes, and allow the analyst to build and solve dozens of “what if” scenarios to understand the impacts of a given decision.

Is It Time To Dust Off the Resume?

The annual salary surveys are reporting that salaries are rising again. In addition to Next Level Purchasing’s survey, which was discussed in yesterday afternoon’s post, we have the Logistics Management 27th Annual Salary Survey, which found that median salaries increased for the third year in a row. And even though the average increase was only 2.2%, that’s still good given the economy, and a 12.5% increase since 2007.

The article notes that a number of search firms are saying, including Kimmel & Associates, are saying that the time is right for seasoned pros looking for a new job, but is it? While I agree that your average manufacturer and retailer is as lean as they can get and that they are not going to be able to build their top lines if they don’t staff up their supply chain departments, I still don’t know if the average company is ready to hire. While it’s true that the impending crunch for seasoned supply chain and logistics talent is going to put any seasoned pro with a good education at a premium, I still don’t see a plentiful job market. But I guess it never hurts to be ready with a polished resume when it does return. Any thoughts?