Forecast 2006: In search of better practices

What place does logistics have in the overall business process? Core elements such as transportation haven't changed much over the years, but the complexity certainly has. With supply chains extended over a wider geography, demand has been concentrated at ports of entry, putting pressure on port operations and domestic long-haul transportation capacity. Shippers and consignees are learning that being a good customer to carriers is one of the best ways to ensure access to capacity.

Bill Hutchinson, vice president of global transportation with retailer Best Buy Co. Inc. (www.bestbuy.com), says the focus has to be on controllable costs vs. those costs shippers can't influence or control.

He pays special attention to ways of improving supply chain operations and efficiency. In Hutchinson's view, aligning with others in the supply chain includes closer cooperation with carriers.

With truckload carriers currently turning away some loads and choosing what they will carry and for whom, the tables have clearly turned. One motor carrier reports turning down volumes equal to 70% of the loads it did haul during parts of the third-quarter peak period. That's not an aberration. That same carrier says in nonpeak operations it could carry 30% more freight if it had drivers.

Truck buys are up, but that appears to be less a factor of demand and more a consequence of new engine requirements that go into effect with the 2007 model year. Carriers are making heavy pre-buys rather than risk inconsistent performance or a drop in efficiency resulting from the new engines.

Carriers appear to be retiring older trucks as fast as they bring in new vehicles. Those used vehicles may be migrating to smaller carriers rather than staying in their current fleet to add capacity. Industry sources suggest those smaller carriers aren't adding much capacity either — they are simply upgrading equipment on the used market now that larger carriers are turning in some of their vehicles early.

The rate of growth in freight volumes may be slowing, as indicated by some economic reports and forecasts, but there is still more freight chasing capacity than the other way around.

Shippers are courting carriers, budgeting rate increases rather than fighting them, and doing all they can to become more attractive to carriers in order to lock in capacity for the coming year.

Best Buy's Hutchinson talks about timely payment of bills and a focus on reducing claims as steps shippers can take to reduce costs and retain quality carriers. More shippers will have to look at extending hours to address carrier constraints brought about by the current set of Hours of Service rules. That can even mean opening on Saturday during peak periods.

Off-peak operations aren't limited to efforts to improve carrier efficiency. The Port of Los Angeles' (www.portoflosangeles.org) Pier Pass program set fees to encourage carriers to handle and move freight off the port during off-peak hours. That effort achieved its two-year volume goal within two months, shifting thousands of loads to off hours. Pier Pass reports for September indicated one-third of daily container volumes were moving in off-peak hours. When Saturday traffic was added, 40% of the nearly 400,000 containers were moved in off-peak hours.

Higher accessorial charges and more stringent enforcement of detention charges have more shippers looking at ways to track dwell time. Accurate information on the time a trailer or container spends in your yard or at your dock can help mitigate some detention charges, but it can also point to areas where operations can be improved. As costs escalate, the return on systems that can help monitor and warn of potential detention charges improves.

It's not all technology, but where technology improves a business process and helps produce better financial results, information technology and automation have a role to play. Kevin Smith, senior vice president of supply chain and logistics at drug store chain CVS Corp. (www.cvs.com), found that improving throughput had a number of direct and indirect benefits.

Greater efficiency reduces costs by reducing inventory and the cost of handling. For CVS, a more automated distribution center (DC) meant less real estate — a 400,000 square-foot, automated facility is handling as much throughput as the former 800,000 square-foot conventional DC.

In addition to the smaller physical footprint, the automated facility requires less direct labor and, in an area with a shrinking labor pool, attracting labor can be an issue. A rule of thumb Smith offers is that for every 100,000 square feet over 500,000 square feet, a DC loses 10% productivity.

Efficient transportation planning and scheduling are critical for a company like CVS, with 103,000 truck dispatches per year. Planning inbound and outbound shipments improves dock efficiency and helps turn trailers faster, but when coordinated with pick and pack operations, it can contribute to lower inventories.

Manufacturing or retail, large or small, logistics professionals have a difficult challenge for the near-to mid-term. Internal improvements to improve efficiency and contain costs will need to focus as well on the interface with carriers and other supply chain partners. Being a good customer to carriers and a good supply chain partner to suppliers and customers will be critical to retain capacity and market access.

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