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5 tips to manage supply chain volatility

This article explores steps that shippers can take to manage current supply chain disruption.

The coronavirus pandemic is a human and economic catastrophe that has caused suffering around the world and will continue to do so for months. Everyone is watching and cheering on the first responders and health workers on the front lines of the fight against the virus. 

In the case of COVID-19’s disruption to the global economy, transportation workers and supply chain professionals should be counted among the number of frontline responders dealing with the crisis.

Coronavirus-related volatility has rolled through global supply chains and evolved over time. First, production shutdowns and movement restrictions in China destroyed outbound freight demand; then consumer panic-buying in the United States drove an unprecedented months-long rally in truckload volumes; and finally, widespread economic and social shutdowns in the U.S. suppressed demand and pulled volumes back down to earth.

Of course, different industry verticals (consumer packaged goods, automotive, building materials, food and beverage) have experienced divergent effects, from unusually high demand to unusually low demand and new capacity constraints and bottlenecks of all kinds. 

With that in mind, I spoke to Aaron Terrazas, director of economic research at Convoy, the Seattle-based digital freight network, about things that shippers can do to manage supply chain volatility.

1) Social distancing and changes in consumer behavior prove the importance of omnichannel retail strategies.

Important buying seasons in the United States—especially the holiday period between Black Friday and Christmas—have historically accelerated e-commerce’s penetration of retail sales. We think that the pandemic and the social-distancing measures taken to combat it, from online shopping to curbside pickup, will also highlight the importance of omnichannel retail strategies. 

Integrated inventory data means that existing stocks aren’t siloed between physical and e-commerce points of sale and can be more rationally deployed. A single supply chain, by driving density in a retailer’s network, can firm up partnerships, save money, and create more predictability. A unified customer experience across brick-and-mortar and online shopping helps retailers meet their customers where they are and gives companies more ways to win.

2) Find creative ways to support transportation providers, including trucking carriers.

“The carriers in our network that are out on the road, spending time away from their families, and going through areas where truck stops or restaurants may be closed, are some of the safest professionals in the industry,” Terrazas said. “It starts with recognizing that these professionals are out there transporting necessary goods, and making sure that we have an understanding of what they are facing and a respect for what they do.” 

Beyond that, improving facilities available for drivers, creating incentive programs—Convoy has partnered with Goodyear to offer its carriers discounts and roadside assistance—and deliberately matching freight with carriers’ known lanes of opportunity can deepen relationships between shippers and transportation providers.

“Our CEO Dan said it best: ‘technology helps you scale; relationships help you cope,’” Terrazas said.

3) Embrace antifragile network design.

‘Antifragile,’ a term coined by essayist and risk analyst Nassim Nicholas Taleb, refers to the ability of some systems to outperform during times of stress and volatility. Instead of breaking or collapsing, antifragile systems are able to adapt and seize new opportunities.

In supply chain design, antifragility means networks without single points of failures instead of linear processes; multiple, redundant suppliers; and warehousing and distribution center space that can rapidly flex up or down. An antifragile transportation strategy can take advantage of low volatility and high volatility environments by adjusting a mix of spot and expedited capacity with dedicated or virtual dedicated fleets.

“Because we are digital-native and are constantly monitoring movements across our entire network, we are often able to identify movements in the market before our shippers see it,” Terrazas said. “This early detection allows us to be proactive in communicating emerging issues so that we can work together to solve them in a sustainable and mutually beneficial way.”

4) Improve the transparency velocity of information inside your organization and between your supply chain partners.

In “Supply-chain recovery in coronavirus times—plan for now and the future,” McKinsey & Company partners Knut Alicke, Xavier Azcue, and Edward Barriball recommend a thorough-going assessment of supplier and component risk to understand how to build a resilient strategy.

“Creating a transparent view of a multi-tier supply chain begins with determining the critical components for your operations,” McKinsey wrote. “Working with operations and production teams to review your bills of materials (BOMs) and catalog components will identify the ones that are sourced from high-risk areas and lack ready substitutes. A risk index for each BOM commodity, based on uniqueness and location of suppliers, will help identify those parts at highest risk.”

After identifying risks and creating risk governance protocols—for example, measuring a supplier’s connectivity to companies with similar capabilities in order to find alternative sources—a nerve center should be established inside the operation to continually monitor risk levels and initiate responses.

5) Supply chain fluidity is just as important as information sharing.

It’s crucial to share market data, inventory levels, real-time consumer demand signals, and service performance across supply chain partners, but don’t overlook the fluidity of physical goods across the supply chain. Volatility stresses and exposes inefficient facilities and logistics operations; long wait times, inflexible appointments, and elevated overage, short, and damaged rates hurt profitability and partner relationships.

Convoy offers a number of products to shippers to drive improvement in their operations, including leveraging the information from driver reviews of facilities to give customers a different view of their networks. True driver wait times and dock efficiency are not always captured by customers’ own software platforms; Convoy’s driver reviews can help shippers make sure internal KPIs are aligned with real-world performance.

Drop trailer pools can enhance fluidity for the shipper and cut wait times for the carrier simultaneously; Convoy Go, Convoy’s drop trailer program, gives carriers of all sizes access to desirable drop-and-hook freight and improves service for shippers. 

“Even as trucks have been able to move quickly on the roads, there are bottlenecks—particularly at pick up and drop off,” Terrazas said. “One solution is Convoy Go, which decouples the manual labor of loading a truck from the driver’s time.”

This article is published jointly with our partners at Convoy. To view more Future of Freight content, click here.

John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.