Supply chain foundations
global practice leader for logistics,
King of Prussia, Pa
One of the more interesting and persistent questions I've heard since leaving the asset-based ocean carrier business has been, 'what's it really like on the dark side as a shipper?'
The other consistent question is, 'why doesn't international logistics get any respect in most companies, despite the fact they are likely very heavily dependent on it?'
We are usually referred to as 'ocean guys or gals,' and our world is 'different,' and 'that stuff is really complicated,' etc. It's only when something goes wrong ' like an earthquake, tsunami or volcanic eruption that disrupts global air travel ' that those of us in 'international' get the attention and focus of everyone from the CEO to tour next-door neighbor.
This international logistics world we operate in is incredibly complicated. No wonder most shipper senior executives are thrilled to know they have a great 'international ocean guy or gal' to count on.
The first time I slid into my chair as a director of transportation for a top 50 importer, I was faced with a harsh reality. Years of selling services and telling customers how they can perform better if they would only use my bullet-fast stacktrain; now the burden would fall on me to deliver on those hypotheses and see if it really did work.
That first week, in 2002, I quickly realized it was very hard to reliably determine at any moment the location of an SKU (stock keeping unit), purchase order, container, airway bill or a pallet. Then consider that was the year of the West Coast capacity crunch which produced pictures of vessels offshore that looked like the Normandy invasion! Surely any company importing almost $1 billion worth of goods each year and spending millions of dollars in ocean and intermodal transport had a system to answer the rapid-fire questions coming from every corner of the company during the fall meltdown. What to do first?
Establish controls and raise your transport spend profile. Surely, senior management must hold me to a budget and metrics? That's when I learned about COGS (cost of goods sold), how merchants are compensated on 'initial margin' and the fact that ocean transport expenses are typically not clearly identified on the company's profit and loss statement.
After checking with many peers at other companies, I quickly confirmed that international ocean was the odd category, while distribution or outbound to customer or store got all the glory and scrutiny that went with it.
My colleague in domestic said to me many times; 'you are so lucky not to have a budget and have to review the P&L every month.' True, but I had to deal with the port meltdown.
Get a grip on your network and visibility to products. For many companies, this means relying heavily on the capabilities of your third-party logistics provider and its ability to provide a technology platform and services in each country. Establish clear expectations for your provider to manage shipments and quickly implement data quality management strategies to ensure information is accurate and reliable.
If you don't have your own visibility software, invest the time and effort to ensure your 3PL does and that you pay them for the use of it. Nothing for free will perform to the level you need to run the business. Then provide access to the system for your internal colleagues across the company and start creating value immediately.
Do unto others. It really does make a difference in supplier relations. I was consistently amazed by the compliments our team received from transport suppliers. It struck me as odd that we had achieved best-in-class shipper status by simply making an effort.
We insisted on being a leader in forecasting, paying our bills on time, draying our own boxes and generally making life as simple and hopefully profitable as possible for our suppliers. In return, we expected outstanding service and candor when things went wrong or ships were full.
What we began to realize was these themes resonated with senior executives at most companies and in fact we were acting abnormally compared to the usually crabby, penny pinching, rate shopping shipper.
It's all about the data. Not just the data, but also the challenge of what to do with it. This is the most critical step in driving value that I believe most companies miss after finally gaining access to data. Use it to build value for your supply chain partners in distribution with an advanced shipping notice at the carton or item/SKU level, in inventory management by improving P.O. 'on time to DC' performance, and with finance by improving the accuracy of landed costs and initial merchandise margins. You can measure your carrier's on-time performance and data reliability, easily control container allocations and ensure that costs are meeting the targeted level even if you don't have a profit-and-loss budget.
The value we created building applications on top of that data gave rise to dozens of unforeseen and game-changing benefits. We called that outcome the '50 things we did that were not in the business case' for the technologies, organizational and business process changes that were either created and/or implemented.
Every supply chain has the opportunity to improve, you just need to create the foundation for doing so and let the innovation of your team and collaboration take over.
Sands is a regular contributor to the Strategic View commentaries for American Shipper magazine and online at www.AmericanShipper.com. He can be reached at [email protected].