Around the World in (Far Less Than) 80 Days
GLOBAL TRADE requires the integrated and cohesive management of risk in addition to the management of goods, information and funds, particularly when there are spikes in demand. Leading 3PL integrators can help logisticians get a leg up on their competitors by developing strategies to mitigate risks in their supply chain during these critical times. Here's an insightful overview of innovative practices to help your firm succeed in the most challenging circumstances.
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NINETEENTH CENTURY AUTHOR JULES VERNE, the third-most translated writer in history, predicted much of the modern world. His books foresaw submarines, cell phones, fax machines and even lunar exploration launched from Florida.
In 1873 Verne described a fanciful race around the world. This race, undertaken for the princely sum of £20,000, would cross time zones, international borders and a host of transportation modes. The race would be completed within the space of 80 days.
Today there is a similar race - an ongoing global race to bring products to market in advance of surges in demand, for example during the holiday selling season each December. As with the race Verne described, firms today have approximately 80 days of peak shipping time in which to stock the shelves or miss this market window. Now, however, billions of dollars in sales revenue are at stake.
Global supply chains have elongated. Today 68 percent of consumer goods are sourced internationally, frequently traveling over 8,000 miles from point of production to point of sale. Every year the competitive pressure and volume in this race increases. The only thing that shrinks is the margin for error.
The scale of this surge in December shipping increases annually, both as an absolute volume and as a relative share of annual retail sales. International air volume has increased approximately 8 percent per year-to-date, and ocean freight volume has increased by just over 9 percent. Year-over-year volume growth during peak season exceeds 10 percent for both modes. Air freight volumes are projected to triple in the next 20 years.
At present, capacity is increasing in parallel with volume growth:
These growth trends result in a balancing act: A single disruption can quickly drive volume and capacity out of alignment, resulting in missed connections and lost sales. In recent years we have seen this result from such disparate causes as port congestion, viral outbreak and security considerations.
In this challenging environment an efficient supply chain produces competitive advantage. In fact, research over the past decade has conclusively demonstrated that the supply chain directly impacts 75 percent of a business's operating results on average.
In this period, firms identified as having best-in-class supply chain management practices sustained significantly lower operational costs than their direct competitors, and were rewarded with market capitalization 7 percent to 26 percent higher than industry average.
How do these corporations run the race around the world differently? Like the hero of Jules Verne's novel, they benefit from speed, agility and precision.
The Competitive Advantage of Speed
Much of the evolution of the global supply chain has been driven by the products themselves. They are increasingly sophisticated. Even toys now routinely feature integrated circuits and high tech components.
The pace of innovation is accelerating, resulting in dramatically shortened product life cycles. The fourth quarter has become the time for new product introductions, particularly for hot new consumer electronics.
This requires the pace of the supply chain to accelerate as well. This results in another critical balancing act - the need to balance the cost of high-velocity premium transportation against the carrying cost of inventory and the opportunity cost of stock-outs.
The leaders do not confine their innovation to their physical products - they also manifest it in their supply chains. They increasingly work with global third-party logistics integrators to benefit from solutions that bypass distribution centers, position goods directly to the point of sale and add value in the process.
Leading 3PLs can speed each stretch of the peak season race, from active management of dispersed suppliers to effective customs clearance. They can bypass recurring impediments and add velocity while containing cost.
The Competitive Advantage of Agility
Spikes in demand are, above all, moving targets. An effective global supply chain strategy must not only deliver velocity, it must also address variability.
This requires integrated cohesive management of risk in addition to management of goods, information and funds. This is another area where leading 3PL integrators bring advantage through innovation. Key risks and mitigating supply chain strategies include:
Market leaders further benefit from agility in reverse logistics management, reducing write-downs and write-offs.
The Competitive Advantage of Precision
Verne imbued the hero of Around the World in 80 Days with a character defined by rigid precision and discipline. This is also a characteristic found in all market-leading supply chains.
Precision is advanced through 3PL investments in visibility and supply chain management systems and processes. Over the past 15 years these solutions have produced an overall 34 percent reduction in the ratio of inventory to sales, a $4.6 trillion reduction in global business inventories and a 10 percent compression in the order-to cash cycle time.
The scale and volume of the annual peak shipping season is unforgiving of lack of attention to detail and adherence to well designed process. With intelligent planning and disciplined execution, however, this is the time when market leaders step to the forefront.
While many businesses work hard each fall to address the challenges of the impending peak shipping season, the leaders are already working on meeting the evolving challenges months - and years - into the future.