Demanding data for supply

Sup­ply chains have become con­sid­er­ably more sophis­ti­cat­ed in the past decade, yet many com­pa­nies still strug­gle with man­ag­ing costs and risk.

At the heart of an effi­cient sup­ply chain is trans­porta­tion. This is the key to ensur­ing that the sup­ply chain is not dis­rupt­ed. For UK com­pa­nies, sea ship­ping con­tin­ues to be the main inter­na­tion­al trans­port method, and accounts for 95 per cent of UK imports and exports by ton­nage.

Firms usu­al­ly rely on freight for­warders to act as agents for organ­is­ing sea ship­ping. Yet, while freight for­ward­ing com­pa­nies have tra­di­tion­al­ly only been respon­si­ble for bring­ing buy­ers and sell­ers of freight togeth­er, they are increas­ing­ly tak­ing on a larg­er role.

As a direct result of the eco­nom­ic cri­sis, mar­gins for buy­ing and sell­ing freight have tight­ened, mean­ing many freight for­ward­ing com­pa­nies now offer val­ue-added activ­i­ties as part of a big­ger pack­age. This can include land­ing ser­vices at the des­ti­na­tion, man­ag­ing sup­pli­ers on a company’s behalf or look­ing after a firm’s ware­hous­es.

Michael Storey, busi­ness devel­op­ment direc­tor for freight for­warder Yusen Logis­tics Europe, says that, while cost remains impor­tant for com­pa­nies, this is no longer the only fac­tor affect­ing ship­ping deci­sions.

“Peo­ple are gov­erned by price, but they also have to look at the avail­abil­i­ty of trans­port,” he says. “The best price might not be the best solu­tion for your needs. Freight rates move depend­ing on demand, so the more flex­i­ble you are, the bet­ter your rate.”

Of course, this can also impact on a company’s deliv­ery times. David Bar­ron, group com­mer­cial direc­tor at freight for­ward­ing firm Nor­bert Detres­san­gle, says: “The cost of ship­ping depends entire­ly on capac­i­ty. Demand sets the mar­ket rate.”

Because of the greater demand, ship­ping around Christ­mas and Chi­nese New Year is always more expen­sive. Mr Bar­ron esti­mates that these peak peri­ods can add “up to sev­er­al hun­dred US dol­lars per con­tain­er”.

It is dif­fi­cult for firms to pre­dict the cost of ship­ping, as there is no futures mar­ket for con­tain­er ship­ping, unlike in oth­er mar­kets.

In ten years’ time, it will make sense to bring man­u­fac­tur­ing back to Europe

For ship­ping major raw mate­ri­als, the Baltic Dry Index offers insight into future rates, as ship­ping bro­kers are asked about their dai­ly prices for ship­ping dry bulk com­modi­ties, such as iron ore, coal and grain. The index is also used as an indi­ca­tor of eco­nom­ic growth and pro­duc­tion.

Cre­at­ing a strong sup­ply chain also means man­ag­ing risk effec­tive­ly, which is where the insur­ance indus­try comes in. Spe­cial­ist insur­ers can look at a company’s sup­ply chain and advise what the poten­tial weak­est points are, though it is also pos­si­ble for com­pa­nies to do this them­selves.

Anj Chad­ha, glob­al car­go devel­op­ment leader at insur­ance firm RSA Group, tells his clients to map out their entire sup­ply chain. “Lit­er­al­ly sit down and map out your sup­ply chain from start to fin­ish,” he says. “Look at where your sup­pli­ers are based. Are they near a riv­er that is sus­cep­ti­ble to flood­ing? Who is involved in the process and where? At what points do the goods change hands?”

Under­stand­ing the full life cycle of the prod­ucts helps you to pin­point the risks, he explains. “Prepa­ra­tion is key to man­ag­ing risk, so under­stand­ing your sup­ply chain is vital.”

Charles Davis, a part­ner at A.T. Kear­ney adds that unex­pect­ed events are any sup­ply chain’s biggest risk. “Every year there is a major dis­rup­tion. You don’t know what it’s going to be, but you can be cer­tain that some­thing will hap­pen. So plan accord­ing­ly and con­sid­er a range of sce­nar­ios of where things can go wrong,” he says.

There­fore, pick­ing the right insur­ance part­ner is key. A com­pa­ny will want to find an insur­er that does not pure­ly offer an umbrel­la when it’s sun­ny. Mr Chad­ha explains: “Sim­ply put, find out whether they have a rep­u­ta­tion for pay­ing out when things do go wrong. And make sure they are there for the long haul, that they’re finan­cial­ly secure.” Insur­ers with a cred­it rat­ing of at least AA+ are like­ly to be a safe pair of hands.

Clos­er to home, gath­er­ing data from your cus­tomers is cen­tral to man­ag­ing demand and, there­fore, your sup­ply chain. Tra­di­tion­al­ly, con­sumers don’t have a great rep­u­ta­tion for advis­ing man­u­fac­tur­ers when they plan on buy­ing their goods, so an imbal­ance is almost inevitable.

Despite this, busi­ness­es can find it reward­ing to try to mit­i­gate this risk by extract­ing as much infor­ma­tion as pos­si­ble from the cus­tomer.

Dr Chris­tos Tsinopou­los, lec­tur­er in oper­a­tions and project man­age­ment at Durham Uni­ver­si­ty Busi­ness School, says: “From the minute you scan a pack of nap­pies in Tesco, this infor­ma­tion is relayed back into the sys­tem and passed across the sup­ply chain. You could do this in your busi­ness, too. Retail­ers can gath­er infor­ma­tion through cus­tomer loy­al­ty schemes, which can help fore­cast demand as well.”

How­ev­er, while sup­ply chains become more sophis­ti­cat­ed, A.T. Kearney’s Mr Davis pre­dicts a return to short­er sup­ply chains. “East­ern Europe has sim­i­lar cost struc­tures to Asia, but is logis­ti­cal­ly a lot cheap­er and a lot less sus­cep­ti­ble to risk,” he says. “Both the ris­ing costs of labour in Chi­na and the cost of fuel are hav­ing a direct impact. In ten years’ time, it will make sense to bring man­u­fac­tur­ing back to Europe.”

Supply chains have become considerably more sophisticated in the past decade, yet many companies still struggle with managing costs and risk.