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supply chain management

You Want To Be A Supplier For Whole Foods, Right?

While brick and mortar stores haven’t died out completely, the pandemic hasn’t done them any favors. Not being able to leave the house due to COVID-19, many consumers are realizing that it’s not only easier to shop online for their household consumables, but that it’s preferable to having to run out to the store when the pantry starts running low.

Whole Foods, for example, has done incredibly well, owing largely to its owner, Amazon. Much like Walmart, Target, and Apple, Whole Foods, and Amazon have seen some incredible growth in their grocery sector.

“During Amazon’s second quarter of 2020, the retail giant continued to see huge gains overall due to the impact of COVID-19, with online grocery sales alone reaching three times last year’s figures,” reads an article from SupermarketNews.

The second quarter, which ended on June 30, 2020, left Amazon with an overall net income at a staggering $5.2 billion, compared to the $2.6 billion during the same quarter last year. It should come as no surprise that net sales surged 40% from $63.4 billion in 2019 to $88.9 billion.

While the pandemic was at its full height and lockdowns were initiated, consumers took to their keyboards to go shopping.

Spending Money to Make Money

Of course, with higher than average sales comes higher than average operating costs. As Amazon conducted more business, it also had to increase its operating costs to keep pace with the influx of new orders.

Amazon created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions

Jeff Bezos, founder and CEO, noted in a statement, “As expected, we spent over $4 billion on incremental COVID-19-related costs in the quarter to help keep employees safe and deliver products to customers in this time of high demand — purchasing personal protective equipment, increasing cleaning of our facilities, following new safety process paths, adding new backup family care benefit, and paying a special thank you bonus of over $500 million to front-line employees and delivery partners. We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions.”

Amazon’s Grocery Sales Continue to Grow. Rapidly

It’s hard to believe that Amazon originally started as a bookstore. Now it’s become a full-service virtual grocery store, which has been paying dividends for the once bookseller.

“Amazon’s second quarter was another highly unusual quarter,”says Brian Olsavsky, chief financial officer & senior vice president. “As I mentioned on our last earnings call, we began to see a significant increase in customer demand beginning in early March, and demand remained elevated throughout Q2. Strong early demand in groceries and consumable products continued into Q2, while demand increased during the quarter in our other major product categories like hardlines and soft lines.

Amazon, which owns more than 500 Whole Foods stores, said it increased grocery delivery capacity by more than 160% and tripled grocery pickup locations during the second quarter

It was only three years ago that Amazon bought out Whole Foods, which gave it the necessary oot in the door to begin selling groceries online. While this move garnered some criticism it turned out to be a smart move on Amazon’s part in the long run. “Amazon, which owns more than 500 Whole Foods stores, said it increased grocery delivery capacity by more than 160% and tripled grocery pickup locations during the second quarter,” says SupermarketNews.

“We’re reaching more customers with our grocery offerings,” said Olsavsky. “Online grocery sales tripled year-over-year.”

Getting in is the Easy Part

Obviously, being a supplier for a company like Whole Foods is ideal, especially when you can indirectly hitch your star to Amazon. However, becoming a supplier for Whole Foods is the relatively easy part. On the other hand, living up to their high standards and demands is where things get decidedly more difficult.

If you’re thinking of becoming a supplier for Whole Foods or want to understand better what it means to be a supplier and how have requirements and the business changed now that they are part of the Amazon juggernaut, read our Whole Foods white paper.

Understanding The Need For A Stronger Supply Chain

As much as we’d like to believe that our supply chains are both quick enough to react to major disruption and flexible enough to maneuver around major obstacles, the global pandemic has taught us that often isn’t the case. It is the single major weakness of most supply chains, an inability to react to a sudden and massive large-scale disruption, which can include pandemics (such as Covid-19) massive weather events, and a myriad of other setbacks. This lack of resiliency is most notable in supply chains for life sciences, health care, and food industries in particular.

The Chinese market is massive, for one thing, and most companies can’t afford to withdraw completely, otherwise, they might lose any competitive edge they might have had.

After COVID broke loose around the world, the current administration issued a call for companies that have offshored their production to Asia, (China, in particular) to bring it back stateside. However, for many companies, this proves to be challenging and counterproductive. The Chinese market is massive, for one thing, and most companies can’t afford to withdraw completely, otherwise, they might lose any competitive edge they might have had. Additionally, because the Chinese market is now either the dominant, if not sole source, for thousands of different items, reducing the dependence on those goods will take a significant amount of both time and money.

Reshoring wouldn’t necessarily mean resiliency either. The meat shortage in the United States is a perfect example of this. The industry’s supply chain is entirely domestic. In an attempt to reduce costs, many companies focused on consolidating manufacturing activities, which means a smaller number of slaughter and processing plants are now producing much of the beef and pork products consumed in the United States. This created a vulnerability as shutting down one plant, even for a few weeks, creates a major impact throughout the country. Farmers, who get paid to raise the feedstock, are now stuck with taking a potentially devastating loss on their products while the rest of the country faces months of meat shortages.

Remap instead of Retreat

Instead of retreating outright from the forign market, the best approach to building resilience into the supply chain is by conducting an internal audit. More specifically it’s the process of mapping out the layers of suppliers, manufacturing plants, distributors, and the other various elements of the logistics network and then implementing a stress test to evaluate the ability to recover from the disruption of any of the various links. Understanding where various bottlenecks will occur means being able to create mitigation strategies which can include increasing manufacturing capabilities, adding more suppliers to the roster, or building up buffer stock.

The added advantage to mapping and stress testing the supply chain is that companies using this method can find unexpected weaknesses or high risks throughout the organization. The more complex the produced good is, the higher the risk of utter disruption.

“Work that one of us (David) did with the Ford Motor Company found unexpected high risk associated with small suppliers, including many local suppliers. One part it identified that fell into this category was a low-cost sensor widely used in its vehicles: If the supply of it were disrupted, the carmaker would need to shut down its manufacturing operations. Because the total amount spent on this item was low, Ford’s procurement group had not paid much attention to it,” reads a recent article from HBR.

Stress Testing on a Policy Level

Essential industries, such as pharmaceuticals and health care, need to have a level of government involvement to ensure that supply chains are resilient enough to continue operating, even during the worst-case scenario. Consider the mask and hospital supply shortage when the pandemic first started to hit the United States. While panic buying created part of the problem, the supply chain itself faltered and eventually failed under the crushing demand.

If such a test can be conducted for banks, it can similarly be conducted for all life-critical supply chains.

There is a precedent for such involvement, however. Back in 2008, during the recession, the U.S. government and the European Union conducted a stress test for banks to guarantee that the major financial institutions that prop up the entire financial system, could survive a major crisis. If such a test can be conducted for banks, it can similarly be conducted for all life-critical supply chains.

The Long Road to Resiliency

Creating supply chain resilience for essential products and services here in the United States could very well require domestic manufacturing. But that’s neither an easy nor cheap fix. Take the pharmaceutical industry, for example. Of the drugs sold in Europe, more than 80% of the required chemical components are manufactured in China and India. Because chemical production is a significant environmental hazard, it would require the development of clean technology and manufacturing processes to create a domestic supply chain. This process could take upwards of 10 years and would require a hefty financial investment. Could it be done? Absolutely. But not easy, and not cheap.

However, until companies have a full comprehension of the vulnerabilities throughout their supply chain, these kinds of decisions can’t be made. The pandemic has created an excellent opportunity and, perhaps more importantly, a motive to put in the necessary time, energy, and resources. Only then can they protect their supply chain from a potential devastating disruption that may be lurking on the horizon.

Do you have supply chain questions that you need answered? Do you need help bolstering your current supply chain to handle these new and disruptive global situations? Feel free to contact one of our logistics experts today and lets talk more about it today.

Detention and Dwell Times: The Menaces of Supply Chain Efficiency

Prolonged dwell times have been an age-old inefficiency that the trucking industry has been trying to curb. Longer dwell times affect the drivers, carriers and shippers alike. An estimated detention time or dwell time can cost trucking companies $3 billion per year as per the Federal Motor Carrier Safety Administration.

The total time spent at a facility by a driver is called dwell time while detention is the gap between the allocated time to start loading/unloading and the actual time of loading/unloading. Longer detention at customers’ premises has largely impacted drivers’ available hours-of-service. Ideally, shippers and receivers are allowed a 2-hour window to load or unload a truck. Any time spent outside the allotted time calls for detention charges. Detention is thus used to offset the cost of a truck being detained at a shipper or receiver’s premises.

Dwell time in unprecedented times – A challenge

The month of March saw an unprecedented rise in panic-buying, which resulted in a tremendous spike in demand. The truckers continued to ply on the highways, making essentials available throughout regions. With increased demand, came the perils of heightened dwell times and detention times. The added safety protocols, social distancing, precautionary SOPs to be followed at the shipper and consignee facilities and the shortage of manpower had considerably impacted the driver detention times. On the other hand, transit times may have improved, owing to less traffic congestion during the lockdown period.

Improvement in the check-in process, ensuring social distancing, enhancing driver safety and the use of technology to manage appointments and improve collaboration between all parties have been the key drivers of change.

Improvement in the check-in process, ensuring social distancing, enhancing driver safety and the use of technology to manage appointments and improve collaboration between all parties have been the key drivers of change. While the world adapts to the new normal in supply chains, it is of utmost importance that more sustainable solutions are innovated and implemented.

Detention: Causes and Impact

Inefficiencies at the facility such as the lack of manpower to load and unload consignments, the unwillingness of the shippers or consignors to invest in manpower to accommodate increased freight movement and the inability at the individual level are the main reasons for increased detention durations. Additionally, mismanagement of appointment times such as goods not being ready for dispatch while the vehicle arrives at the premises lead to unwanted delays. Another common reason is the overbooking of appointments – when more trucks are booked than what the loading location can handle. All of the above contribute to increased detention times, which in turn amounts to losses for truck drivers. On average, truck drivers spend two and a half hours waiting at the shipper or receiver premises to load or unload goods. These hours are not considered as working hours, thus, leaving them unpaid.

We need to understand that most of the drivers are paid on a per-mile basis, therefore, every moment lost in delays is a direct loss of income for drivers.

We need to understand that most of the drivers are paid on a per-mile basis, therefore, every moment lost in delays is a direct loss of income for drivers. On the other hand, for LTL carriers, waiting at a certain facility for longer durations can mean skipping the delivery altogether.

As per a  2018 report published by the Department of Transportation Officer of the Inspector General (OIG) that sought to understand the correlation between driver detention times, crash risks and costs incurred, it was found that detention time may impact annual earnings for truck drivers by $1,281 to $1,534 per year in the negative. Shippers of essential goods have experienced longer detention times at facilities lately. For example, the recent crisis of toilet paper around the nation had trucks lining up at facilities for hours before being loaded with goods. Detention fees paid by shippers to carriers can only offset the loss up to an extent but that money fails to cover the driver wages lost by not driving. Primarily, the carrier efficiency and a driver’s payable hours-of-service are at stake, but the effects of longer detention times invariably trickle down to every stakeholder across the supply chain.

Is there a long term solution – that can increase efficiency, while ensuring optimum asset utilization and prioritizing driver safety in times of crisis?

Longer dwell times and increased detention times are not a byproduct of the current economic crisis alone. They have lingered in the industry for quite some time now and only technology can help provide long term solutions to enhance supply chain visibility. In a recent statement by Collins White, the president of Alabama Motor Express, he stated, “It has become progressively worse since 2018. We have bought software that automatically tracks when the truck goes over the allotted two hours of dwell time and automatically bills the customer.” Better technology that tracks the movement of trucks with a precise estimation of time spent at shipper or receiver facilities will help us give a clearer picture of the spots where the detention is taking place. Identifying these spots will further enable a better understanding of bottlenecks, allow correct allocation of resources and change practices to streamline the flow wherever necessary.

On the other hand, the tried and tested drop-trailer business model may have worked for some quite well. In the drop trailer method, a driver leaves a trailer at the facility for a stipulated time period until another vehicle picks it up. This doesn’t time-bound the shippers and they can load trailers at their convenience. Given the current situation of restricted labor availability, this method comes as an interim respite but cannot be considered as an all-round solution to the problem.

Investing in data-enabled technology is necessary to be able to make any supply chain more robust and induce complete visibility.

Investing in data-enabled technology is necessary to be able to make any supply chain more robust and induce complete visibility. Location Intelligence (LI) is set to make location data more accessible to participants in a supply chain. The use of LI is a promising trend as it uses geographical relationships to decipher complex data that can provide fleets with critical insights of accurate detention time calculations. It can provide accurate information such as time of arrival and departure of a truck at a site. They can also monitor a driver’s fuel stop time or break times which can further help enhance asset utilization. Insights into trends pertaining to a particular time of a day or week can translate to better prediction of transit times and estimated time of deliveries. All of these are elemental in aiding data-enabled business decisions through optimized route planning with reduced dwell times that boost overall productivity and enhance supply chain performance.

As the nation grapples with the ongoing economic crisis, a sudden surge in demand followed by flattening of the curve, the unpredictable rise of freight volumes and its correlation with increasing or decreasing dwell and detention times remain a cause of concern. What must not be forgotten is that these problems of detention and dwell times pose the opportunity for a permanent change towards creating a symbiotic relationship between carriers and shippers. There is an immense potential for cost savings and enhanced operational efficiency that will invariably impact the driver community’s way of life on the road.

How the Three M’s Can Help You Cut Down on Supply Chain Cost

As the global supply chain settles into the COVID19 technology driven and customer-centric decade, there’s no time to pause and reflect on what has happened. Now, more than ever is a time for action. You need to pick up the pace and ensure that your processes are leaner, faster, and you are equipped to meet your customer’s expectations. Understanding the nuances of your supply chain and how to improve upon it is the best way to achieve maximum savings, optimize efficiency, and manage customer expectations.

We’ve come up with a concept called the Three M’s, three key areas that you can explore and break down in order to realize the full potential of your company that can help you to get the biggest, fastest savings in your supply chain, today.

They are: Measure; Manage; and Maximize.

Measure

The first of the three M’s is the measure, and it’s all about understanding your supply chain and how it functions. To measure your supply chain is to create an overview of your operations and within that, to develop an understanding of your key processes and where your company’s strengths and weaknesses lie.

Understanding how to create an overview of your supply chain is the very first step in measuring what your company is doing right now and what your current process looks like.

“Understanding how to create an overview of your supply chain is the very first step in measuring what your company is doing right now and what your current process looks like. Either creating an overview or even having an external analysis done by a third party will help you gain visibility and understanding why you’re doing things the way that you do and then taking that information and turning it into actionable information that your company can then use to make better business decisions,” suggests Amanda Staffon, our Senior Business Development representative.

Measuring can help you to:

  • Analyze the need for process improvements.
  • Understand where cargo can be consolidated to increase cost savings.
  • Measure carrier cost structures to maximize efficiencies and lower costs.
  • Better financial efficiency of your end to end supply chain network.
  • Enhanced control over shipment scheduling.

Manage

Manage is all about the internal conversation within your organization. It’s about understanding why key stakeholders which should include, vendors, purchasing, customer service, sales, are making the decisions that they do and how those decisions affect your supply chain. Manage is also about understanding the flow of goods, money, and information throughout your organization.

The data and analytics gathered during the measure phase is instrumental to a proper understanding of your operations

The data and analytics gathered during the measure phase is instrumental to a proper understanding of your operations and can create the insight necessary to understand why these decisions are being made and how you can improve upon them.

There are four key advantages to the management phase:

  • Visibility across the entire supply chain from sourcing raw materials to the delivery of finished goods
  • Modeling future supply chain scenarios as your company grows/changes to ensure speed to market while maximizing cost structures.
  • Complete insight into the production, partner, and supplier performance to ensure responsiveness to customer needs.
  • A Global perspective to keep updated on the latest developments and optimize processes across North America.

Maximize

The last of the three M’s is Maximize, and all about making the most possible good from every factor and decision within your organization. For example, technology helps to maximize efficiency and, in turn, increase profitability.

A well-managed supply chain provides companies with the ability to execute best practices

The other two steps are crucial to maximize as they help you to understand the layout of the organization and what steps you need to take in order to see the most benefits, whether that be further developing strengths, optimizing a specific aspect of your operation, or outsourcing aspects that your company isn’t particularly strong in.

A well-managed supply chain provides companies with the ability to execute best practices in the following areas:

  • Demand Planning
  • Procurement
  • Logistics
  • Inventory Management
  • Information Systems
  • Compliance
  • Distribution
  • Risk Management and Contingency Plans

Putting it into Action

Of course, the first step in this process is often the most daunting. During the uncertainty, dedicating resources (time, energy, money) to anything that doesn’t have an immediately apparent return can be terrifying. However, taking that first step is most important as it lays the path towards improvement and growth in the future.

We encourage you to listen to our free Webinar about the Three M’s to get a more in-depth understanding of the process as well as to take advantage of our free supply chain analysis to see how BlueGrace can help you to improve and optimize your operations.

A Step-by-Step Guide to Doing an Internal Audit of Your Supply Chain 

While all facets of the modern business are important, arguably the most important to any retail, manufacturing, or goods based service is their supply chain. The supply chain serves as the backbone of these companies and has a significant impact on the company’s business strategy which directly affects its operation and operational costs. Additionally, the performance of the supply chain has a direct impact on a company’s ability to provide services to their customers and create additional value via services offered or simply through reliability. With the multitude of changes that have been occurring within the logistics, trade, and freight industries now, more than ever, is an opportune time to conduct or review the process of internal audit of your supply chain. 

An internal supply chain audit is one of the most powerful methods of evaluating and possibly improving your supply chain, reduce operations costs, and increase competitive advantages.

An internal supply chain audit is one of the most powerful methods of evaluating and possibly improving your supply chain, reduce operations costs, and increase competitive advantages. The goal of the internal audit is to help you find weaknesses within your supply chain and correct pain points, bottlenecks to increase supply chain flexibility, agility, and overall efficiency.

To make the most out of your audit and its results, it’s important to understand that the supply chain isn’t a stand-alone, isolated feature of your business. In all actuality, the supply chain is suffused in every aspect of your business. As such the supply chain needs to be viewed between all participating companies and suppliers throughout the supply chain, with solutions applied from a holistic approach.

Why an Internal Audit is Necessary for Your Supply Chain

For most companies, audits are typically part of the normal routine, either for financial records or for physical inventory. The entire purpose behind an audit is to make sure things are where they should be and that everyone is playing by the same rules.

“Internal auditing is defined as an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes,” as defined by The Institute of Internal Auditors (IIA).

This is especially important when trying to maintain retail compliance, for example, with increasing customer demands like On Time; In Full (OTIF) or Must Arrive By Date (MABD).

Simply put, an internal audit is a multi-step process that is a means of determining whether your current systems and operations are in compliance with your company’s predetermined operating procedures and regulations. This is especially important when trying to maintain retail compliance, for example, with increasing customer demands like On Time; In Full (OTIF) or Must Arrive By Date (MABD). Conducting an internal audit does more than just evaluates the supply chain, it also takes a necessary look at the interaction between other aspects of the organization such as the accounting and financial systems, practices, and procedures. For example, are your planners and purchasers communicating properly, not only with each other but with the production floor and shipping department? Are parts coming in with enough lead time that items can be manufactured and shipped according to customer requirements? 

An internal audit is important because it allows the company executives and logistics decision makers to examine the effectiveness of their business operations and controls and applications of new policies. Over time, establishing those best practices means a more competitive and more profitable company in the future.

Things to Consider Before you Start the Audit

Performing an audit is one thing, but knowing what areas you need to be focusing on is something else entirely. While every audit should be more or less tailored to the specific needs of an individual organization, here is the basic framework for initiating an audit that needs to be included:

  • Audit Planning: Internal auditors should have a plan in place well before the actual auditing begins. 
  • Examining and Evaluating Information: Internal auditors should have a standardized criterion to compare findings against. 
  • Communicating Results: Audit should have a clear and concise method of reporting their findings. 
  • Follow Up: Internal auditors should follow up in a timely manner to ensure that appropriate actions have been taken to correct audit findings.

This framework also serves as a support system for corporate managers and allows managers of larger production systems to delegate the oversight of the audit to the internal audit department. This is important for a few reasons:

  • Operating Complexity: Automated data processing has increased the levels of complexity when analyzing data, a task better suited for those who know what to look for. 
  • Decentralization: Given that supply chains are prone to be decentralized in terms of a physical location due to globalization. 
  • Lack of Expertise: As the adage goes, stick to what you know. Leave those auditors in charge of the audit for the best quality audit.

With the right framework in place for the audit to commence, let’s take a look at the tasks involved for the actual audit.

Supply Chain Structure and Internal Audit Tasks

Like we mentioned above, every company is different and, as a result, the needs for every individual supply chain will vary. So while there is no hard and fast or “Use audit ‘A’ for Supply chain system ‘1’ ” convenient method of doing things, there are some common focal points that are applicable for just about every organization and style of the supply chain. 

The supply chain management processes identified by The Global Supply Chain Forum are:

  • Customer Relationship Management 
  • Supplier Relationship Management 
  • Customer Service Management 
  • Demand Management
  • Order Fulfillment 
  • Manufacturing Flow Management 
  • Product Development and Commercialization 
  • Returns Management

All of these processes are hallmarks of a healthy supply chain and also indicative of the successful supply chain management. Here again, we can see all of the links that connect the supply chain to every other facet of the business. Another benefit to performing an internal audit is that offers to perfect opportunity to increase the synergy between these various departments. For CFO’s and supply chain leaders, this means that supply chain management deals with total business excellence and represents a new way of managing the business and relationships with vendors, suppliers, and partners.

An internal audit can help a company in finding answers to crucial questions about managing success factors of supply chain excellence, of which these can be divided into five main sections: 

  • Strategy – To determine if the enterprise has a clear strategy tuned to business expectations and focused on profitably servicing customer requirements 
  • Organization – To determine if an effective organization structure exists enabling the enterprise to work with its partners to achieve its supply chain goals
  • Process – To determine if the enterprise has excellent processes for implementing its strategy, embracing all plan-source-make-deliver operations
  • Information – To determine if the enterprise has reliable information and enabling technology to support effective supply chain planning, execution, and decision-making 
  • Performance – To determine if the enterprise is managing supply chain performance in ways that will increase the bottom line, cash flows and shareholder returns

Supply Chain Risk Management

As much as we wish we could, the ability to see and accurately predict the future still eludes us to this day. In the end, it all comes down we can optimistically refer to as an “educated guess”.  With that being said, even the most educated guesses can’t predict the weather or a broken down truck. This means that within every supply chain, there will always be an element of risk. That risk represents any number of things that can go wrong within your supply chain and halt or delay your shipments. For this very reason, risk management is incredibly important when evaluating your supply chain. 

An internal audit can provide business leaders with the necessary framework to develop an appropriate supply chain risk management program.

Risk management is a huge proponent of supply chain health, especially given the instabilities in the global marketplace created by political uncertainty, trade tariffs, etc. An internal audit can provide business leaders with the necessary framework to develop an appropriate supply chain risk management program. This is how your supply chain audit can also help with risk reduction and increased security: 

  • Reviewing and understanding supply chains, including their strengths and weaknesses, in developing markets, to validate monitoring programs
  • Working with the company’s supply chain specialists to help develop a monitoring process that can be repeated
  • Helping to identify which suppliers are critical 
  • Assessing which suppliers may be vulnerable to threats and helping draw up a residual mitigation profile
  • Identifying strong risk control procedures
  • Helping to develop key analytic tools and techniques
  • Aiding with compliance monitoring

Ideally, the risk mitigation will also allow companies to increase supply chain efficiency to the point where on hand stock can be reduced. While having excessive stock might create a buffer in time where shipments are running late or capacity is tight, that excess can also eat into company profit margins. Additionally, having a well-running supply chain vastly lowers the chance for disruptions, operating costs, and other unexpected costs such as chargebacks, detention fees.

Despite the cause, however, the results are often the same, a drastic slow down of operations and a huge impact on customer satisfaction and profitability.

Supply chain management is a very complex structure of activities with cross-functional processes, and it presents one of the most important functions in the company since it is directly linked to all functions of the company. Supply chain problems can result from any number of things including natural disasters, labor disputes, supplier bankruptcy, an act of war or terrorism, systems breakdowns, procurement failures, and other causes. Despite the cause, however, the results are often the same, a drastic slow down of operations and a huge impact on customer satisfaction and profitability.

The supply chain internal audit aims to support managers in process optimization and above all in cost reduction which result from an uncertain environment by evaluating and directing management towards approaches which will prevent or reduce negative effects. 

After analyzing definitions and some of the standards of internal audit, it can be concluded that this process can improve effectiveness and efficiency, and by that, the performances of many functions within the organization. High-impact supply chains are more competitive and are capable of winning market share and customer loyalty, creating shareholder value, extending the strategic capability and reach of the business. Independent research shows that excellent supply chain management can yield: 

  • 25-50% reduction in total supply chain costs 
  • 25-60% reduction in inventory holding 
  • 25-80% increase in forecast accuracy
  • 30-50% improvement in order-fulfillment cycle time 
  • 20% increase in after-tax free cash flows

To increase supply chain strength, agility, and overall integrity, companies should develop a framework for a structured approach to ongoing risk identification and management. This will enable businesses to proactively address organizational supply chain risks on a periodic basis – a practice that affords stronger company and brand protection against supply chain risk gaps.

The more we know the more we can simplify.

The more we know the more we can simplify. When we know what your current transportation situation involves and what your pain points are, we can really help you simplify. The journey with our customers begins with the Needs Assessment process and the goal to determine transportation management solutions that increase productivity and decrease overall costs. To speak to one of our freight experts, call us at 800.MY.SHIPPING or fill out the form below to receive a FREE Supply Chain Analysis.

Walmart+ vs. Amazon Prime: How Different Are They?

Amazon delivered a swift blow to retailers with the introduction of Amazon Prime. Walmart is fighting back.

Amazon spent years building what was to be its competitive advantage in e-commerce, its formidable distribution network. By building distribution centers across the country, investing in algorithms to optimize pick-time, and hiring operational wizards from Walmart and other competitors, Amazon gets products to customers anywhere in the United States cheaper and faster than anyone else.

Walmart went in the opposite direction, taking a ‘build it, and they will come’ approach, building stores in rural areas and locating them close enough together to allow for shared warehousing and logistical resources. Walmart plays in the low margin discount retail arena, and they do it better than anyone else. Perishables such as bread and milk are extremely low margin products, but the wide range of offerings gets customers in the door more often and buying more while they’re there. This is their secret, money-making-sauce, the strategy that allows for a wide distribution of fixed costs and lowers their break-even point.

In 2005 Amazon launched a little thing called Amazon Prime, a membership program with perks which is now enjoyed by roughly 150 million global paying members.

In 2005 Amazon launched a little thing called Amazon Prime, a membership program with perks which is now enjoyed by roughly 150 million global paying members. At the time, Walmart was the giant, its profits being larger than Amazon’s revenue. A decade and a half later, however, and Amazon reigns supreme over online sales. In 2019, Amazon accounted for almost 40 percentof the US e-commerce market. Walmart lagged far behind with slightly more than 5 percent.

An ethos of sales is to make it easy for customers to do business with you. Prime aims to do just that. For $119 a year, Amazon Prime offers services such as music and video streaming, one-day shipping on more than 10 million products, and same-day delivery from Amazon Fresh or Whole Foods. It has its loyalty base hooked and has customers shopping more often and spending about twice as much as non-prime customers. 

Walmart, however, still reigns supreme in brick-and-mortar retail.

Walmart, however, still reigns supreme in brick-and-mortar retail. As reported by Recode, they’re now fighting back with an expansion to their grocery-delivery subscription service, which launched last year. Walmart will be using its 20% market share (of an $800 billion category) as a foothold to launch the introduction of Walmart+. To differentiate themselves, Walmart is looking to include perks that Amazon won’t be able to replicate and may offer discounts on fuel and prescription drugs. 

Walmart’s Delivery Unlimited service currently delivers groceries from more than 1600 US stores and costs $98 per year or $12.95 monthly and offers a free 15-day trial to lure new members. It also offers a per delivery fee for non-members and is testing a service that will take the extra few steps and deliver your groceries right to your fridge.

Widening the Customer Base

As we laid out in our Walmart and Whole Foods white papers, Millennials are outpacing baby boomers as the largest living adult generation, and their buying patterns are heavily focused on eCommerce. 

CEO Doug McMillon has given Chief Customer Officer Janey Whiteside the task of widening their customer base to include more upscale shoppers and create a seamless customer experience, whether shopping online or instore. Whiteside has also put together a product team, to be headed by Chief Product Officer Meng Chee and will focus on using advancements in tech to improve the customer experience.

Amazon is now also widening its target customer base to include lower-income shoppers and is hoping to lure them into Prime memberships with monthly membership rates.

Although both Walmart and Amazon deliver groceries to food stamp recipients, only Walmart currently offers a monthly membership fee option. Amazon is now also widening its target customer base to include lower-income shoppers and is hoping to lure them into Prime memberships with monthly membership rates. Customers may find more financially viable than a one lump sump yearly membership fee.

Walmart has had a bumpy road in its foray into e-commerce. In 2016 Walmart bought out Jet.com for $3.3 billion, but Jet failed to become a driver for online grocery sales and provide the boost into urban areas they were looking for. Walmart announced in June of last year that it would be folding Jet into its e-commerce operations and ended Jetblack, the AI-powered personal shopping service it rolled out in May of 2018.

Back in 2017, they tested a program called ShippingPass, a $49 per year two-day shipping membership, which was then discontinued, members were then refunded their $49 fee.

Both Amazon and Walmart are forerunners into e-commerce, struggles, and even failures are to be expected. Far from being out for the count, it seems Walmart is coming back swinging.

Do you ship to Amazon, Walmart, Target or other large retail or grocery store chain? The rules are changing and it is getting harder and harder to be able to adhere to them. This is where the logistics experts at BlueGrace Logistics can help your team! Feel free to contact us using the form below and set up a 15 minute chat to discuss how we can help you succeed!

The Toilet Paper Shortage: Can’t We Just Ship More?

As the COVID-19 coronavirus began to spread across our country, and people began to absorb the full impact that it would have on our workplaces and culture, Americans reacted by heading to grocery stores and buying “essentials” in bulk. It is possible consumers had become conditioned by other natural disasters like hurricanes, tornadoes, polar vortexes and the like to expect large-scale disruptions to the traditional grocery store supply chain.

Within a couple of weeks, the news media became flooded with pictures of empty shelves and lines of people waiting for consumer package goods (CPG).  The most curious case, and the one that has caught social media by storm, is the fact that consumers are ripping the toilet paper off the shelves quicker than manufactures can supply it. When there is a shortage that means some will go without. Those waiting for their paycheck? They’re out of luck. The elderly who can’t get to the store on time? Also, out of luck. In the UK, the overbuying has led to products being rationed and price hikes. In Hong Kong, it led to armed robbery.  However, when looking at it from a supply chain perspective, the problem has a simple explanation, one that is under-reported in the media.  The true demand for toilet paper hasn’t really changed (consumers aren’t all of a sudden using more toilet paper per capita) but their collective buying behavior has caused a change in demand upstream.

The industry runs on extreme efficiency and mills work at full capacity.

Since majority of people are working from home, restaurants are closed and any public place with a restroom are closed as well, there is less of a need of “industrial” toilet paper and an increased demand for “commercial” toilet paper. The toilet paper industry is unique in that this paper is a high-volume product but low value. It also has a low value by density. It’s large in size but weighs little and costs little. This means transportation costs are a significant portion of its total value.  The industry runs on extreme efficiency and mills work at full capacity. Manufacturing schedules are based on demand having little fluctuation, but this only works if demand is steady. When demand changes this causes supply problems. According to Will Oremus, with 75% of workers now working from home people are buying more commercial toilet paper than ever before, causing a huge spike in demand for this particular category of toilet paper.

Conversely, once this coronavirus crisis ends, demand for residential toilet paper will subside quickly back to traditional levels.  Therefore, the average family will then be overstocked, and their purchases will pause for a period of time until their inventory is depleted.  At this point in time, when the CPG company replenishments arrive in stores, there will be a surplus since consumers are overstocked. 

Because there were no shortages in the raw materials used to produce this product, and demand skyrocketed, we are seeing what is called the “bullwhip effect” (seen below).  We find ourselves stuck in a situation where panic demand causes the system to produce drastically more product for which there will not be enough buyers once the inventory finally arrives to catch up.

We simply can’t just replace the toilet paper

It’s important to note that we simply can’t just replace the toilet paper that belongs on the shelves with the unused toilet paper in airports, restaurants and other closed down businesses. These are essentially two different products that come from two completely different markets (commercial and industrial). The industrial paper comes from a completely different mill than the commercial paper requiring different supply chains. In fact, people are using 40% more commercial toilet paper than usual at home than they would be at any “normal” day. If we were to redirect the industrial supply to consumer supply there would be a need to establish new relationships and contracts with suppliers, design new packaging and shipping and route new trucking routes, all of which normally take years to accomplish and extremely costly.

The customer must be convinced that excessive purchasing of toilet paper is unnecessary.”  

We are at an uncertain time right now but it’s important that our actions reflect facts and not fears. The short supply of toilet of paper doesn’t necessarily come from panic and fear; it is simply a function of the differences between the B2C and B2B supply chains for this single product. There is a spike in demand and people are temporarily buying more for their homes, therefore supply is working to keep up with demand.  The CEO of ThroughPut explains that “when there is no more that can be done on the production side, the customer must be convinced that excessive purchasing of toilet paper is unnecessary.”  

The Rise of the 3PL for Managed Transportation Services

Managed transportation services have widely become an integral function of modern supply-chain. As reported by Steve Baker of Forbes, the outsourcing of managed transportation services to other entities has different terminology depending on location. For example, managed transportation or transportation management might be the ideal terms to use in the US. Meanwhile, Europe will refer to the effective outsourcing of transportation management as “fourth-party logistics services (4PL).”

Outsourcing transportation management has the added benefit of taking advantage of external resources and physical assets.

In addition, outsourcing transportation management has the added benefit of taking advantage of external resources and physical assets. However, the aspects of managing transportation are much more profound when looking at the topic from a software standpoint. To understand the rise of the 3PL for managed transportation services, shippers need to understand how managed transportation services became a global power, why 3PLs in managed services work well together, and how 3PLs enable better management of transportation.

Why Managed Transportation Services Grew to Permeate the Global Supply Chain

Take a moment to define managed transportation. According to Chris Cunnane of Logistics Viewpoints, “in a managed transportation services arrangement, a shipper contracts with a third party to plan and execute their moves for them. In other words, instead of having internal planners plan and execute moves, those planners are employed by the MTS supplier, but work on the shipper’s behalf.”

As shippers face the need to ship more and keep costs under control, managed services through a 3PL is the easiest path forward. 

Unlike traditionally maintaining independent transportation management programs in-house, outsourcing the process allows companies to reap a stronger return on investment. In a 2014 survey of supply chain professionals, 9% of respondents saved more than 12% on freight costs through managed transportation services. That number rose to 32% by 2016, and preliminary reports indicate the continued growth of savings. That’s the distinction and primary driving force. As shippers face the need to ship more and keep costs under control, managed services through a 3PL is the easiest path forward. 

3PLs and Managed Services Go Well Together

Part of the rationale for the increased use of 3PLs for managed transportation services surrounds technology and capabilities. In a traditional logistics management approach, an individual shipper must contact carriers, request quotes, understand billing practices, validate invoice details, submit payments, share information from the carrier to this customer and so on.

Leveraging the technology of the 3PL to automate logistics management and effectively outsource the whole process of managing transportation is the gold mine.

While the process works great when the entire supply chain resided in a small town, it becomes grossly ineffective in the modern, e-commerce driven world. With more customers and volume than ever before, shippers need real-time visibility, advanced shipping notifications, increased responsiveness, and faster ways to handle logistics. Working with a 3PL for its basic premise of securing more capacity and lower rates is great. However, leveraging the technology of the 3PL to automate logistics management and effectively outsource the whole process of managing transportation is the gold mine.

Ways 3PLs Excel in Managed Service and Value

Using a 3PL for managed transportation services also allows third-party entities to effectively manage more freight, connect with more carriers, improve supply chain responsiveness, and work together without sacrificing the proprietary information of individual shippers. The various ways 3PLs excel in managed service and value is nothing short of remarkable. In fact, some of the largest managed service providers tend to rely on a unified transportation management system (TMS) that enables continuous growth and power. For those 3PLs that have lagged behind in offering a TMS, recent acquisitions around the industry indicate all larger 3PLs are now looking to deploy better, more reliable TMS capabilities to give all shippers an equal opportunity to leveraged managed services, such as the BlueGrace TMS combined with managed services.

Of course, the real value of managed services lies in the value-added services, such as auditing, accounting management, billing, compliance record keeping, load matching, big data analytics-driven insights, and more. It’s an endless pool of improvement, and 3PLs will continue to maximize service and value without adding to the costs of individual shippers. 

Tap the Value of Managed Freight Transportation Through BlueGrace

BlueGrace is a 3PL that understands the value of managed transportation services. With a strong history of working hand-in-hand with shippers to create customized solutions, and using our BlueShip™ TMS to transform logistics management into a turnkey, automated process. As the value of using a 3PL for managed services increases, BlueGrace will see an influx of more shippers and carriers that are willing to look beyond the company walls and realize stark benefits of using a TMS. Find out more about how to take advantage of BlueGrace’s managed transportation services by calling 800.MY.SHIPPING or completing the form below.

Supply Chain Technology 2020: What to Expect?

Technology has become synonymous with supply chains. It’s not only creating new and innovative products to support global supply chains,  but is also rapidly changing how the industry operates. These new technologies are being leveraged by both traditional and tech-first logistics companies in the freight and logistics space to help build digital and integrated supply chains that provide end-to-end visibility to all the stakeholders.  

According to this report by Gartner, released in January 2019, the top technology trends for the year were artificial intelligence, advanced analytics, IoT, robotic process automation (RPA), autonomous things, digital supply chain twins, blockchain, and immersive experience.  

Others like artificial intelligence, autonomous things, blockchain, and robotic process automation are comparatively new and yet to be explored fully.

While all the above technologies are gaining ground in the industry and are being used to solve supply chain problems, some of them like IoT and advanced analytics have been around for a while and are familiar. Others like artificial intelligence, autonomous things, blockchain, and robotic process automation are comparatively new and yet to be explored fully. However, 2019 did see some of the newer technologies making big strides and are expected to be in trend in 2020 as well. They are:  

  1. Autonomous trucks: We’ve been hearing about autonomous trucking for a while now. In 2019 autonomous trucking gained a lot of ground with a few companies in the sector ready to roll out their self-driving trucks on the road. Some companies making news in this sector are TuSimple which got funding at the beginning of 2019 and Plus.ai, a Cupertino, California-based startup, that has already tested its autonomous truck on the road. Plus.ai’s autonomous truck has made the world’s first cross-country trip to transport butter to a town in Pennsylvania. The autonomous trucking industry is expected to keep up the momentum in 2020 also. According to an article in Supply Chain Digital, Allied Market Research has forecasted that the global market for autonomous trucks is expected to cross $1 billion this year and show a growth rate of 10.4% every year up to 2025.  
  2. Blockchain: While Blockchain technology has been around in the logistics and freight industry for a few years, there’s still a lot of scopes to explore this technology. Last year, TradeLens – a blockchain shipping platform developed by Maersk and IBM finally started picking up after a lackluster start. According to a news release on Maersk’s website, the platform will now be used by MSC, CMA-CGM, Hapag-Lloyd, and ONE. The success of platforms like this will help in getting more companies in freight and logistics to explore blockchain technology. More supply chain partners on a single blockchain-enabled platform will help facilitate the timely and safe exchange of data among the various stakeholders, even competitors, and enhance traceability, reliability, and transparency in the system.  
  3. Artificial intelligence: The Gartner report had listed artificial intelligence as one of the promising supply chain trends of 2019. Since all technologies that require a certain level of responsiveness and user interaction are empowered by artificial intelligence, this is one technology that will evolve with new technologies and needs of the industry. So in 2020 also one can expect AI to be an important part of the technological revolution in multiple supply chains.  
  4. Robotic process automation: Robotic process automation (RPA) is an artificial intelligence software that helps program robots to carry out standard processes without intervention. It is also useful in programming robots to collect data while they are doing their set activities. According to a 2019 Gartner press release, in 2018, the global market for robotic process automation grew 63%. The research firm expected the revenue in 2019 to reach $1.3 billion. Similar to AI, the RPA software demand will grow along with the deployment of robotics in supply chains. 
  5. Digital supply chain twin: A digital supply chain twin has been defined as a replica of the real-world supply chain function. The digital platforms that helped integrate all organizational functions and manage and monitor the processes digitally have now given way to more sophisticated systems that present a mirror image of the on-ground supply chain functions. These digital replicas are making it easier for organizations to simulate the real-time supply chain, identify plausible issues and take preemptive actions. This kind of technological representation of the supply chain is expected to be one of the top trends in 2020.  

While technology forms a critical part of understanding where the logistics and freight industry is headed, it is not the only factor.

These are just some of the main technological trends of 2019 that are expected to continue getting focus in 2020 and probably even in the next few years as well. While technology forms a critical part of understanding where the logistics and freight industry is headed, it is not the only factor. There are other aspects like regulations, laws, economy, and freight rates that help determine the fate of the supply chain. To know how the industry fared on these counts on the year gone by and how these aspects are expected to impact the logistics and freight community in the new year, register for our webinar: State of the Logistics Industry here

In addition to connecting with industry experts and gaining insight into where the industry is headed in the new year, all registered webinar attendees will also have the option to get a free supply chain analysis and optimization study based on their current data! Get in touch with our team at 800.MY.SHIPPING or fill out the form below to find out more.  

The Definition of Transparency

As companies mature and the market changes, our understanding of crucial operating components of any industry has also grown. Supply chain transparency, in particular, has come a long way over the past twenty years. Transparency within the supply chain has gone from an unrecognized concept to a focus item for the C-Suite across a vast number of companies and industries. Given the current state of the market, it’s no small surprise either.

So in order to begin understanding transparency in the supply chain, we first need to define it.

Many, if not all, companies are facing increasing pressure from governments, consumers, non-profit / activist groups, and stakeholders to provide more information about their supply chain. Failure to do so could mean some serious damage to the company’s reputation. Slave or forced labor conditions, health and safety violations, animal exploitation, and child labor are all becoming hot button topics of the growing consumer conscience. While the reasons for explaining a higher need for transparency are clear, what is less clear is how to get there. Some companies are struggling to make a meaningful change to their operations to provide the much-needed levels of transparency.

As it is with most problems there is a lack of a clear and concise definition, according to an MIT study which conducted a survey of the apparel industry only to find wildly different results. So in order to begin understanding transparency in the supply chain, we first need to define it.

Understanding the Need Transparency

At its core, supply chain transparency is understanding what’s happening within the supply chain and being able to communicate that knowledge both within and outside the organization.

As we mentioned earlier, there is an increase in customer demand for insight into the supply chain, but it’s not without benefit. The researchers at the MIT Sloan School of Management found that consumers are willing to pay between 2 and 10 percent more for products produced by companies that have better supply chain visibility. The study showed that consumers place a higher value in a company that can prove the ethical treatment of their workers. What’s more is that this growing consumer base is seeking more information about product ingredients and materials, where the product is coming from, and the conditions in which it was produced.

As the demand for visibility continues to increase, so too will the potential fallout for companies that fail to provide it.

As the demand for visibility continues to increase, so too will the potential fallout for companies that fail to provide it. Over the last decade, there have been a number of scandals that have had a significant detrimental impact on company image and reputation. Slave labor in the Thai seafood industry and deforestation in Malaysia and Indonesia are ample examples of this.

The backlash created from these scandals has forced the creation of new transparency laws around the world. Australia the UK have created new regulations to combat forced labor. The state of California has also created supply chain transparency laws (California Transparency in Supply Chains Act.) The U.S. Food Safety Modernization Act is targeting food safety and ingredient fraud. There are also further regulations to come from the Netherlands and Switzerland, with other countries to follow suit.

What this means for companies is that a lack of supply chain transparency can stop operations dead in their tracks.

What this means for companies is that a lack of supply chain transparency can stop operations dead in their tracks. Something as simple as missing origin documents could cause a shipment to be either held up or even turned away at ports which can result in a costly delay throughout the entire supply chain.

So Why Aren’t All Companies on Board?

You would think that with the new levels of consumer consciousness and the growing global regulations that all companies would be scrambling to build transparency into their supply chains. Yet, there are many companies that are either slow to act or not act at all.

One reason for the delay is that the supply chain itself was never designed to allow for transparency. Manufacturers and suppliers alike fear to expose their sources as they might lose the edge against their competition. Another explanation for being slow to act is inaccurate data coming from upstream, assuming there is data to be had at all. Lastly, there’s also considerable concern about the ROI for investing in supply chain transparency.

Despite the challenges, there are plenty of reasons to get on board with supply chain transparency.

The Benefits of Supply Chain Transparency

The returns gained from efforts made on improving supply chain transparency will vary by business model and industry but overall there are a number of benefits that are applicable to most companies.

One of the most straightforward benefits is that increased transparency means keeping in compliance with the new regulations that are being enforced. Operational risks drop as a result as companies no longer have to worry about being able to get freight through customs.

There are also considerable benefits to a company image that come with higher levels of visibility. Consumer conscience is a huge market factor right now. Customers are happy knowing that their products are made with care and concern towards the environment and the people working to make their products. As a result, they’re willing to pay more, which can help offset potential higher supply chain costs. Additionally, consumer trust and satisfaction also rise, which creates stronger brand loyalty and a larger customer base.

Better visibility means better, more actionable data, which in turn can help drive a company’s growth and profitability.

Of course, there are also operational benefits to be had by utilizing a highly visible supply chain. Better visibility means better, more actionable data, which in turn can help drive a company’s growth and profitability. That data also highlights areas of improvement, meaning a company can run leaner, cleaner, and a whole lot greener.

This isn’t a trend in the sense that we’ll see it fall out of fashion any time soon. Supply chain transparency is becoming an industry standard and will continue to flourish. If your company isn’t working towards transparency, it might be time to get started. For more information on how BlueGrace can help give you the visibility you need to gain efficiency, feel free to contact us at 800.MY.SHIPPING or fill out the form below:

Middle of the Road for the Trucking Industry

Of all the industries that American consumers have come to rely on, perhaps the most underrated, and subsequently complex, is that of the transportation industry. While the laws of supply and demand will affect every form of business it is perhaps the most volatile and fluctuating when applied to the transportation industry. Last year was a great year for trucking companies, demand was high, capacity was low, and it allowed them to more or less pick and choose the jobs they wanted to do.

With so many wild swings in one direction or another, we’re entering a period of “new” balance that no one is quite sure of.

Shippers, for their part, have accepted the higher rates as an understood cost of business, but with so many wild swings in one direction or another, we’re entering a period of “new” balance that no one is quite sure of. Shippers that turned to contracts to escape the high rates are now making a return to the spot market as there’s plenty of available capacity currently on the market.

Aptly put, this “muddy middle” for the trucking department is a rare moment when supply and demand have reached something of an equilibrium, something that hasn’t been seen for years. Spot rates for FTL have dropped upwards of 12 percent from this time last year while contract rates, on the other hand, have climbed up 14 percent in 2018 according to data from DAT Solutions and Truckstop.com. Shippers that turned to contracts to escape the high rates are now making a return to the spot market as there’s plenty of available capacity currently on the market.

Given such a high volume of transference, it might have actually created an overly strong demand on contract rates which would have caused them to increase.

It’s rather reasonable at this point to speculate that the current shift towards the muddy middle was caused by overcompensations. Beneficial cargo owners (BCOs) reacted to the rate spike mid 2017 by shifting over to contract rates. Given such a high volume of transference, it might have actually created an overly strong demand on contract rates which would have caused them to increase.

Going into 2019, carriers and 3PLs were using terms such as “balanced” and “equilibrium” to describe the current state of the market. However, that might not be entirely accurate, or, at least not strong enough of a prediction to hold fast in the days to come.

The transportation industry is precariously balanced amidst two slippery slopes and it could go one way or the other.

“With contract and spot rates currently headed in different directions, it’s unclear exactly how this will all play out. IHS Markit chief economist Nariman Behravesh put the odds of a recession in 2019 at around 30 percent but upped that chance to 50-50 for 2020. A recession would mean lower cargo volumes, which would drive down both contract and spot rates, creating a buyer’s market,” according to an article from the JOC. Hence, the muddy middle. The transportation industry is precariously balanced amidst two slippery slopes and it could go one way or the other.

Hitting Bottom

Given the nature of the industry, balance doesn’t tend to last overly long. Eventually, rates will break either one way or the other to someone’s advantage (or disadvantage depending on your perspective.)

“A lot of shippers who started the process in the third or fourth quarter, they saw the rates [moving] in the right direction for them, so they actually held out on releasing the awards until mid-January or even into February,” said Mark Ford, our very own chief operating officer here at BlueGrace Logistics. “Shippers are trying to figure out where that bottom is, throwing out their routing guides, and going to the spot market depending on the cost differential.”

Shippers aren’t the only one that has a card or two up their sleeve.

Given that time is such a commodity, shippers have the power to drive rates in either direction, depending on what value they attribute to their time. However, shippers aren’t the only one that has a card or two up their sleeve. Given a recent downturn in the trucker pool in addition to more stringent regulations that make it harder to operate, carriers might have a little more say about carrier rates than one might expect.

A Drop In the Trucker Pool

While shippers can garner some power to affect rates, that doesn’t mean that carriers aren’t without an answer. A recent report from the Wall Street Journal states that carriers have cut payrolls by 1,200 jobs last month, owing largely to a softening of demand at the tail of a profit-boosting hot streak all through 2018. The drop in demand for new trucks is also a good indicator of a softening in the trucking sector.

“Orders for Class-8 trucks – the heavy trucks that haul consumer goods, equipment, commodities, and supplies across the US to feed the goods-based economy – plunged 52% in April compared to April last year, to 16,400 orders, according to FTR Transportation Intelligence on Friday. It was the lowest April since 2016 when the industry cycled through its last transportation recession. This comes after orders had already plunged 67% year-over-year in March, 58% in February and January, and 43% in December,” reads a recent article from Wolfstreet.

The flip-side of that particular coin is that warehousing and storage company job positions have been on the rise, up 1,700 in March alone, likely due to the continual increase on online consumer shopping. Same can be said for courier and messenger companies that make last mile deliveries.

In general, the transportation market, which has been ramping up over 2017 and 2018 is beginning to slow down, allowing them to control their overall available capacity and their spot or contract rates as a result.

Utilization seems to be the key to determining which way the rates will go. Shippers should be using this time to consider how they can vastly reduce their load times and what sort of effect that would have on the available capacity in the market. Given that there’s no clear indication of which way the market winds will blow next, focusing on optimization and utilization could be the necessary elements to not only help drive rates down, but to keep them down.

For carriers, the means of reaching a perpetual middle of the road would be to find alternative service offerings as well as increasing their focus on last mile deliveries. Doing so allows them to provide more value to their customers and increase their profit margins as a result.

Navigating Through Industry Changes

BlueGrace helps our customers navigate through the constant changes the industry brings. No matter the situation, we are here to simplify your freight needs. If you have any questions about how a 3PL like BlueGrace can assist, contact us at 800.MYSHIPPING or fill out the form below to speak with a representative today!

The State of Your Supply Chain Affects the Level of Your Inventory 

Inventory is the core of any business. The right inventory, at the right time, at the right point in the supply chain is crucial for the success of the business.

For example, the shortage of raw material at the factory will affect production. If warehouses are not replenished on time, distribution will be derailed. If retail outlets run out of stock, sales and customer relationships will be adversely impacted. Each of these processes in the supply chain is dependent on the availability of inventory to carry out their function and meet business objectives. 

While the unavailability of inventory results in a loss of sales, too much inventory leads to an increase in the carrying cost.

While the unavailability of inventory results in a loss of sales, too much inventory leads to an increase in the carrying cost. Carrying cost is the cost incurred to store, handle, and maintain inventory at every stage in the supply chain.

The factory, warehouse, and the retail outlet all incur the cost of storing and managing the inventory until it is required at the next stage in the cycle or sold. A high carrying cost ultimately impacts the price of the product and the profit margins of the company. Hence, neither excess nor a shortage of inventory is an ideal situation. 

This is why it is essential to understand the inventory consumption pattern and arrive at an optimum level that needs to be maintained at each stage in the supply chain. 

Why does the State of the Supply Chain matter?

How you operate your supply chain, how agile it is, the technology you use, the level of digitization, the extent of integration among the different stages of the supply chain. All these things affect the performance of the supply chain. The level of inventory you need to maintain at all times is dependent on the capability of these parameters.

An agile, integrated, and digital supply chain makes it easier to understand how the inventory is being consumed at each stage.

An agile, integrated, and digital supply chain makes it easier to understand how the inventory is being consumed at each stage. It enables inventory managers to calculate the optimum level of inventory more accurately. The optimum level of inventory is where minimum carrying cost is incurred and there is no loss of sale or disruption in the production or delivery process. In other words, the inventory reaches the required point just in time – not any sooner, and not later. 

When organizations use this strategy to design their supply chain they inevitably improve their inventory management.

Winning Logistics Strategies in the Race to the Urban Consumer, a whitepaper by DHL and Euromonitor on last-mile transportation, explained how companies can become more competitive and improve their supply chain by adopting the F.A.D strategy. The F stands for flexible transport, A is automation, and D is data management. When organizations use this strategy to design their supply chain they inevitably improve their inventory management. They can better plan inventory inward and outward movements, improve on speed and reduce administration and handling costs, can improve inventory forecasting and planning, process data real-time, and provide shipment tracking. 

For example, this article cites how Apple understood the importance of supply chain management as early as 1997 and with proper supply chain planning, the company successfully managed to beat the competition. For the Christmas of 1998, the company bested its competition by simply changing its freight mode from sea to air.

“To ensure that the company’s new, translucent blue iMacs would be widely available at Christmas the following year, Jobs paid $50 million to buy up all the available holiday air freight space, says John Martin, a logistics executive who worked with Jobs to arrange the flights.”

This one change made sure that its products were easily available during the holiday shopping season. Apple could not have done this if it had followed a rigid approach to transport planning and management. 

And, if the delighted customer is also a competitor, you know you’re doing something right.   

Another example in the article shows how it delighted customers with quick delivery and shipment tracking. And, if the delighted customer is also a competitor, you know you’re doing something right.   

“When iPod sales took off in 2001, Apple realized it could pack so many of the diminutive music players on planes that it became economical to ship them directly from Chinese factories to consumers’ doors. When an HP staffer bought one and received it a few days later, tracking its progress around the world through Apple’s website, “It was an ‘Oh s—’ moment,” recalls [former HP supply chain chief Mike] Fawkes.”

What are the benefits of a well-managed supply chain?

A supply chain that is managed properly makes it easier to monitor stock at various touch points. It can help improve inventory forecasting and distribution. Some of the benefits that such a supply chain offers for inventory management are: 

Visibility: Visibility allows inventory managers to monitor inventory levels at each stage. With a continuous and real-time view of the inventory, they can place orders or plan distribution of the inventory to reach the intended destination on time. 

A strong transportation management system also enables you to store historical data, provide advanced analytic tools and trend reports, enable users to optimize freight expenses thus helping you create an efficient shipping process.

TMS: While inventory is the life of the business, transportation is the backbone. Without adequate transportation management, it will be challenging to get the inventory to the right place at the right time in the required condition. In addition to planning transportation, a strong transportation management system also enables you to store historical data, provide advanced analytic tools and trend reports, enable users to optimize freight expenses thus helping you create an efficient shipping process.

Integration: We cannot stress this enough. Integration is crucial to get complete control over inventory. For integration to be truly successful, it needs to take into account the needs of different departments and their workflow. When all the parties handling inventory are able to connect to the same system, only then will you be able to get better visibility of your inventory, improve tracking, and planning. 

Analytics: The digital supply chain is a substantial resource of hard data. It provides stakeholders with the opportunity of developing and monitoring KPIs and assist them in improving their supply chains. When the data for all the functions are gathered at a single reliable source it increases accuracy in forecasting and improves execution. The reports and trends can be used for making informed decisions. 

The state of your supply chain and inventory, the levels you need to maintain are directly related. If the supply chain is equipped with the latest technology and is functioning at optimal levels at each stage, it would reflect in the form of optimum inventory levels. If it is not, then you may see piles of inventory accumulated at each stage. There may be situations when you need to keep unusually high or low inventory levels. However, when inventory levels fall below or go above the optimum without a valid reason, take it as a red flag, talk with an expert. Contact us at 800.MY.SHIPPING or fill out the form below to connect with our team today for a FREE analysis of your supply chain. 

Intelligent Automation, the Future of Supply Chain. Is the Logistics Industry Ready?

It is a well-known fact that supply chain is increasingly becoming digital. But is simply adding a digital component to the complex supply chain network enough to make it efficient? Will it provide the edge that companies need to win in the current cut-throat and ever-changing global business environment?

What more is required?

According to a study conducted by IBM and National Retail Federation (NRF), the retail and consumer goods industry is designating intelligent automation, also known as artificial intelligence, as the future of supply chain. For this, IBM and NRF surveyed 1,900 retail and consumer products company executives across 23 countries.

The survey revealed that “intelligent automation capabilities help increase the annual revenue growth by up to 10 percent”. It found that of all the respondents surveyed, around 85 percent from the retail sector and 79 percent from the consumer products sector “plan to use intelligent automation for supply chain planning by 2021”. The study also found that 79 percent of the retail industry respondents “expect to use intelligent automation for customer intelligence by 2021”.

Combining human capabilities with intelligent automation can help reduce errors and encourage the culture of digital operations and customer experience innovations.

According to IBM, integrating supply chain with customer insight is essential for the success of the omnichannel. It further added that combining human capabilities with intelligent automation can help reduce errors and encourage the culture of digital operations and customer experience innovations.

When the retail and consumer goods industries, who have the most complicated supply chains, are envisaging intelligent automation as the future of the supply chain, then can logistics – the core of supply chain be left behind?

Definitely not. In fact, the current logistics landscape which is highly fragmented and complex will benefit immensely by leveraging the power of intelligent automation in its day-to-day functioning.

How Intelligent Automation Will Benefit Logistics

Better planning: Intelligent automation can integrate and streamline transportation planning, route planning, warehouse network, and inventory planning. It will enable data sharing among all functions, highlight errors and outliers in the data, and speed up data analysis thus increasing efficiency, improving accuracy and lowering operating costs.

Increased Transparency: The global nature of the industry, different rules and regulations across countries and multiple stakeholders has made transparency in operations and business transactions mandatory. Intelligent automation can be used to add checks at all data entry points to make sure that only verified and correct information enters the system and is available to all stakeholders on demand. This will improve decision-making, reduce incidents of miscommunication between users (internal and external), and decrease dependency on other departments for data.

Enhanced Visibility: A system empowered with smart technology like GPS and RFID can enable users to track shipments from pick up till the final delivery location. This can improve multimodal transportation planning and also keep the customers updated with a more accurate expected time of delivery. Visibility of shipments and other aspects of the supply chain also supports the planning function, highlights possible issues before they become roadblocks, and allows better control over the process.

Improved Efficiency: Adopting artificial intelligence to empower systems and processes will greatly reduce duplication and monotonous tasks. This, in turn, will improve both human and machine efficiency and reduce the turnaround time for each task to be completed.

Refined Analytics: Logistics is a data-intensive function. A large amount of data is used as the base for making strategies and taking decisions. An intelligent automated reporting system can reduce the time taken to collate, clean, format the data and minimize errors, thus leading to better, informed and quicker decision making.

Further benefits can be derived on a case to case basis as the technology is put in use. However, like with all new things, there’s a need to exercise caution.

These are just some of the benefits of using intelligent automation in logistics. Further benefits can be derived on a case to case basis as the technology is put in use. However, like with all new things, there’s a need to exercise caution. In a statement by the company, Luq Niazi, global managing director of IBM Consumer, explains the care organizations working with intelligent automation need to take. He says “The entire value chain operational infrastructure of B2B and B2C commerce, there has already been an increased adoption and demand for intelligent automation. This also brings forth the need for stronger transparency, ethical practices and business prioritization to evaluate and deploy AI responsibility.”

We at BlueGrace understand the importance of an intelligent tech-enabled ecosystem. Hence we have leveraged intelligent automation to build our transportation management system. The BlueGrace TMS provides its users with high-tech tools, visibility, visual analytics, speed, reliability, and it easily integrates with other systems and technologies. Along with performing all the regular functions, it also empowers you to identify opportunities to reduce costs and optimize your supply chain. To connect with our team to know more about BlueGrace’s TMS and how it can support your business growth, contact us at 800.MYSHIPPING or fill out the form below, and one of our experts will contact you today!

3PL’s Might Bridge the Gap in a Revenge Market 

We’ve all heard that turnabout is fair play but in the trucking market, that mentality could make for a vicious marketplace. Of course, no one likes to pay any more for a service than they have-to, but given the fluctuations that happen within the freight market it’s all part of the game, right?

The problem is, when you focus solely on the bottom line, working relationships, the level of the provided services, and customer care can often be shoved to the wayside.  

A Fairweather Friendship 

While not all shippers will use and abandon their third-party (3PL) logistics providers during an economic shift, enough have done so in the past that left a bad taste in the mouths of 3PLs.

Shippers tend to shy away from their “partners” when times are good, capacity is plenty, truckers are looking for freight. When spot rates climb, however, shippers tend to look for shelter in the contract market which makes for a volatile spot market that makes matters much worse than they need to be. 

If shippers weren’t as fickle during market shifts there would be more market stability. For shippers though, the bottom line is often considered as the most important factor.  

During 2017 we saw both Hurricane Harvey hit the coast as well as the introduction of the Electronic Logging Mandate. As a result, shippers skipped the middleman and dropped their 3PLs, opting to work directly with large asset-based carriers instead.

A year later, spot rates have dropped as much 12 percent, according to data from DAT solutions, which are resembling those seen back in 2017 across several markets. Conversely, contract rates have risen, on average, about 14 percent in 2018 and have increased a further 6 percent this year.  

With spot rates on the rise, shippers once again turn to third-party logistics providers with relatively no hard feelings. With negotiations underway, both parties more or less walk away happy.  

Creating a Vicious Cycle 

The same cannot be said for that type of mentality when it’s applied to the trucking companies, however. Here the negotiations tend to carry the memory of what happened the last time rates shifted in the favor of one side or the other. To be fair, that adversarial behavior does swing both ways. When capacity gets tight, trucking companies raise their rates to support the demand. When demand is low, however, and trucking companies are scrambling for a full load, shippers will push for lower rates, a behavior that seems to be hardwired into the business.  

Here is where 3PLs can bridge that gap and help to even out the “revenge” style of marketing.  

It’s hard for many companies to part with that “grudge” mentality, especially when both sides are angling to take advantage of one another when the market permits it. You’d be hard pressed to find a business that is willing to say “Sure, we’ll reduce our rates in favor of a good compromise,” and instead sounds more like “You raised your prices on us. Now it’s our turn.” Here is where 3PLs can bridge that gap and help to even out the “revenge” style of marketing.  

The True Value of a 3PL 

One of the biggest benefits of a 3PL is that they can help a shipper to access different parts of the very fragmented trucking industry. If a shipper has access to large trucking companies, a 3PL can give them access to smaller carriers, both of which have a place in a shippers supply chain. 

“It’s hard to handle relationships with tens of thousands of carriers, so if you let the broker handle that portion, and you have a relationship with your top 10­-15 asset ­based carriers, everyone can have a piece of the pie and work more collaboratively,” said Mark Ford, Chief Operating Officer at BlueGrace Logistics.  

 The main objective of any business is to conquer new frontiers and markets. And, to do this, it requires a wide logistics network and a robust, flawlessly executed logistics strategy.

As we explained it in more detail in one of our previous articles, 7 BENEFITS OF OUTSOURCING LOGISTICS TO A 3PL — The main objective of any business is to conquer new frontiers and markets. And, to do this, it requires a wide logistics network and a robust, flawlessly executed logistics strategy. Your 3PL partner is expected to and can help you achieve your business goals. They may either have their own network across regions or they may have business collaborations with transporters storage facility providers in different regions or a mix of these two, their own network in some cities and collaboration in another. They are thus better placed to help you expand and grow your business. To do this, all you need to do is work with them in a collaborative manner to din the most optimum solution to reach your customers.”

However, shippers who are too focused on their bottom line have a harder time seeing that value in a 3PL partner and might even remain hard pressed to change their ways. 

It’s less a matter of saving a few cents on the mile, however, and more about creating a sustainable and, more importantly, profitable supply chain.

It’s less a matter of saving a few cents on the mile, however, and more about creating a sustainable and, more importantly, profitable supply chain. For shippers who are willing to keep an open mind and maintain a good working relationship with carriers and 3PLs alike have a great opportunity to build longstanding and mutually beneficial relationships. Utilizing a 3PL as a broker can help to save money when the markets fluctuate, but using them as a supply chain consultant is where they can truly save in the long run.  

There are a number of other benefits that can come from working with and outsourcing your logistics to a 3PL. Not the least of all, a better and stronger bottom line.  If you would like to speak to one of our experts, call us at 800.MYSHIPPING or fill out the form below.

Connected Logistics is the Future of Global Trade

According to reports, the connected logistics market is set to grow at a CAGR of 30-35 percent by the year 2021. In the next 2 to 3 years, analysts predict the connected logistics industry to be worth USD 40 – 50 Billion. It is expected to change the entire landscape of the global supply chain.

Integrated, Digital, IoT, Smart Logistics, Automation, and Big Data are some of the words and phrases that we’ve come to associate with logistics. All these together give us what we call connected logistics. With even one of these aspects missing from the mix, it would be highly difficult to build a logistics network that links all the players in international trade.

Who Are Parts of The Connected Logistics Network?

But today, logistics has ceased to be just a process of storing and transporting goods.

More often than not, when we speak of logistics we tend to associate the word with storage of goods and their movement from location A to location B. But today, logistics has ceased to be just a process of storing and transporting goods. It’s no longer limited to transport and storage facilities.  Apart from the road, rail, air, and sea transport and warehouse operators, the term connected logistics also includes customer service teams, manufacturing, production planners, inventory planners, and the sales team. All these teams have responsibility for processes that are necessary to deliver the final product to the end consumer. IT companies, software and hardware providers enable these teams to stay connected and support them to deliver a superior customer experience through cutting edge technology. This is how evolved logistics has become.

It is now not only a crucial part of the supply chain, but also an essential element of an organization’s product and customer service strategy.

In fact, it will not be remiss to say that logistics is often a key differentiator – a USP for certain consumer products. In addition to the businesses and technology providers, connected logistics also includes lawmakers, cybersecurity monitoring agencies, and government authorities – especially transport, IT, and infrastructure departments across the globe. This group is responsible for creating a framework that can take into account the variations in rules and regulations across the globe and ensure that trade across borders is carried out efficiently.

What are the features of a Connected Logistics Network?

Real-time data: With the use of new and advanced technology and advanced analytics, the connected logistics network provides its users real-time data and market insights. This is making it simpler for organizations to make informed business decisions.

Now shippers can track their shipments from the time it leaves their warehouse or factory till the time it reaches the final place of delivery right on the platform where they booked the transport. 

Increased shipment visibility: Gone are the days when one had to follow up with customer service executives at transport companies to know the location of their shipments. Digitalization, RFID tags, and GPS trackers have immensely improved shipment visibility. Now shippers can track their shipments from the time it leaves their warehouse or factory till the time it reaches the final place of delivery right on the platform where they booked the transport. This is also facilitating better transport planning especially in the case of intermodal transportation.

Inventory management: Imagine a large warehouse with stacks of boxes of different SKUs. Earlier, warehouses would have to maintain physical records of the goods and manually manage FIFO and order picking. Even after the initial ERP systems were introduced, there were still some challenges in the order picking process. Now, with the new technology like the RFID tags and ERP systems warehousing operations have become much easier, less time consuming and more efficient.

JIT inventory: Both manufacturing and retail organizations are working on leveraging the Just in time inventory management concept to help reduce inventory holding and storing cost. This process can be better managed with the connected logistics network as an advanced system can be equipped to provide triggers for when is the optimum time to place an order for inventory – FG or raw material – so that it reaches the factory or store at just the right time.

Global compliance management: Global trade comes with different rules, regulations, and legal requirements. It is difficult to keep track of changes in the rules and adhere to all the requirements of each country one does business with. New systems that are equipped to store legal checkpoints and raise a red flag when these requirements are not being met are making it comparatively painless for companies to meet country-wise compliance requirements.

This not only reduces the organizations’ cost on systems and software, but it also ensures seamless flow of information from one process to another in a standard format which will, in turn, limit the loss of data.

Integrated systems: System integration is one of the major facets of connected logistics. Now, organizations do not need to maintain separate systems for their different departments. Transport management system, warehouse management system, sales and billing, production planning, and finance-management can all be integrated into one platform with different modules and controlled access. This not only reduces the organizations’ cost on systems and software, but it also ensures seamless flow of information from one process to another in a standard format which will, in turn, limit the loss of data.

Document management: System integration has also helped improve documentation management and storage. Now, documents pertaining to a shipment or sale can be stored in digital format on the system. There is limited need to store and maintain physical copies. Authorized personnel can easily access these documents whenever they need to. Potential benefits are:
● Easy access to delivery signatures, original BOLs, and W&I docs
● Fast PODs to verify deliveries and invoices
● Clear view of delivery receipts and customer notes
● Clean/organized shipping documentation

While the initial investment in such technology and equipment might seem huge, the returns are equally attractive.

While the initial investment in such technology and equipment might seem huge, the returns are equally attractive. Since these systems and technology have become the demand of the day, it has become imperative for organizations willing to get a share in global trade to upgrade their systems and stay connected to the global business via their logistics network. This is especially critical for 3PL and 4PL logistics service providers.

Get Connected

At BlueGrace, we offer a proprietary TMS that is designed to put the power of easy supply chain management and optimization back in your hands. BlueShip® 4.0 offers cutting-edge tools for strong reliability and quick performance. Many of our customers prefer to integrate their systems or ERPs such as SAP or NetSuite directly with our BlueShip platform. Our IT integrations team will work closely with your staff to complete the connection between systems, keeping you connected every step of the way. To request a BlueShip demo, call us at 800.MYSHIPPING or fill out the form below to speak to one of our experts. 

How The New Tariffs Could Affect the Supply Chain

With three rounds of attempted trade negotiations come and gone, a trade war between the United States and China, representing the two largest economies in the world has begun. China’s Ministry of Commerce has made a declaration that they will fight back against the Trump administrations imposed retaliatory tariffs on imports to China. China is now joining the ranks of other major players in the global economy, Canada, Mexico, and the EU, who are fighting back against these tariffs.

The $200 billion in import products that are being considered span a wide array of household and consumer goods

The $200 billion in import products that are being considered span a wide array of household and consumer goods including, but not limited to, bicycles, sound systems, refrigerators, pocketbooks, vacuum cleaners, cosmetics, tools, and seafood. With a 10 percent duty markup, the tariff would highlight just how dependent the U.S. consumer economy has become on imports.

“In recent days, Vice Premier Hu Chunhua, who oversees foreign investment, has instructed local governments to gauge how the biggest round of U.S. tariffs to date—25% duties on $34 billion of Chinese goods imposed on Friday—is affecting American businesses operating in China, the officials said. In particular, authorities are looking for signs of U.S. companies potentially moving facilities out of China. That would be a blow to Beijing’s effort to attract foreign capital and keep people employed at a time of gathering economic gloom,” according to the Wall Street Journal.

“The idea behind the imposition of tariffs is to increase the cost of imported goods to the point where American manufacturers can compete more effectively, and punish other countries for unfair trade practices. But the reality is that the global economy is so intertwined that most U.S. manufacturers rely heavily on imported parts to support their own U.S. production,” according to Supply Chain Management Review.

Seeing as how many U.S. based manufacturers rely on parts that come from outside the country, we could see a stymie point in production that could create a heavy impact on manufacturers and shippers in the near future.

So how will this growing trade war affect global supply chains? Seeing as how many U.S. based manufacturers rely on parts that come from outside the country, we could see a stymie point in production that could create a heavy impact on manufacturers and shippers in the near future.

The Backlash from the Automotive Sector 

While the new jobs are a boon to the U.S. economy, it is not without consequence. “BMW said Monday that it would move production for some of its SUVs out of the U.S. as a result of new tariffs placed on the vehicles,”  according to The Post and Courier in South Carolina. “The German-based automobile manufacturer signed an agreement with its Chinese partner, Brilliance Automotive Group Holdings, to increase the number of vehicles produced in the country, according to the Charleston newspaper, with the total reaching 520,000 by 2019.” 

 Volvo might also be pulling jobs out of the United States as a means of offsetting these tariffs.  A necessary step as many of the vehicles the company produces in the U.S. and exports to other countries such as Europe and China. Volvo has recently put its plans to expand production in the United States, which would increase staffing from 1,200 to 4,000 on hold.  

A Slow Build for the U.S. Economy

There will undoubtedly be a good deal of fluctuation as U.S. and Chinese companies alike learn how to negotiate these new tariffs. Partner companies between the two countries are already negotiating terms for splitting the difference to help offset some of the lower point tariffs such as the 10 percent increase on Chinese seafood. However, the more substantial duties, such as the 25 percent markup on exported automobiles have some manufacturers looking to pull away.  

“Over time, tariffs reshape the economy. Newly protected industries draw workers and investment away from exporting industries whose inputs are now more expensive. That effect is compounded when exports are also targeted by foreign retaliatory tariffs. Heavily protected industries, like U.S. sugar farmers, don’t export much because prices abroad are much lower than at home. Protectionist countries like India and Brazil have lower imports and lower exports relative to GDP than open economies like South Korea and Chile,” Douglas A. Irwin, an economist, and trade historian at Dartmouth College notes. 

Exporters are going to have a hard time finding ways to mitigate the additional costs of the tariffs while still making a profit.  

Ultimately, the U.S. economy could see some potential benefit from these changes as it might level the playing field for U.S. manufacturers. In the end, however, those that will suffer the most boil down to the consumers buying the products affected by the tariffs, and the exporters. Exporters are going to have a hard time finding ways to mitigate the additional costs of the tariffs while still making a profit.  

How the Supply Chain Will React 

As the cost of raw materials goes up, many companies will have to reevaluate their opinions and suppliers to determine what the best course of action is.

With any major jostling of exports and imports, there will be a rather substantial effect on the supply chain. As the cost of raw materials goes up, many companies will have to reevaluate their opinions and suppliers to determine what the best course of action is.   As tariffs were introduced on imported washing machines Marc Bitzer, the chief executive of Whirlpool Corp., celebrated his win over South Korean competitors LG Electronics and Samsung Electronics Co. “This is, without any doubt, a positive catalyst for Whirlpool,” he said on an investor conference call. 

Nearly six months later, the company’s share price is down 15%. One factor is a separate set of tariffs on steel and aluminum, imposed by the U.S. in March and later expanded, that helped drive up Whirlpool’s raw-materials costs. In the best case scenario, existing suppliers can negotiate with clients to help offset costs. Worst case means disruption and possible standstill for production should components and materials become cost prohibitive for manufacturers. Part of what has helped control the price of consumer goods is the low cost of Chinese labor. Without that, we could see a considerable rise in inflation on U.S. consumer goods at least until the market is able to rebalance itself.   

What Supply Chain Managers Need to Keep in Mind  

Purchasing and Sourcing managers will have their work cut out for them with the new tariffs in place, leaving them to scramble to find new sources where the tariffs don’t apply in order to help keep costs low. However, finding a new supplier is only the first step. There will still be the need for qualifying and completing a risk assessment before a new supplier can be brought on board. Additionally, the supplier must be vetted for product quality, capacity, delivery schedules, and other vital categories to make sure that they will be a reliable partner. Unfortunately, this can be a time-consuming process, but many companies already began sourcing new suppliers when the new tariffs were first announced.

Logistics channels will need to evaluate and contract with foreign trucking companies, freight forwarders, and identify export requirements from other countries before the supply chain can flow smoothly.

Negotiating transportation will be another matter altogether. Logistics channels will need to evaluate and contract with foreign trucking companies, freight forwarders, and identify export requirements from other countries before the supply chain can flow smoothly. This could mean completely altering ocean freight sailings and ports of call, as well as new air freight routes which could cause some delays in the production schedule during the early stages of these changes.  

Supply bases will also be profoundly affected as they take a considerable period of time, approximately 12-18 months, to be reestablished, especially when it involves complex parts such as circuitry. Unfortunately, some of these parts will be unable to be sourced from other countries which means that the base price of components will increase. With manufacturing costs on the rise, many companies will have to make the decision as to how far they can push their customers on the price point before they have to swallow the increase and take a hit to the bottom line.  

Many manufacturers will have to become more flexible in their approach to the supply chain to help offset eventual overages in inventory which will often occur as an attempt to prevent shortages.

Sales and Operations planning will need to make some considerable adjustments in the way they view their supply chain. Supplier schedules will inevitably change which will also change logistics needs. Inventory levels will also have to change as a result which could incur more shipping costs as production runs short on necessary components. This means that many manufacturers will have to become more flexible in their approach to the supply chain to help offset eventual overages in inventory which will often occur as an attempt to prevent shortages.  Of course, there’s also the consideration of what forms the “retaliation” will take as any number of them could result in higher costs and longer shipping times. China has already proposed closer inspections on U.S. imports as well as long delays through customs for more rigorous checks, which can significantly reduce the speed and efficiency of the supply chain.

Your focus should be on developing alternative and flexible supply chains that can be adjusted with speed. It’s time for all hands on deck to fight for your company’s survival.

“Supply chain professionals should take immediate action, if you haven’t already, to secure new suppliers and to do strategic planning using multiple “what-if” supply and cost scenarios.  Your focus should be on developing alternative and flexible supply chains that can be adjusted with speed. It’s time for all hands on deck to fight for your company’s survival,” Supply Chain management suggests.  

In short, this new trade war is going to force changes on many companies, and the supply chain will suffer. Those companies who have the agility to respond quickly will be the best off, but as relations between these global powers remain in limbo, the final result is yet to be determined.  

All Hands on Deck

BlueGrace helps our customers navigate through the constant changes the industry brings. No matter the situation, we are here to simplify your freight needs. If you have any questions about how a 3PL like BlueGrace can assist, contact us at 800.MYSHIPPING or fill out the form below to speak with a representative today!