Despite the improvements in US economic conditions experienced in 2014, this year has been beset with a series of unforeseen events that have highlighted the complexity of supply chain planning and forecasting.
The year began with inclement weather shutting down distribution hubs and transportation lanes. This shut down caused inventory to back up across transportation networks impeding inventory replenishment after the holidays.
Shortly thereafter, FedEx announced plans to apply dimensional weight calculations to Ground shipments less than 5,184 cubic inches. As expected, UPS announced a similar policy change for 2015, however the USPS and most Regional Carriers are not implementing new DIM measurements. The new rating system goes into effect in January 2015 and forecasts estimate this price increase may impact over 30% of Ground packages that previously avoided dimensional weight pricing. The majority of these have actual weights of less than five pounds. The cost implications for high volume shippers are huge, particularly those within e-commerce channels. Could this spell the end of “free shipping”? In addition to the changes in DIM pricing, the two major parcel carriers are implementing standard
tariff rate increases of nearly five percent.
With the ILWU & PMA West Coast Port Contract negotiations continuing into mid-November and no agreement in sight, the uncertainty of moving goods inbound to US ports intensifies. Ports across the US as well as across the northern and southern borders are experiencing major delays. These disruptions within the supply chains have forced shippers to turn to more expensive solutions such as air freight.
Although the railroads announced they are prepared for first quarter 2015, memories of first quarter 2014 still linger. Despite their announcements, many railroads are still struggling with service delays and increased tonnage. This will likely continue as demand for intermodal services grows thanks to tightening trucking capacity due to driver shortages and regulatory requirements.
And finally, least not we forget the Chinese New Year, a period in which manufacturing activity shuts down for almost a month. In 2015, the holiday takes place on February 19th, which means the need for inventory replenishment will be required before the holiday. There are many concerns surrounding the readiness and capability of US supply chain networks to handle this demand.
With so much uncertainty going into the New Year, companies need to evaluate their distribution models, review their transportation agreements, and reinforce a culture of strategic planning and forecasting if they want to efficiently move goods through the supply chain, while controlling costs.
Evaluate Your Distribution Model
By undergoing a thorough evaluation of your distribution model companies can find ways to cut costs while increasing efficiencies. Your evaluation should include an analysis of shipping lanes, distribution centers, modes of transportation, service levels and carriers being used to move, store, and replenish inventory. Distribution channels are rapidly changing and if you are doing things because “this is the way we have always done them” then you are operating in a precarious environment.
Review Your Transportation Agreements
Avoid the standard practice of price benchmarking when reviewing your transportation agreements by using a cost based approach. Understanding your unique shipping profile and cost drivers allows you to build a strategy that enables you to negotiate better terms with your carriers. Cost modeling focuses on measuring specific shipment cost drivers, rather than solely evaluating what other companies are paying for shipping. It is a best practice that will enable you to build a strong business case and a strategy for negotiating best in class agreements with your carriers.
Implement a Culture of Strategic Planning and Forecasting.
To engage in strategic planning and forecasting you need to build a single view of spend data that allows your organization to fully evaluate your transportation environment. This will increase visibility and enable you to forecast with greater accuracy. By carefully evaluating your transportation data both internally and externally you can create transparency and establish a strategic plan that cuts unnecessary costs. Following these guidelines enables you to build a forecasting model that’s dynamic and can be evaluated on a frequent basis.
As is the case with nearly every year, the 2014 shipping landscape was filled with challenges, many unforeseen. Recognizing how these challenges impacted your business will help you avoid similar pitfalls in 2015. Purposeful evaluation, review, and implementation of your strategic plans can posture you for great success and cost savings in 2015 and beyond – and help create a competitive advantage.
The year began with inclement weather shutting down distribution hubs and transportation lanes. This shut down caused inventory to back up across transportation networks impeding inventory replenishment after the holidays.
Shortly thereafter, FedEx announced plans to apply dimensional weight calculations to Ground shipments less than 5,184 cubic inches. As expected, UPS announced a similar policy change for 2015, however the USPS and most Regional Carriers are not implementing new DIM measurements. The new rating system goes into effect in January 2015 and forecasts estimate this price increase may impact over 30% of Ground packages that previously avoided dimensional weight pricing. The majority of these have actual weights of less than five pounds. The cost implications for high volume shippers are huge, particularly those within e-commerce channels. Could this spell the end of “free shipping”? In addition to the changes in DIM pricing, the two major parcel carriers are implementing standard
tariff rate increases of nearly five percent.
With the ILWU & PMA West Coast Port Contract negotiations continuing into mid-November and no agreement in sight, the uncertainty of moving goods inbound to US ports intensifies. Ports across the US as well as across the northern and southern borders are experiencing major delays. These disruptions within the supply chains have forced shippers to turn to more expensive solutions such as air freight.
Although the railroads announced they are prepared for first quarter 2015, memories of first quarter 2014 still linger. Despite their announcements, many railroads are still struggling with service delays and increased tonnage. This will likely continue as demand for intermodal services grows thanks to tightening trucking capacity due to driver shortages and regulatory requirements.
And finally, least not we forget the Chinese New Year, a period in which manufacturing activity shuts down for almost a month. In 2015, the holiday takes place on February 19th, which means the need for inventory replenishment will be required before the holiday. There are many concerns surrounding the readiness and capability of US supply chain networks to handle this demand.
With so much uncertainty going into the New Year, companies need to evaluate their distribution models, review their transportation agreements, and reinforce a culture of strategic planning and forecasting if they want to efficiently move goods through the supply chain, while controlling costs.
Evaluate Your Distribution Model
By undergoing a thorough evaluation of your distribution model companies can find ways to cut costs while increasing efficiencies. Your evaluation should include an analysis of shipping lanes, distribution centers, modes of transportation, service levels and carriers being used to move, store, and replenish inventory. Distribution channels are rapidly changing and if you are doing things because “this is the way we have always done them” then you are operating in a precarious environment.
Review Your Transportation Agreements
Avoid the standard practice of price benchmarking when reviewing your transportation agreements by using a cost based approach. Understanding your unique shipping profile and cost drivers allows you to build a strategy that enables you to negotiate better terms with your carriers. Cost modeling focuses on measuring specific shipment cost drivers, rather than solely evaluating what other companies are paying for shipping. It is a best practice that will enable you to build a strong business case and a strategy for negotiating best in class agreements with your carriers.
Implement a Culture of Strategic Planning and Forecasting.
To engage in strategic planning and forecasting you need to build a single view of spend data that allows your organization to fully evaluate your transportation environment. This will increase visibility and enable you to forecast with greater accuracy. By carefully evaluating your transportation data both internally and externally you can create transparency and establish a strategic plan that cuts unnecessary costs. Following these guidelines enables you to build a forecasting model that’s dynamic and can be evaluated on a frequent basis.
As is the case with nearly every year, the 2014 shipping landscape was filled with challenges, many unforeseen. Recognizing how these challenges impacted your business will help you avoid similar pitfalls in 2015. Purposeful evaluation, review, and implementation of your strategic plans can posture you for great success and cost savings in 2015 and beyond – and help create a competitive advantage.
