IMPACT OF CONTAINER LINES ON SUPPLY CHAINS
In the November issue of Supply Chain Management Review, I share my views on container lines and supply chain management (see "GLOBAL SUPPLY CHAIN PERFORMANCE EROSION" (http://www.scmr.com/article/global_supply_chain_performance_erosion), available to subscribers). It is one of my longest articles. I invite you to read the complete article to get a full picture of my ideas on what has happened and what strategic actions MNCs, retailers, and others can take. Here is an overview of key points from the article.
- Container shipping has changed over the years. Size of global, key trade lanes, top carriers, and major ports show the evolution. Container line practices have changed, including, few carriers because of mergers and bankruptcies; alliances, slot exchanges, and vessel sharing among carriers have been created and changed; shipping routes have been added and revised; sailing schedules are regularly made and reworked; and slow steaming is an ongoing program.
- The size of ships has grown. Early container vessels carried 1,000 TEUs. Now they are up to 18,000 TEUs and are larger than an aircraft carrier. These sizes raise questions of how the ships total capacity versus total demand, and how the carriers will deal with vessel turnaround times and asset utilization. Ports may have to invest to handle these ships. Some may not. All this may mean fewer port options and the impact on supply chains and supply chain networks.
- These changes with practices and vessel size are about more than transport. They are about supply chains. The ongoing adjustments impact performance reliability. Weekly production and logistics plans need service dependability. The carrier actions, and their implicit performance erosion of supply chains, produce a degree of uncertainty which impact supply chain processes.
- Supply chains have two sets of inventories -- for sales and for safety stock. Uncertainty also creates additional inventories as a buffer to compensate for the lack of reliability. This means less working capital available for other corporate uses. Given corporate issues with product portfolios, short shelf life, customer portfolios, omnichannel sales and customer service, and positioning inventory, increased inventories affect inventory yield and, in turn, margins.
- Companies need to take corrective actions to mitigate the service inconsistencies. Carriers, like much other business, will operate in ways that are best for them. There are tactical adjustments that companies can do to mitigate the service vagaries, but these are not enough. Interconnected, strategic actions are really needed. Three measures are:
- Perform holistic performance analysis. Optimize the entire supply chain, not just certain nodes. Core components to this assessment model are—process, organization, technology, product flows, information flows, financial flows, cost, key performance measures, and capacity / utilization / scalability of the supply chain.
- Implement lean supply chain best practices. This takes the holistic action to a different level and recognizes demand-based pull and the wastes of time and inventory. Lean across the global supply chain can be a challenge. There are different groups in the company buying products, selling the products, and with a role in the movement of information and product. In addition, there are numerous groups outside the company involved with product, information, and financial flows.
- Segment the supply chain. Do not apply a standardized supply chain service across all sectors. Target the resources and capabilities of the supply chain to best support company strategy and to maximize return. Segmentation is focused, multi-tier supply chain management. It identifies key sectors to prioritize, and if needed, build, supply chain resources to serve sectored customers, cross channels, or markets. Match supply chain services with each segments requirements; it improves profits and create realistic competitive advantage.
Full article at http://www.scmr.com/article/global_supply_chain_performance_erosion