 It was Albert Einstein who once said "Imagination is more important
than knowledge." How far would Einstein need to stretch his
imagination to see the good in our current fuel situation? Even though
the high cost of oil is having a significantly negative effect on the
economy and is putting additional pressure on supply chain
professionals trying to make their budgets, it does create some
positive effects.
It forces supply chain professionals, as well as companies, to review
inefficiencies. Whether we like to admit it or not, not a single supply
chain in the market is absolutely efficient. It is not always possible to
pass on the cost to the final customer even with the high cost of fuel
and the pressure from our companies and service providers to
achieve revenue goals.
It forces companies to review their overall sourcing strategies which are not always guided by efficiency
but rather by a reduction in the cost of labor. If the weak dollar continues to lose value against other
currencies, as it has in the last year, then there is no realistic way to maintain the current labor cost
since it takes more dollars to buy the same amount of labor.
Insourcing may be worth examining closer since labor cost savings may be more significant than they
have historically been. Bringing back (to the United States) some of the higher skill jobs is economically
advantageous after having calculated some of the negative effects of outsourcing on customer service
levels, supply chain risks, and longer supply chains.
Higher fuel costs poses the problem of calculating the right level of inventory when the carrying cost is
not as high or volatile as fuel cost in increasingly less flexible supply chains. The loss of capacity by
airlines in some areas adds to the rigidity of supply chains, resulting in seemingly out-of-control
budgets.
When was the last time your company compared the current carrying cost versus the cost of an
additional week of inventory? What "ideal" level of inventory will allow your company to downgrade the
mode of transportation, utilize forward warehouse(s), optimize transportation modality, and reduce the
overall cost of the supply chain? The number of changes your company implements to reduce cost, to
reduce carbon dioxide, and to achieve a more efficient supply chain will force the rest of the players to
plan better.
An efficient supply chain is not only cost efficient but green as well.
Higher fuel costs are compounded by inefficient packaging. Not every package will be on the shelves
of a retail store. If your product will not be on display there is no need to inundate our landfills with
garbage. Reduce the size of your packaging by a few units and you may save millions of dollars. If your
total cost of actual freight is higher than the dimensional weight by 14% your packaging is not optimal
from a cost point of view. Most companies run above 30% dimensional weight on their shipments
meaning that there is a significant opportunity to save on cost and a few trees as well.
It requires us to revisit the concept of efficiency. The fact that FedEx and other carriers are efficient
does not imply that your company is efficient by association. If all the cost reductions are centered on
personnel then your strategy to achieve an optimal supply chain is reduced to giving the whole logistics
business to a single carrier, at which point your company may not be cost-efficient.
It forces companies to rethink express service. If you knew that you can deliver to 90% of your
customers via ground in three days anywhere in the USA, why would you ship on express service level
on Thursdays and Fridays? You will be paying express when most of the cargo will move on the
ground. Knowing what can be executed by a different mode of transportation may save you millions of
dollars.
As supply chain professionals we are expected to deliver results which are difficult to attain under the
current market conditions. However, these are the same conditions that will open the doors for you and
your organizations to implement new levels of efficiencies and creativities which can only be achieved
during times of instability. During turbulent times companies must be willing to try different strategies to
maintain a competitive advantage. After all, strategy is about doing things differently than your
competition.
I would like to leave you with a couple of quotes to ponder:
"Leadership is action, not position." -- Donald H. McGannon
"Leadership is much more an art, a belief, a condition of the heart, than a set of things to do.
The visible signs of artful leadership are expressed, ultimately, in its practice."-- Max DePree
Sergio Retamal
President, GSCLG
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