The Ever Changing Automotive Supply Chain

Supply Chain

The global automotive industry is undergoing big changes. Emerging markets, customer preferences and technology are all playing a huge role in this transformation and its effects will result in redesigning of supply chains. As the automobile industry transforms, competition will increase and from unlikely businesses such as Google and Apple along with niche automobile manufacturers such as Tesla and startup company, Faraday Future. It is likely as competition increases, consolidation and joint ventures will follow as the Detroit 3 – GM, Ford and Fiat Chrysler, seek to maintain their leading roles within the industry.

 

Emerging Markets

According to the International Organization of Motor Vehicle Manufacturers (OICA), worldwide motor vehicle production increased 1.1% from 2014 to 2015 with the biggest year-over-year percentage gains reported in Africa, up 16.1%. In fact, J.D. Power & Associates note that automobile manufacturers typically build facilities in or near markets where they sell vehicles and as a means to increase efficiency, lower costs and customize offerings to local preferences. As such, J.D. Power observed that a shift occurred around 2010 in which emerging markets led by China, India, Brazil and East Europe accounted for slightly more than half of the vehicles sold worldwide. This trend has continued as middle class levels expand allowing for more consumer consumption and demand.

 

Customer Preferences

Brand loyalty has little meaning for many of today’s customers. Instead, social responsibility and a ‘green environment’ are increasing in importance as well as safety and lifestyle changes. According to a recent Deloitte survey, the Gen Y demographic group are more willing not to own an automobile if amenities and services are within walking distance. In addition, if this group does purchase automobiles, a majority indicated a preference for those automobiles with alternative engines – and yes; Gen Y’s are willing to pay for alternative engines.

 

Technology

Perhaps one of the fastest changes occurring within the automotive industry is the implementation of technology. According to AlixPartners, over the past decade, there has been a shift from traditional, hardware-centric in-vehicle infotainment and communication systems to software based connectivity solutions. The Connected Car Forum expects that by 2025 every new car will be connected in multiple ways including embedded, tethered or smartphone integration.

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Your Air Freight Questions Answered – Part 1

Your Air Freight Questions Answered

Loading air freightHere at the Exporting Excellence™ blog we invest a great deal of time in answering questions about international air freight for our clients.  What we find most interesting is the fact that these questions don’t just come from small or mid-sized customers, but even from Fortune 500 sized shippers who have large air freight volumes.  One of the most important ways we at Crescent Air Freight add value to the business of our clients is by eliminating the complexities that come with international logistics.  To that extent, we’ve put together a series of FAQ’s that we have encountered from shippers of all sizes and from across various industries.  Here’s a selection of some of the more frequent questions and our answers:

Q:             Why does air freight cost so much? 

A:              The answer lies in simple economics: there is a scarcity of space on an aircraft.  Long range, wide body passenger aircraft typically carry 15 – 20 tons of cargo on a flight and that’s only if passenger baggage and fuel capacity allow for it.  On top of that, since cargo on a passenger flight goes in the aircraft belly, the maximum allowable height of the freight is only 64 inches.

With freighter aircraft, the maximum payloads are about 100 – 110 tons per flight, and maximum heights can go up to 108 inches (sometimes more depending upon the contour of the aircraft and the cargo).  Contrast this with a 20’ ocean shipping container which can accommodate a payload of more than 20 tons, and you begin to see why space is always at a premium on an aircraft.

Q:             Are there any ways to reduce or offset the costs of air freight, without settling for an ocean freight transit time?

A:              We get this question very often, and there are several ways to answer it.

To begin with, the economics we mentioned above can’t be totally ignored.  Space on an aircraft always comes at a premium.  Typically direct flights and non-stop flights justify a higher price because of the speed of transit and reduced potential for delays.  Hence, one cost saving solution shippers can opt for is an indirect service, which typically involves a slightly longer transit for a slightly lower price.  As an example, cargo flying from New York to Sydney, Australia on a direct flight with QANTAS moves at nearly double the cost per kilogram of the same shipment traveling on Qatar Airways via Doha, using 2 flights.  This may seem odd to the consumer: 1 flight ought to be cheaper to operate and load versus 2 flights and a longer route.  However, the carrier offering direct service justifies their price premium by getting cargo directly to destination in a shorter time frame.  The indirect carrier justifies their discount by pulling in cargo from all their destinations into a single freight hub and profiting from the potentially greater volume (in theory, anyways).

What new shippers typically fail to understand is that the cost cannot be continuously decreased by increasing the transit time.  So this creates a common follow up question such as “Can you give us a really slow service that takes 7-10 days maybe for a really low price?”.  This is something that really doesn’t exist, and if a huge price discount is to be found it’s probably because the airline has no traffic going to a particular destination and hence markets the space more aggressively, rather than pricing the service based on transit times.

There are, however, some scenarios where we are able to get creative with the mode of transport by adopting a multi-modal solution.  For example, cargo being routed to landlocked countries in Central Africa, Central Asia or Central Europe can be sailed to major nearby cargo hubs such as Abidjan, Bremerhaven, Dubai or Sharjah and then flown or trucked a short distance to countries of final destination such as Afghanistan, Mali, Switzerland, etc.  This sharply reduces the total landed cost of product at destination and also improves transit time over a pure ocean service.  We offer similar solutions for our customers in the garment and textile industry by sailing cargo from Bangladesh to Dubai and then flying the goods to the United States, thus taking advantage of low inbound air freight rates and ample capacity that is typically not available in the country of origin of the goods.  Sometimes the opposite works too as cargo can be flown from a landlocked country such as Nepal, into a major nearby port city and then transferred to ocean containers for final transit to Europe or the United States.

The ultimate way to avoid air freight costs, of course, is to not ship via air at all, and for customers who do not ship enough material to fill an ocean container on their own, the option of LCL ocean freight exists.  Of course this is a longer transit time service than even standard containerized ocean freight, but the cost is often justifiable.

All of these scenarios, however, do require planning and that’s really the most important thing for a logistics manager to realize.  Planning with your service provider and sharing information on required transit times, budget constraints, deadlines at origin or destination, etc. will allow your freight forwarder to come up with the right solution for your business and even for your individual shipment.  “Just get it there” doesn’t work and is akin to randomly pulling a suit off a department store rack and telling the tailor to “just make it fit”.

Q:             Do we really need to pay for a premium or time defined/guaranteed service?  Can’t you just use your influence with the airlines to make our cargo move faster? 

A:              Definitely, maybe…

This question comes up a lot and many times the part about using “your influence with the airlines…” can come across as more of a taunt than a request!  The reality is that just like in many other businesses, with air freight (and logistics in general), you get what you pay for.  If your cargo needs to be kept in a cooler between flights and upon arrival at destination, then a freight forwarder will usually get you a service that may be slightly more expensive than general cargo, but far less than the cost of leasing a refrigerated air freight container.  The airline would want you to lease the refrigerated container and maybe even pay them round trip airfare for it, but your forwarder adds tremendous value here by providing you a “product appropriate”, cost effective service option based on their knowledge of your product, temperature requirements and by proposing reasonable alternatives.  However, once again the key here is communication.  If a shipper fails to disclose their true temperature or handling requirements for the sake of saving money and the goods suffer damage as a result, then there’s nothing a forwarder can do, especially after the shipment has been executed.

Temperature controlled goods present a truly special case as do high value goods and a few other select product categories.  Other times shippers have general cargo to ship via air on a very tight deadline.  In such circumstances time definite or guaranteed services are worthwhile.  The cost may be triple that of regular air freight, but if a customer is facing a production shut down, or an inventory problem that must be solved in a short time frame then it’s obviously worthwhile.

Over the past 39 years we have accumulated a lot of questions about the air freight and logistics process in general. In fact we just focused on price issues in this post and next month we’ll focus on air freight service and operational questions that arise on a daily basis.  In order to make the series work for you, we suggest you leave your questions in the comments below, or if you prefer, try sending us your questions by email at cargo@crescent1.com or on Twitter at @CrescentAF.

 

IoT In the Logistics Space

IoT In the Logistics Space.

IoTEvery once in a while the logistics business gets to be “cool”. We’re not using a tired old pun here about the “cool chain” or perishable transportation solutions. Instead, we’re excited at the moment by the phenomenon known as the “Internet of Things” or IoT. As we’ve shown in some previous posts here at the Exporting Excellence™ blog we really like data and how it can be applied to (or derived from) international business, and IoT is all about the data.  From tracking passenger baggage to initiating preventative maintenance orders on aircraft, IoT is having a profound impact on the field of logistics and there are several ways that your business can benefit from this trend.

As we had mentioned in our post on big data, routine business processes create a great deal of data. This is primarily a byproduct of the increase in digital and online business processes – quite simply, every click we make in a browser, app or other program generates a data point that gets recorded somewhere, somehow. Big Data essentially focuses on how to compile, sort and interpret such data. IoT on the other hand is more concerned with how to “make” more data by bringing devices and gadgets that were previously inanimate and silent to “life” using network and digital communications. The result of compiling all this extra data is to enable businesses to use their resources more efficiently which in turn can increase sales, profitability, or other key business performance attributes.

We were really impressed with this recent report published by Deloitte University (part of accounting and consulting giant Deloitte Touche Homatsu) that offers some great insights into how IoT has been successfully adopted into supply chain and logistics processes as well as the many opportunities that it offers.

So what is the opportunity that IoT brings to the freight business? At the moment, most of the attention is focused on tracking cargo. The ability for an importer to determine how far from port their material sits, for example, seems to hold value for major wholesalers and retailers. Some specialized applications such as temperature monitoring for perishables and transit time tracking for pharmaceuticals seem to be gaining traction as well. A recent example of IoT technology hard at work that we came across was in the logistics of beer kegs. Already a high value segment of the logistics business, IoT is now enabling beer distributors to know how much beer actually remains in a keg. This information actually allows a bar to waste less beer (and more importantly increase yield per keg) and at the same time allows distributors to plan deliveries more efficiently. The “pre-IoT” way of measuring the amount of beer in a keg was to physically tilt it and see how heavy or light the keg was. New kegs, equipped with sensors and IoT technology can actually report the accurate quantity thereby enabling a more efficient supply and utilization process. It’s a product called iKeg from SteadyServe and you can learn more about the concept from this Wall Street Journal blog post or the company’s website. 

All of us in the logistics industry need to embrace our moment of “cool.” There is no need to expound on the many, many ways the internet has changed the world around us … we feel it everywhere. The logistics industry has lagged a bit in technological advancement because we are still a hands on, deliverable operation. It’s easy to leave the “cool” internet technology to those businesses that don’t have so many moving, physical parts. With IoT we are getting a chance to pull the technology available everywhere else, into our business. If IoT can make us operate smoother, track shipments easier, regulate temps better on perishable cargo….. what isn’t “cool” about that? And really, is anything “cooler” than increased profitability and efficiency derived from your supply chain?

 

 

The Pain of Demurrage Costs

The Pain of Demurrage Costs.

At Crescent Air Freight we spend a lot of time focusing on the hidden costs of logistics. We get clients and prospects to see what bad logistics can cost them far beyond the freight invoice by examining the impact on cash flow, profitability and brand equity. The concept is simple: poor logistics decisions (usually based on price alone) can result in delayed deliveries which can cause delayed payments, lost sales, and lack of product availability in overseas markets. However, there’s also a very real cash cost that comes with improper logistics planning and it’s known as demurrage.

demurrage costs

Demurrage, also known as detention, is a cost resulting from extended use of equipment, warehouse space, or other transportation resources. Basically, it’s a penalty charged for using someone else’s equipment or space. For example, railcars accrue demurrage if they are not unloaded in a timely manner; Vessels accrue demurrage if they are forced to wait at a port beyond a standard free time allotted by the port authority; Truckers charge detention when vehicles or drivers are made to wait for cargo pick up or discharge.

The problem that arises is when a demurrage or detention scenario arises, cargo owners often find their goods being held at ransom. Demurrage or detention charges are almost always expensive and your goods cannot be released until those charges are paid. Even worse, since such charges accrue on a daily basis, there’s very little room for negotiation and the final cost can change based on the time of receipt of payment!

NEW INCOterms CTAUnlike standard INCOTERMS which sets protocols for “who pays what”, the unfortunate reality is that demurrage costs are basically paid by the party who wants their goods so badly, they’ll even pay a penalty just to get them. Honestly, this can be avoided…it doesn’t have to happen. The solution to the problem, almost always lies in being prepared ahead of time and planning for eventualities. Matters like vessel detention or railcar detention tend not to be very relevant to the supply chains of our customers. However, port detention of export or import containers, airport storage of air freight shipments, and carrier demurrage charges for ocean freight containers gated out beyond “free time” are all examples of demurrage that occur on a daily basis. Obviously, this imposes heavy costs on cargo owners and can be avoided with better logistics planning.

Solutions to the demurrage/detention problem begin with the proper planning of a shipment and all the formalities associated with the arrival or departure of those goods. For example, we once had a client who wanted their export cargo out of their warehouse and into a container 7 days prior to the cut off date for a vessel headed to Australia. The problem was that the steamship line only allowed the container to be pulled out for loading purposes 5 days prior to the vessel cut off. Our client was unaware of the fact that they would have to pay a penalty for being 2 days too early. The solution was rather simple: we researched the details of the fees, calculated the cost of the extra storage and asked the client if they were willing to pay for it. Guess what happened? The client said “no”! They were very appreciative of us taking the time to research the cost associated with their plan and helping them to understand their true costs. However, had we not done this, it would have resulted in a few hundred dollars of charges that their trucker would have to pay upon returning the container. That’s right, the trucker would have been on the hook, and that’s one of the tricky parts of demurrage costs – it doesn’t just affect the cargo owner, but can also create headaches for their vendors or customers.

At other times, the problems can be caused by documentation mistakes in customs paperwork resulting in cargo being held at the port of destination. In such an instance, the delay might be caused by the exporter or importer of record, and it is the local customs authority that raises the objection, but the storage expense accrues at the airline terminal and often has to be advanced by the customs broker or trucker collecting the cargo at time of release. We once saw a client lose tons of a perishable food product in Turkey this way just because their logistics service provider at the time neglected to get documentation approved in advance of the shipment. That one step alone would have prevented thousands of dollars in unnecessary freight charges plus the confiscation of product.

Sometimes, the shipper can choose to take the cost of demurrage or detention as a cost of doing business. It can be strategic at times, although still a cost. Remember the client who tried to ship too early? Well, some months later they actually asked us to pull a container ahead of the free time allotted by the vessel operator just so they could have their product shipped out before the end of the quarter. In this scenario, it was actually beneficial for them to pay for detention rather than to have the good be in inventory at the start of a new month.

And, every once in a while, we get to see a cool scenario unfold where the shipper gets the last laugh. For example, at various times during the ISAF war effort in Afghanistan, ocean freight containers were delayed at the border crossing between Afghanistan and Pakistan. At certain times of heightened tensions, the delays stretched into weeks and demurrage applied to the shipping containers to the tune of thousands of dollars. The liners demanded these charges of truckers when the unloaded containers were brought back to the port and shippers, including many U.S. companies, were forced to pay penalties that were vastly more expensive than the cost of freight or even the merchandise itself. However, with some crafty logistics support on their side, some shippers simply decided to buy their own containers and ship them full of goods. The cost of buying a “shipper owned container” is higher than the cost of using one owned by the liner, but shipper owned containers are not liable to “in & out” demurrage costs. In effect the shipper’s were treating the containers as disposable and not bothered if they came back at all. This actually was the most cost effective solution to countering exorbitant detention costs that shippers were forced to pay.

These are just a few examples of how logistics costs can have a devastating impact on order profitability. However, the good news is that many of these problems can be avoided if your logistics service provider takes the time to understand your business, specific product requirements, and your import/export goals.

 

 

 

 

Top 10 Markets for U.S. Exports

Top 10 Markets for U.S. ExportsScreen Shot 2014-05-22 at 12.51.06 PM

At the Exporting Excellence™ blog, we’re all about international trade.  International trade does more to create jobs, promote cultural ties, create an interchange of ideas, transfer technology and promote understanding throughout the world than any other means of diplomacy, foreign aid, statecraft, etc.  Most of all, international trade is a great enabler of economic growth and wealth creation for all countries of the world.  While we have posted content about specific markets on this blog, we’d also like to introduce a series of lists that outline the best markets for U.S. exports in general and by specific industry.

The proof is overwhelming: export sales can grow your business far more than local sales.  After all, why limit yourself to your zip code when you can literally sell to the world.  Here then, is a look at the top 10 markets for U.S. exports:

# 1 – Canada.  Value of U.S. exports purchased in 2013: US$301.6  billion. Exporters of automobiles, trucks and accessories thereof take note: Canadians love large and midsized cars and trucks made in the USA.

#2 – Mexico.  Value of U.S. exports purchased in 2013: US$226.1 billion.  America’s neighbor to the south is well situated to engage in two-way trade with all NAFTA countries as we detailed in a recent blog post.  U.S. exporters of industrial machinery, agricultural products and dairy products will find a great deal of opportunity in Mexico.

# 3 – China.  Value of U.S. exports purchased in 2013: US$121.7 billion.  See, it’s not a one way street!  While China does supply an enormous amount of manufactured goods to the United States, American companies exporting agricultural products and hi-tech equipment are going to see growth in China for years to come.

# 4- Japan.  Value of U.S. exports purchased in 2013: US$65.2 billion.  Japan has a diverse consumer market as demonstrated by the fact that U.S. exports of medical instruments, aircraft equipment and industrial machinery are in high demand.  Japan, like China, is a good market for U.S. technological goods and services.

#5 – United Kingdom.  Value of U.S. exports purchased in 2013: US$56 billion.  See how trade works?  Not only political allies, but also major trading partners, the U.S.-U.K. relationship remains one of the closest in the world on so many levels.  U.S. exports of agricultural products as well as foods continue to enjoy growth in the U.K. despite the economic turbulence of recent years.

# 6 – Germany.  Value of U.S. exports purchased in 2013: US$44.2 billion.  Technological goods, pharmaceuticals and medical equipment from the United States are in high demand in Germany.  It is the strongest of Europe’s economies and should be a key part of your Europe export strategy.

#7 – Brazil.  Value of U.S. exports purchased in 2014: US$44.1 billion.  We profiled Brazil in a recent blog post as it offers great potential for U.S. exports.  Machinery and aircraft equipment account for the lion’s share of Brazilian imports from the U.S.  Tourism also remains a growth sector with substantial interest from U.S. tourists and investors.

# 8 – The Netherlands.  Value of U.S. exports purchased in 2013: US$42.6 billion.  U.S. exporters in the fields of “Clean Tech”, medical equipment, and biotechnology will find The Netherlands to be an attractive market with strong growth potential.

# 9 – South Korea.  Value of U.S. exports purchased in 2013: US$41.7 billion.  Along with Canada and Mexico (NAFTA), South Korea is one of the few countries that shares a Free Trade Agreement with the United States.  Opportunities abound for companies exporting aircraft related equipment and for providers of research and development services and technology.

# 10 – France.  Value of U.S. exports purchased in 2013: US$31.8 billion.  Known for their rich artistic tradition, ironically, French imports of U.S. artwork exceed $200 million annually.  Industrial goods such as specialty chemicals and high technology equipment from the United States enjoy strong demand in France as well.

Sources for this list include the U.S. Commerce Department which publishes superb trade data available at no cost to U.S. businesses. 

Additional country data was obtained from the U.S. Bureau of Census, and Inc. Magazine.

Importing & Exporting with Indonesia

MINT (Mexico, Indonesia, Nigeria & Turkey) – Drivers of Future Growth for U.S. BusinessesScreen Shot 2015-01-21 at 7.20.50 PM

Continuing our focus on the global markets that offer the brightest prospects for U.S. exports and imports, we now turn our attention to Indonesia. Our previous reports had focused on the BRIC countries, namely Brazil, Russia, India and China. Subsequently, a new crop of countries known as MINT (Mexico, Indonesia, Nigeria & Turkey) has arisen as drivers of future growth for U.S. businesses. MINT is an acronym originally coined by Fidelity Investments, a Boston-based asset management firm and was popularized by Jim O’Neill of Goldman Sachs, who had created the term BRIC. The term is primarily used in the economic and financial spheres as well as in academia. Its usage has grown especially in the investment sector, where it is used to refer to the bonds issued by these governments. These four countries are also part of the “Next Eleven”. We recently profiled Mexico and identified it as a source of excellent two way trade with the United States. This month we turn our attention to the Indonesian part of MINT

Based on key metrics such as market size, growth potential and accessibility, Indonesia has emerged as a country offering strong economic growth potential. According to World Trade Organization statistics, Indonesia is the world’s 27th largest exporting country. Indonesia is also the world’s fourth most populous country after China, India, and the United States and the world’s third most populous democratic country after India and the United States. In 2009, BRIC and Indonesia represented about 42 and 3 percent of the world’s population respectively and about 15 percent of global GDP altogether. All of them are G20 countries. By 2015, Internet users in BRIC and Indonesia will double to 1.2 billion. In 2009, Indonesia was the only member of the G20 to lower its public debt-to-GDP ratio – a positive economic management indicator. U.S. companies exporting industrial machinery and equipment, chemicals and food products can benefit from opportunities in Indonesia.

From a logistics perspective, Indonesia does have some significant limitations that can adversely affect your export business. The primary issue the country faces in this regard is a weak transportation infrastructure. While Indonesia has been steadily investing in its ocean ports and diversifying traffic away from the main port of Jakarta, there is still a great deal of work to be done. Airport infrastructure in the major cities of Jakarta and Surabaya also are strong and well suited to international trade. However, poor road infrastructure can create significant challenges for U.S. exporters who are selling goods on a DDU or DDP basis. Delays in delivery times and increased costs associated with locating suitable trucks for local delivery can inflate costs thus eroding profit margins on export sales.

Another major issue that U.S. exporters must contend with, and one that poses serious obstacles to Indonesia’s growth as a desirable market for foreign goods and investment, is that of customs procedures. The basic documentary requirements for import into Indonesia are rather straightforward. Exporters must provide:

1. Airway Bill or Ocean Bill of Lading that show the actual cost of transport.

2. Commercial Invoices that clearly state the buyer and seller of goods.

3. Certificate of insurance.

4. Certificate of Origin.

Despite these clear and brief requirements, however, the potential for delays and cost overruns resulting from customs compliance issues is significant. For example, the requirement that shipping documents should state the actual cost of transport is significant as Indonesian customs charge import duties on the combined value of merchandise value and cost of transport. Exporters must be aware of this as it has a direct impact on the landed cost of their merchandise. Logistics providers should be aware of this and ensure that their documents reflect accurate charges so as to prevent their clients from unnecessarily facing excessive duties which can result in lost profits and claims from dissatisfied or “overcharged” customers.

Similarly, the accuracy of information stated on commercial invoices is of utmost importance. Discrepancies in the details of the seller, buyer or merchandise stated on invoices can cause Indonesian customs officials to withhold release of goods until corrections or amendments are made thereby resulting in additional costs such as storage, detention charges, courier costs for replacement documentation and fines or penalties for incorrect paperwork.

While the potential of Indonesia as a market for U.S. goods is significant, exporters and logistics companies must be keenly aware of the pitfalls that come with shipping to this market. Knowing these pitfalls is significant to your growth in logistics. Even with pitfalls Indonesia will be ranked seventh in GDP by 2050 according to Jim O’Neill. The country is the largest economy in Southeast Asia and a member of the G-20 major economies. Currently Indonesia has the world’s 9th largest GDP-PPP and 16th largest nominal GDP. Definitely not a market to ignore.

Container Info & Spec Sheet

 

 

What is the greater cost: Stockpiling Inventory or Missed Sales?

What is the greater cost: Stockpiling Inventory or Missed Sales?stockpiling inventory warehouse

Logistics professionals are on the front lines of the fight to maintain market presence and minimize costs of product supply. One of the main issues faced is whether or not to stockpile inventory in an overseas destination or risk losing sales due to lack of inventory in that market.

Most large organizations have implemented good demand planning practices which enable them to plan production and shipping schedules. A client of ours, who is a global leader in the tobacco business, had such an efficient schedule in place for their business in Turkey that they were able establish a precise order flow one year in advance. Their demand planning was so effective that they almost never required air freight service for this market and could tell months in advance exactly how much product was to be shipped in any given week of the year.

On the other end of the spectrum, another client of ours who is a global leader in the foods business had a simple mistake in their demand planning process force them to de-list product from the market in Singapore for an entire month until they could send over the product needed to meet demand by ocean.

So you want to stockpile?

Here are some factors to be considered when deciding whether or not to stockpile inventory:

  • Failure to have inventory in market leads to obvious decreases in sales, cash flow and profitability.
  • Storage of inventory, especially overseas, is often expensive and eats directly into profit margins.
  • Inventory shortages often have to be met by expedited modes of transport and often specifically by air freight which is generally expensive and adversely impacts profit margins.
  • Excess product can be subject to damage, theft, obsolescence or other misuse which can result in direct and substantial losses in terms of write offs, discounted selling prices or additional processing costs.

So what to do?

The primary determinant of whether or not to incur increased transport or storage costs is profit margin. Coming back to the example of our client in the tobacco business, even though they enjoyed tremendous operational efficiency in their exports to Turkey, this client often relied on air freight to meet demand in the Far East. They also used air freight for new brand or product introductions and generally developed a market by using air freight first and then gradually shifting logistics to ocean freight. Very often the excess air freighted product was warehoused overseas in markets such as Japan and Hong Kong. Their tolerance for such expense came from the substantial profit margins they enjoyed. Equally important was their branding. The client believed that the cost of not having product in the market was not only high in terms of lost sales, but also in terms of damage it would do their brand in overseas markets.

But what if we don’t have the profit margins to support such costs? Let’s re-visit the example of our client in the foods business. Despite having a very good demand planning system in place as well as the resources that came with being one of the world’s largest corporations, this client ran into a problem that could happen to anyone: human error. Apparently, one of their demand planners in Singapore simply forgot to enter her orders before leaving for vacation. As a result production never got the orders and nothing was scheduled to ship by ocean. By the time the problem was detected the client had no other option but to use air freight to meet the demand of 30 tons of their merchandise in the local market. We assisted the client by providing a combination of cost effective air freight, and even created a schedule to stagger the shipments in such a way as to spread the cost out over several weeks just to minimize the cash flow impact they were about to feel. After careful review of the numbers, however, the client decided that their profit margins simply did not justify them incurring the cost of air freight. For 30 days they had no goods to sell in Singapore. From a profit and loss standpoint the choice was clear and that was the client’s main deciding factor. We presume that the loss far exceeded benefits that they may have realized in terms of brand equity and market share.

In both instances, what we have learned is that there are direct, indirect, obvious and discreet costs involved in managing international business. One of the best things a logistics professional can do is to learn what matters to their organization not only in terms of delivery but also in terms of profitability, cash flow, market-share and brand equity.

Logistics professionals need to consider the following when deciding whether or not to stockpile inventory:

  • Cost of domestic/overseas warehousing of excess inventory.
  • Cost of insurance of stored excess stored inventory.
  • Cost of air freight for excess inventory versus cost of ocean freight & storage of excess inventory.
  • Impact on company profitability and cash flow from absence of product in market.
  • Importance of product availability to the corporate brand.

So when you are in a position where you need to decide whether or not to stockpile, don’t hesitate to reach out to us and talk with one of our Logistics Professionals to make sure you understand all of the associated costs which will allow you to make the best, most informed, cost effective decision for your company.

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What Big Data & Little Data Mean To You in the Freight & Logistics Process

What Big Data & Little Data Mean To You in the Freight & Logistics Process:Big Data in Logistics

Possibly the most important business technology issue of the moment is known as “Big Data”, and its ability to transform an organization by allowing employees at all levels of the organization to make better decisions. Simply defined, Big Data is the compilation of such a large set of data points that cannot be defined or analyzed using existing “low tech” tools. For shippers this essentially means that an Excel spreadsheet of shipments in process just isn’t enough anymore to determine how well your logistics process is moving. In a recent paper written by a large logistics consulting firm, it is stated that the sustained success of Internet powerhouses such as Amazon, Google, Facebook, and eBay provides evidence of a fourth production factor in today’s hyper-connected world. Besides resources, labor, and capital, there’s no doubt that the information feeding Big Data and the use of such data has become an essential element of competitive differentiation.

In our July 24, 2014 blog post we addressed the importance of supply chain metrics, and this is precisely what lies at the heart of Big Data. Metrics are established based on past data generated from transactions or shipments and from this data companies can determine how well their supply chain or logistics process is performing. For example, a simple metric like “On Time Delivery” is calculated by measuring the time it takes an order to depart a shipper’s facility and arrive at the customer’s location. The decision about whether the performance is good is based on previous shipments in most cases.

While Big Data is thought to be a senior management issue, the fact is that the data points being studied at the highest levels of an organization originate from the day-to-day operations of the business. Let’s take a look at an example of how Big Data collection begins in the daily workflow of logistics personnel and how they can use it to improve their performance and hence their business.

Wasted Space – a client of ours, one of the country’s largest foods business, had state of the art distribution centers around the country. They needed such infrastructure to support their massive supermarket and big box store retail business. As a result, their international operations were something of an afterthought. Shipping personnel were simply taking cases of product, shrink wrapping them onto a skid and declaring them ready for export.

As we mentioned in our post on dimensional weight, shippers need to be aware not only of the weight of their product but also the dimensions of the cargo being tendered for air transport. As a result, the shipper was tendering cargo of 45 – 100 kgs on skids that had a volume weight of 275 kgs, effectively doubling or tripling the shipment charges.

By doing a simple analysis of the disparity between gross weight and volume weight (Big Data points) we were able to explain to the shipper that the cost of over-packing their material into cardboard boxes was well worth the time and savings in shipping charges. Within a matter of weeks the customer began to realize a reduction of air freight costs in excess of 50%. The Big Data analysis here entailed nothing more than looking at the discrepancy in weights and coming up with an alternative. Logistics managers can perform this sort of analysis in collaboration with their freight forwarders any day and without high level/hi tech solutions being deployed.

There is no doubt that Big Data gets very sophisticated and has the power to really revolutionize a supply chain. It can increase effectiveness exponentially, however, the fact remains that the data often originates at the warehouse level and can be a part of the daily process of logistics professionals at all levels of the organization.

Clearly the time is at hand to tap the potential of Big Data to improve operational efficiency and customer experience, and create useful new business models. It is time for a shift of mindset, a clear strategy and application of the right data analysis techniques. Those companies that do early will enjoy a disproportionate advantage over their competitors.

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Supply Chain Metrics as a Predictor for your Business

Supply Chain Metrics as a Predictor for your Business 

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As supply chain and logistics have transformed from afterthoughts of the business process to areas of preeminent concern, companies have adopted a variety of metrics to analyze their performance. The impact of supply chain reliability has been tested in recent years by events ranging from the latest iPhone introductions by Apple to the scarcity of gasoline in New York City after Super Storm Sandy. While these events occur on a massive scale, the key to successful execution lies in proper planning and measurement of a company’s supply chain and logistics processes. Outside of emergency events, supply chain metrics can be key predictors of future cash flow, profitability, market share, brand equity and many other variables that are crucial to an organizations success.

Some key elements of the supply chain that businesses of all sizes should be concerned with include the following:

  1. Backorder reporting – this metric essentially keeps track of the number of orders a company is not fulfilling due to lack of product. While the causes for backorders can vary from lack of raw materials to insufficient production, logistics professionals need to be aware of this information as it directly influences key transportation decisions such as mode of transport (air vs. ocean), cost of transportation (expedited vs. consolidated), and logistics budgeting (how much will your company spend to get goods to market in order to alleviate backlogs or backorders).
  2. Cycle Time – While often associated with manufacturing, the concept of cycle time applies to every business function. For logistics professionals key measurements such as “Order Promised” cycle time or “Order Actual” cycle time are important. Both of these measurements ultimately hinge on the ability of a company’s logistics process to deliver goods their customers. The impact of delays on customer satisfaction, cash flow/cash realization and brand reputation are significant and mode of transport is the final leg in the process.
  3. On Time Shipping/Delivery – This is an obviously crucial element of the logistics process, but there are a number of different ways to analyze it and its impact on an organization. To begin with, logistics decision makers should decide what they really want to measure. For example, a 99.9% on time transit rating of your logistics provider could apply to airport-to-airport transit time only, or perhaps the reporting is only accounting for the transit time from the moment cargo is received at the logistics providers warehouse, thus eliminating the time for booking processing, inland haulage and other elements from the process. In the ocean freight business for example, transit times are almost always quoted on a port-to-port basis. However, the shipper needs to be aware of lead times for haulage, close out times at the port and unloading time at destination.
  4. Transportation Metrics – There is a large amount of data that goes into transportation analysis. What’s relevant to your supply chain can vary based on your geographical location and markets, modes of transport and specific commodities. However, all logistics professionals will find themselves directly concerned with concepts such as “Freight Cost per Unit Shipped”, “Claims as a Percentage of Freight Costs” and “Transit Time” to name but a few. An understanding of these elements will help logistics decision makers understand the true cost of logistics and to avoid hidden costs that are often overlooked when the logistics buying process is based on price alone.

One key element that is a precursor to implementing these or any metrics is proper planning. Taking the time to understand what your firm actually wants to measure and why that’s important is necessary. In order for a logistics process to be successful, logistics decision makers must also be ready to share their plans and strategies with their logistics providers in order to ensure the metrics are met and the goals of supply chain efficiency are realized.