Global Logistics and Supply Chain Strategies - October 2008 - (Page 18)

More Complex Supply Chains Lead to Disruptions and Financial Losses, Aberdeen Reports For more than half of the companies responding to a new study by Aberdeen Group, costly supply chain disruptions aren’t just something to fear. They’re a reality. Of the 138 companies included in the survey, 58 percent reported financial losses resulting from disruptions over the past year. And 99 percent said they experienced some kind of glitch. The situation is a reflection of increasingly fuel price hikes and non-environmental catastrophes. The ability of a company to combat risk also determines what kind of advice it receives from Aberdeen. For laggards, the firm urges them to begin thinking about supply chain risks, evaluate their supply chain infrastructure from the standpoint of visibility and information exchange, and educate staff about the danger of disruptions. For companies deemed “average,” Aberdeen advises the adoption of proactive visibility measures, management of additional supply chain risk, rating of suppliers on at least a monthly basis, and better collaboration with supply chain partners. Recommended “steps to success” for companies that are already best in class include continued expansion of actively managed risks; use of advanced data analysis, risk decision matrices and statistical modeling as part of a more datadriven approach; and consideration of ways to hedge against the impact of non-controllable risks, such as currency shifts and terrorist attacks. Visit www.aberdeen.com. Rising Cost of Fuel Takes Its Toll on Supply Chains, as Companies Rethink Outsourcing Strategies Soaring fuel costs are causing a slowdown in the migration of manufacturing to low-cost countries. So says Schneider Logistics in a recently released report on the state of the U.S. transportation industry, and its outlook for 2008. In fact, the rising cost of shipping might be spurring a reversal in that decade-long trend. The situation “is forcing some manufacturers to bring production back to North America and freeze plans to send even more work overseas,” Schneider says. The report adds that the price of crude “has definitely eclipsed all other issues impacting the global economy.” Gasoline accounts for about 70 percent of the roughly 200bn gallons of gas and diesel consumed by the U.S. economy each year. So every penny change in the price of fuel diverts $2bn from spending on goods and investment. Taking into account increases of $1 per gallon of gasoline and $2 per gallon of diesel over the past year, “that suggests a diversion of approximately $260bn from goods and investment to petroleum.” The housing and credit crises only add to the economic woes, Schneider says. Transportation providers, of course, are among the hardest hit by rising fuel costs. They have responded with significant price increases, placing an additional burden on global supply chains. Long-distance, less-than-truckload carriers boosted rates by 9.2 percent between March of 2007 and 2008, while truckload prices rose by an average of 3.7 percent in the same 12-month period. “Without a doubt,” says Schneider, “we are looking at a market with modest volume volatility and major price volatility. Because the price pressure is cost driven, it is a threat to profitability.” Still, the company sees some positive signs developing. Four key factors that affect complex supply chains, as companies seek out less expensive overseas suppliers, manufacturers and markets. In the process, they are forced to take a closer look at accompanying risks. And the sources of trouble are many. They include supplier capacity failing to meet demand (56 percent of the companies reporting supply chain disruptions), shortages or price increases for raw materials (49 percent), unexpected changes in customer demand (45 percent) and shipments that were delayed, damaged or misdirected (39 percent). Still, not everyone was equally affected by those problems. Dividing companies into the traditional categories of best-in-class, average and laggards, Aberdeen found that the top performers were twice as likely than those at the bottom to weather a supply chain disruption with no financial loss, market-share erosion or brand damage. Metrics for identifying “best-in-class” in the area of risk management included percentage of shipments from suppliers received complete and on time, percentage delivered to customers in the same manner, change in the frequency of stockouts over the past 18 months, and change in variable distribution costs during that same period. According to Aberdeen, best-in-class companies are more likely to manage or assess a number of key risks, including infrastructure congestion, supplier and country risk profiles, 18 OCTOBER 2008 http://www.aberdeen.com

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Global Logistics and Supply Chain Strategies - October 2008

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