Supply chain disruptions occur in many forms, from simple day-to-day concerns to catastrophic natural disasters. While potential risk cannot be avoided entirely, leading companies are taking a new approach to risk management and optimization. Instead of viewing risk mitigation as a one-time or periodic activity, these companies are assessing risk as a continuous improvement initiative. By adopting a combination of sophisticated technology and best-practice processes, organizations can effectively and continuously examine risk across all aspects. The following four examples illustrate how leveraging process and technology can strategically mitigate supply and transportation chain interruptions on an ongoing basis.
Design as a Process
One of the first and most common approaches to mitigating risk is to simply plan for it. Many companies leverage network design and tactical transportation modeling solutions to plan for challenges, but the difference between practice adoption and best-in-class is one of frequency.
Best-in-class organizations not only embrace proactive network and tactical transportation design, but they also take it beyond the traditional one-time or annual problem-solving event. They maximize risk mitigation effectiveness by enabling it as an ongoing, continuous process and by designating network design as an established, staffed function within their organizations.
When correctly implemented, network design as a full-time function is cost-justifiable based on the associated risk averted, money saved, and efficiencies gained. It also provides two distinct benefits: the ability to dynamically adapt strategies as supply chains evolve and the ability to anticipate and act ahead of emerging or cyclical trends.
Procurement Beyond Price
Transportation capacity availability and service-level consistency are two other examples of risk that organizations must continuously address. Factor in a challenging economy that impacts carrier solvency risk, and these issues become magnified. Companies must consider many factors when procuring a rate between two points, including the travel direction, equipment being used, committed capacity, agreed upon service levels and additional costs. This level of variation necessitates an explicit representation of the network in order to properly analyze all risk aspects. Organizations that focus solely on overall transportation cost leave themselves vulnerable to the inevitability of risk by failing to consider other risk-contributing factors affecting their transportation chains.
Advanced transportation procurement technology helps companies combat these risks by delivering the ability to model an improved representation of the network and perform comprehensive what-if analysis. Modeling the network with sufficient granularity enables systematic analysis of the potential tradeoffs – or costs – between mitigating the risk associated with each or some combination of variables, and the price of the service. When examining strategies to effectively mitigate risk, a company must concurrently consider the cost impacts of the associated mitigation options – such as how many carriers to secure per lane – and evaluate their worth accordingly to arrive at the best option for that particular organization’s business.
The “right” option for the company is often somewhere in between the highest-cost but safest option and the least expensive but also least secure option. Conducting optimization analysis to represent the network enables the company to examine that low-level detail and identify valuable tradeoffs to arrive at the right mix that fits its business.
Collaboration With Partners
Another granular form of risk is lack of visibility within a supply or transportation chain. Inbound shipping processes represent a common example of lack of information or interaction. While a company knows what order it placed, it often does not have insight into what the supplier’s inventory is, when the goods will ship or if they will be short-shipped. Traditional electronic signals such as Advance Ship Notices (ASN) are typically sent only after the goods are in transit, thus limiting a company’s ability to proactively adjust or re-plan if something goes wrong. The impact of these risks to the company’s supply chain might manifest as not receiving required materials at its factory/distribution center or a short-shipped truck that is now only half full.
Lack of visibility also poses a threat in the operational realm. A company might not have timely insight into supplier information affecting the orders it places, such as the supplier’s capacity or how the supplier schedules appointments for the ordered loads. The ability to share these signals and gain needed visibility requires both technology and processes that enable partner collaboration and communication. With these in place, suppliers can let companies know immediately what is being shipped so the company can plan accordingly. By providing carriers with the mechanism to share capacity and other details and by enabling them to interact with the dock scheduling process, companies are able to see exactly when each carrier will arrive at the dock and ensure that carriers are not scheduling concurrent appointments that cause inefficient wait times. With the ability to receive status updates regarding when trucks are in transit as well as revised estimated times of arrival, companies can react quickly and proactively to increase performance and service.
Leveraging closed-loop processes as part of a continuous improvement paradigm is another strategy in mitigating risk. While companies might track the occurrence of a disruption within the supply or transportation chain, they commonly do not have the ability to capture why the disruption happened. Technology and processes can deliver the mechanisms to tie it all together.
Being able to record the reasons behind a disruption enables this feedback to be used as inputs into subsequent processes, such as procurement or supply chain design. Companies can leverage the results of network risk mitigation what-if and other analysis as information in their transportation management and other systems. These capabilities enable a company to help ensure that it can effectively put its plans into practice and redirect when necessary based on new information and events to minimize disruptions and overall risk.
Fabrizio Brasca is vice president, global logistics at JDA Software. He is responsible for developing strategic transportation innovations across all industry verticals.