Lessons from West Coast Ports Delays: Planning Supply Chain Contingencies for Predictable Events
Last week we looked at supply chain disruptions, such as the 2014 peak season delays caused by the U.S. West Coast port slowdowns, and how transportation management system (TMS) technology plays a vital role in helping shippers manage such events. This week, we explore the contingency planning options that TMS technology can support.
The first step in developing a contingency plan is deciding what type of event a shipper needs to prepare for. There are two broad types of supply chain disruption events: predictable and unpredictable. We will look at the former in this post.
Dealing with predictable or planned events
These are anticipated disruptions because shippers generally know when they will happen. For example, the contract negotiations between labor unions and ports on the U.S. East and West Coasts. Given the predictability of such events, there is enough information to begin the contingency planning process ahead of time.
For some shippers, the best plan might be to do nothing and, instead, wait and see before taking action. But such a decision has to be the result of a thorough evaluation of the situation, including a cost-risk analysis. Perhaps having assessed the lanes and commodities impacted, the shipper decides to use back up suppliers or buffer inventory to expedite freight, if needed.
A contingency plan will not work if it is created too late, when the only options left might be price prohibitive or impossible to implement effectively.
Take, for example, shippers that were counting on getting their freight from Asia by ocean for the 2014 Thanksgiving and Christmas peak sales periods. If they had considered potential impact of U.S. West Coast port negotiations, they could have evaluated options three to six months in advance and, perhaps, moved supplier orders for earlier deliveries or re-routed shipments via U.S. East Coast port facilities. Many shippers that were unprepared for the port slowdowns had little choice but to expedite freight that was delayed after being held at a port, or even expedite via air from origin to avoid customer penalties and/or lost sales.
Based on my experience managing logistics networks for multi-national companies with complex supply chains, here are the elements I suggest for effective contingency plans:
- Event risk classification and risk scenarios for different levels of threats (high/medium/low).
- Timeline with actions, owners, and triggers to execute contingency plans.
- A communications plan with contingency teams in place, including all supply chain partners (suppliers, customers, carriers, and logistics providers).
- Freight information and reports. These should include in-transit and on-hand freight reports, freight shipment plans, and priorities (day/week/month).
- Standard contractual freight options and rates; contingency freight options and rates.
- Cost analyses. These should include analyses of expediting and freight diversion costs, as well as expenditures on port fees.
- Back up suppliers for key commodities, if possible, ensuring that product can be manufactured by suppliers in alternate locations or sourced locally. This must be a strategic company decision.
- Proactive reviews with sales and supply chain teams (customer orders and inventory evaluation).
- Industry updates. Proactively monitor developments on logistics issues that could potentially impact supply chains.
There are two key application areas where TMS technology adds huge value to the planning process: providing data and industry expertise.
On the data side, a TMS delivers information on available lanes, carriers, transit times, volume histories, and forecasts per lane/carrier. Armed with these facts and figures, the shipper can proactively allocate, say, 70% of their volume for a particular lane to move via U.S. West Coast ports and 30% to move via the East Coast as a contingency. Maybe some shipments can terminate at the port and be transported via road or air for additional flexibility.
Another option is to designate preferred/primary or secondary carriers in the system. Taking such measures in advance allows shippers to reduce lead times associated with finding and securing carriers to move freight when market capacity is tight.
TMS helps to efficiently manage allocation to a diverse carrier base and ensure fair volume commitment which can be important in times of decreased capacity. If you make sure you tender a certain amount of freight to your core carriers year round, they are more likely to come to the rescue during difficult times.
In addition, shippers can take advantage of the industry expertise offered by providers of managed services who are well versed in risk management and contingency planning. Some shippers have successfully implemented managed service solutions that include not only TMS software, but also “power users” assigned to manage freight activities in TMS. These specialists offer the system and industry knowledge required to proactively manage customers’ freight, while leveraging industry best practices as well as their experience working with customers in different industries.
These resources offer shippers some powerful tools for minimizing the impact of predictable disruptions. Next week we will look at the other side of the risk management coin—managing unpredictable disruptive events.
This blog was written by Maria Llamas with contributions from Danielle Shuey.