Episode 17 of the Freightvine podcast explores the benefits of supply chain network modeling when unforeseen scenarios like COVID-19 happen. And why it’s important to get transportation costs right in these models. Supply chain design expert Steve Ellet joins host Chris Caplice for this conversation.
Supply chain network design has evolved significantly in the last quarter of a century
Both software and hardware have vastly improved, making it possible to build ever more complex supply chain network models. In the early days of network modeling, the most complex models possible could only answer distribution questions – where should a distribution center go? Now, models can be much more granular and go as far as production line-level decisions. The evolution of data visualization tools has also helped tell the story of complex supply and distribution networks better than ever before.
Transportation is the biggest cost factor in network models, making it the most important to get right
Predictive technologies and machine learning have provided a massive assist in modeling data that doesn’t exist today, what Chainalytics refers to as “design data.” In fact, this is one of the reasons that Chainalytics created the Freight Marketing Intelligence Consortium (FMIC) over 15 years ago. “It’s not uncommon for two-thirds to four-fifths of the costs in these models to be freight, and getting that right really matters,” Steve explains. Strategic decisions like adding a distribution facility require accurate cost data for lanes which probably don’t exist in your historical dataset.
As with a majority of optimization projects, the main objective of most network studies is to minimize cost. However, there can be multiple layers to this objective – i.e., how to optimize costs while also considering service levels, supply risks, implementation costs, disturbance to the business, and other criteria. It is important to focus on these cost and service trade-offs rather than purely minimizing total costs.
Everyone has a plan until they get punched in the mouth.”Mike Tyson
So, how do you plan for uncertainty?
That’s the question on everyone’s mind right now. Steve shares a quote from Eisenhower, “Plans are nothing, planning is everything,” (as well as the more visceral version above from Iron Mike). The best strategy for preparing for uncertainty is to plan, and plan often, using robust, accurate models. It was not that long ago when common practice was to do a network design project once and then revisit it three to five years later. Now, network analysis is becoming an ongoing activity. With a “live” and up-to-date model,, you can revisit the impact of different scenarios and events more frequently.
However, the modeling tools will not do this for you; practitioners have to identify the relevant constraints to apply and develop multiple test scenarios. Having access to a live model is crucial to being able to answer the ad-hoc questions that may arise. No one could have ever predicted the precise effects and progression of the COVID-19 pandemic, but similar “what-if” scenarios and their possible outcomes could have been predicted and tested. What if demand goes up or down? What if a port closes? What if a natural disaster hits a principal assembly plant?
More power and more visibility leads to more options
Supply chain network design will continue to improve. Increasingly pervasive data collection along more points in the supply chain combined with growing computing capabilities will inevitably lead to more robust models. These models will enable faster problem-solving and more confidence when managing complex scenarios. Ultimately, the goal is for supply chain network modeling to become an ongoing, integrated supply chain planning process.
This episode recap was written by Courtney Schrader, Sr. Product Manager, FMIC at Chainalytics.
Market Update & Forecast: 26 March 2020
Over the last two weeks, active contract rates for Dry Van, Temp-Control and Intermodal are staying steady, and we expect contract rate changes to remain flat for the foreseeable future. Spot rates, on the other hand, are spiking across all modes.
On the supply side, carriers—more specifically, drivers—are being much more cautious due to the constant rollout of new restrictions and lockdowns across the country. These regulations are also adding considerable confusion as states are each imposing their own version. Understandably, this is also causing many issues for planning and execution.
Demand is somewhat diverse – manufacturing of consumer durables and general retail is down, but demand for groceries and essential consumer goods is peaking. Some of the peaks are due to people panic buying – which is advance buying – so we will likely see this peak followed by a dip in demand before everything returns to the status quo. However, as demand fluctuates, there will probably be more routing guide failures and corresponding spot increases, so perhaps this is an excellent time to strengthen ties with brokers and core carriers who can help facilitate your traffic during this uncertain time.
