For the past three years, our Supply Chain Matters editorial commentaries related to the annual Council of Supply Chain Management Professionals (CSCMP) sponsored State of Logistics survey reports have consistently expressed concern towards a persistent trend for increased logistics, transportation and inventory costs within the U.S… The latest report depicting 2014 activity and our related commentary was no exception.
Thus it was rather timely this week for the Grocery Manufacturers Association (GMA) to release findings of a benchmark research report conducted with the help of the Boston Consulting Group. The report, A Hard Road: Why CPG Companies Need a Strategic Approach to Transportation, provides profound observations for Consumer Product Goods focused supply chains related to transportation cost increases trending way beyond a cyclical trend. The most sober takeaway from the report is the declaration that: “transporting goods to retailers is now the greatest worry of supply chain leaders.”
The GMA-BSC report indicates that more than 80 percent of supply leaders interviewed cited transportation as their top-of-mind concern, while across the board, service levels are declining. According to the report: “Trucks are chronically late, capacity is insufficient, and delivery windows are exasperating retailers” Once more, transportation costs are noted as eroding other supply chain cost savings. The report authors indicate that since the study was conducted in 2012, freight costs have risen as much as 14 percent over the four year period, and only a third of CPG producers were able to trim transportation costs these past two years. CPG firms are further increasing safety stock inventories to compensate for unpredictable service levels.
While there is no simple solution for tackling the current challenges related to transportation, the report outlines five different lever strategies for reader consideration. A key message is that the procurement of transportation can no longer be viewed from a pure commodity perspective, but rather a strategic internal or external sourcing strategy related to line-of-business needs. One important lever outlined was that active supply chain network design analysis should be considered a priority. A sober statistic noted that 72 percent of CPG firms surveyed are now actively engaged in network design efforts as compared to the 6 percent level reported in 2012. That is compelling. Such efforts are directed at dynamic means to optimize routes, locations of distribution centers for supporting customer fulfillment needs as well as assessment of trade-offs in owning transportation assets. Obviously, technology and services firms catering to supply need network design are rallying to support these needs.
This report concludes with a message that CPG supply chains need to view transportation from a strategic lens, focusing product distribution strategies on transportation-centric cost and service requirement needs. Supply Chain Matters obviously adds that such recommendations apply to other industry supply chains as well, along with active consideration for developing in-house supply chain network design capabilities.
U.S. transportation cost and service performance are indeed an ongoing key concern, one that will remain to be analyzed at the highest levels of supply chain leadership for many more months to come. Carriers and 3PL’s had better be attentive and proactive in addressing these concerns.