James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP?s Supply Chain Quarterly and a staff writer for DC Velocity.
When it comes to sourcing products, parts, or materials, some companies choose their suppliers strictly on one basis: price. Given the current flat economy, that's probably no surprise. These companies are likely under enormous pressure to hold down supply chain operating expenses, and that starts with procurement.
But for many other buyers, price is not the sole concern. "I would say in most cases, cost is a very important consideration, but it's not the only consideration in picking suppliers," says Kumar Venkataraman, a consultant with the firm A.T. Kearney.
As for what other factors might come into play, that varies all over the map. Sometimes, it's the availability of value-added "extras," Venkataraman says. But often as not, one of the biggest considerations will be the supplier's logistics capabilities-that is, its ability to get the product into the hands of the buyer at the agreed-upon time.
"Where you don't have buffer inventory, delivery is important," says Simon Ellis, a practice director for global supply chain strategies at the firm IDC Manufacturing Insights. "If being late with a delivery causes the downstream process to completely stop, then evaluation of the supplier on this basis [takes on enormous importance]." In those cases, delivery capabilities will rank right up there with price in determining which supplier gets the contract.
The extent to which logistics factors into the supplier selection decision has a lot to do with the buyer's type of business. Among consumer goods manufacturers, where it's common practice for customers to take control of their shipments at the seller's dock, buyers won't be too concerned about delivery capabilities. But in other types of businesses, it's critically important, industry experts say. Here's a look at some of those industries:
Construction. Alix Partners consultant Foster Finley notes that builders typically require the delivery of accessory items like forms and bar supports at a precise time during the construction process. Because builders often coordinate different crew types on a large construction project, they can't have workers who are paid by the hour standing around idle. "If cement trucks are coming en masse and the crew prepared, you have a real problem if the accessories [like forms] are not there," Finley explains.
For that reason, Finley says, builders often give a lot of consideration to suppliers' delivery capabilities during the selection process. In addition, he says, many builders will incorporate a clause into their supplier contracts that provides for a penalty if a delivery failure idles a work crew.
Food service. Because restaurant chains need a supply of fresh milk, bread, produce, and meat, they depend on timely deliveries from their suppliers. That's particularly true for American restaurateurs opening up operations overseas. In Asia, for instance, American restaurants must import non-native food staples like milk and bread. In such cases, logistics capabilities can well determine the choice of supplier, according to Finley.
Biotech. Finley reports that as clinical trials for new drugs migrate from the United States to countries like India, China, and Brazil, more pharmaceutical and biotech concerns are evaluating suppliers on their ability to make deliveries. Because tissue samples and ingredients like chemical reagents often have short shelf lives, it's crucial that point-to-point deliveries take place on the targeted date and time. He notes that pharmaceutical companies also place a high premium on tracking and pickup performance in choosing suppliers.
Defense. With a few exceptions, the U.S. military uses civilian providers for such items as food, munitions, fuel, and equipment. The ability to deliver those items precisely when required to troops in the field plays a major role in provider selection. Finley notes that "because the military is not in the habit of passing advance information on to a civilian contractor" (as it could compromise mission security), a supplier has to be in position to fill orders swiftly without any advance notice.
Automotive. Logistics capabilities play a big role in supplier selection for original equipment manufacturers (OEMs) that want parts delivered in sequence to their factories, a practice common in Europe. Simon Bragg, a principal at the U.K.-based consulting firm SCI3, reports that many OEM contracts are structured so that if the buyer is forced to shut down an assembly line because the supplier failed to deliver parts on time, the supplier pays the cost of lost production. The amount is typically negotiated each time the contract gets renewed.
Online retailers. Many e-commerce merchants—like those specializing in flowers and gift items—rely on contract suppliers to fill customer orders and handle delivery. In the case of flowers, for example, the online retailer will contract with a local florist to pick, pack, and ship the order. So it stands to reason that these merchants would seek out suppliers that can make deliveries as promised, especially since customers tend to wait right up to the deadline to place orders. "The workload becomes difficult to manage since we, as consumers, are comfortable waiting until the last minute," which creates a spike in order volume, explains Finley.
At the moment, delivery capabilities are less a concern for traditional brick-and-mortar retailers than for those engaged in e-commerce. But that could soon change. Many experts believe that traditional retailers will start offering home deliveries as a way to defend their turf from online merchants. If that happens, they too will likely begin factoring suppliers' delivery capabilities into their sourcing decisions. "We see tremendous growth in home delivery for retailing," says Venkataraman. "And when it comes to home delivery, logistics capability can make a difference."
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.