By Lisa Henthorn, V.P., Corporate Communications
Volatile oil prices and an imbalance of supply and demand for freight transportation services are “game changers” that have not only created high transportation costs but also caused companies to seriously reconsider their supply chain strategies.
That’s among the key findings of “The real impact of high transportation costs” a research report published in the latest edition of Supply Chain Quarterly, which identifies three main shifts in supply chain strategies:
- To reduce the number of miles shipments travel, companies are switching from outsourcing to nearshoring
- Products and packaging are increasingly being designed with “shipability” – and not just marketability – in mind
- Traditional “lean inventory” strategies are going by the wayside
Of these trends, the third may have the potential to make the greatest bottom-line impact on companies today. Why? Consider what the report observes:
“Lean theory and practice, which seek to reduce inventory costs, evolved back when oil, which accounts for 98 percent of energy consumption in transportation, was around US $25 per barrel. Common transportation strategies of companies that implement lean principles include just-in-time delivery; small, fast, and frequent shipments; and using a dedicated fleet—all of which depend on cheap transportation. However, as oil prices escalate, the importance of transportation economies of scale (achieved by making larger and less-frequent shipments) increases, and trade-offs between inventory and transportation costs become more important.”
To accommodate this new reality, companies are increasingly rethinking their shipping strategies. According to the report, companies are especially focused on finding new ways to streamline shipment consolidation, optimize capacity and take advantage of alternative modes of transportation.
In other words, companies have a lot on their plates these days in managing high transportation costs while also trying to remain competitive. Although some organizations are turning over those challenges to third party logistic providers (3PLs) to address, an increasing number of companies are finding that cloud-based transportation management systems (TMS) are a more effective solution.