Managing supply chains through uncertain times

We’ve seen plenty of bad news recently. War in Ukraine. Global food shortages. Tension in the Taiwan Strait. Record-breaking inflation. Interest rate increases. Floods and wildfires. COVID (of course). And then if the world wasn’t crazy enough… Monkeypox.

The negative headlines keep coming; and many of them are impacting on our global supply chains. Ongoing volatility and uncertainty can’t be ignored. But what are the genuine implications? And how best can supply chain leaders plan and manage in today’s uncertain world?

Freight Rates
The volatility in freight rates over the last 2 years has been mind boggling. Before the pandemic, we were accustomed to low freight rates, and pretty good shipping and airline reliability. Things were pretty comfortable. When COVID hit, most people initially expected economies to crash. Instead, generous fiscal stimulation led to a boom in volumes for our industry. With no passenger planes flying ocean freight rates went up as much as 15-fold.

Many large shippers decided to sign multi-year contracts, locking themselves into rates typically 50% of the spot rates at the time, but still much higher than before the pandemic. However, this year we have seen a distinct softening in the market. Spot rates are trending downwards on all major trade lanes, much closer to the rates we used to enjoy before 2020…

Here at Ligentia, a strategy we advocate more and more, is to have a multi-layer approach to freight negotiations. This involves:

• If you have the volume, negotiate with a couple of carriers on your strategic trade lanes. Avoid carriers who are after all your business – in this period of volatility, it’s important to retain some flexibility.
• This should not be for all your volumes. Not every PO or trade lane is strategic. I remember having discussions with a large FMCG company many years ago; they had so many trade lanes that Excel did not have enough lines to cover them all. Negotiate only on the lanes that genuinely tick the ‘strategic’ box – or you’ll likely sink your own ship with all the time spent in additional negotiation.
• Use your freight forwarder to manage the bookings and allocations. Particularly on tactical routes, where they have agility, time and dedicated focus that you may not.
• Supply chain visibility is more important now than ever. Especially when we start looking at inventory levels and more regular forecasting – so real-time reporting from you freight forwarding partner and from your own software and systems is paramount.

Warehousing

Looking for warehouse space for you overflow cargo? Good luck with that!

Legacy industry practices of “just in time” got replaced with “just in case” as a result of on-going supply chain disruption, meaning we now have the situation where many companies are sitting on excess inventory.

A “just in case” strategy was clearly successful in 2021, but with consumer demand weakening alongside increased inflation and interest rates, it is now time to review this strategy as a matter of urgency. Increased pressure on margins inevitably means the supply chain comes under pressure to reduce costs. This is especially challenging when there is no historical precedent for the situation we are in. Agility is surely the watch-word here – but incredibly hard to achieve for those whose inventories are bloated with an over-stock safety net.

To add even more complexity to the situation, our industry is facing its own crisis – one of employment. I recently read that a company was looking for warehouse staff. They advertised the same position 5 years ago and had over 1100 applicants. They recently advertised and got 5. And that’s just the tip of the iceberg.

But, despite every part (top-to-bottom and side-to-side) of the supply chain being disrupted it isn’t all doom and gloom. Forecasting, once a quarterly event, is being actioned much more regularly for organisations who are on the front foot. With some of our customers, we are able to review inventory, stock on the water and purchase orders on a weekly basis. This enables really transparent communication between demand planning, sales, warehouse operations and inbound supply chain, which in turn helps to navigate all the complex challenges that present themselves.

With full knowledge of the exact status of all outstanding POs, where they are and when they are expected to arrive, the heat in global supply chain management can be cooled to a more manageable level.

The levers that enable organisations to adapt are really well summed up in the diagram above.

In short, there are ways and means for us to manage our way out of the current situation but it is going to take some innovative thinking and the willingness to try different solutions. It’s our job as partner to our customers to begin to take some of the heat out of the headlines and get right to the heart of initiatives and actions that build resilience and adaptability in global supply.

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