One of the 2013 trends identified in my last blog was the requirement for transportation professionals to ramp up their efforts at Risk Management. In recent years we have seen a range of weather related natural disasters. Of course, disruptions to supply chains can come from other sources such as terrorism, wars, accidents, the failure of various operating systems such as telephone and computer systems, quality control problems and export restrictions. To make matters worse, most of these disruptions are unpredictable in timing and scope.

Supply chain risks can be categorized into five groups: operational, social, natural, economy and political/legal. Each shipper has to make an assessment of the potential risks to their supply chains. Supply chain risk management can be defined as attempts to identify risks and quantify their commercial financial exposures as well as mitigate potential disruptions at each node and lane in the supply chain.

Supply chain risk models can vary from the rudimentary to the sophisticated. In the case of the latter, complex “what if” analyses can be performed. These allow shippers to identify potential trouble spots and map out alternative supply chain strategies. Historically, shippers have tended to focus on factors with the biggest impact on their supply chain, such as on-time performance, supplier lead time variability and carriers by origin or trade lane.

Based on the escalation of various risks in recent years, there is a need to take risk management to another level. Shippers need to perform a probability analysis on the impacts of each potential disruption, with a particular focus on alternative vendors, manufacturing facilities, modes, carriers, origin points, ports, border crossings, distribution facilities and destination ports.

Looking ahead to 2013, there are some major (predictable) risks that could drive up supply chain and transportation costs. These include the result of the ongoing debt discussions in the United States, the impact on fuel costs if there is more violence in the Middle East, a driver shortage if the economy rebounds faster than expected, the recession in Europe and other weather related problems. In Canada there is a risk of a housing bubble which would have a major impact on its economy.

Each company needs to assess the potential risks for each of the five elements outlined above. As a minimum, shippers should be evaluating alternate modes and carriers to make sure they have a range of quality options in place. It makes good business sense to seek out alternate sources of supply, near-sourcing opportunities in Mexico or Latin America, back-up computer systems and expanding the range of carriers in your routing guide. Motor carriers and logistics companies should have plans in place if a freight terminal or computer system goes down. In addition, each of these options should be tested under “real world” circumstances with actual freight to see if they are viable and dependable in a time of need.

To learn more about this topic, here is a link to some very good articles that were recently published by Adrian Gonzalez and Tim Cummins.

http://campaign.r20.constantcontact.com/render?llr=bkiefwcab&v=001Odyl7ekdr1Y0hY6_1pu4SluP1VzX4EBZXXBQSIBKFz1mQV70lsSFWp9xjxR8kag7x9KopX36zVBSkG3wVHfrTr0WSTXZASY1qHYzbZHZhN03TsWgY9LmUWkYo3neOBernWXuWBlX-FSMXoqhr6sGZUBBklvooDpB7ig2qXCiMZc%3D

http://contract-matters.com/2013/01/03/tackling-supply-chain-risk/

Here are some publications that are worth reading:

Yossi Sheffi's "The Resilient Enterprise" and "Supply Chain Risk Management: A Compilation of Best Practices" published by the Supply Chain Risk Leadership Council.

What is your company doing in the area of Risk Management? Please share some of your practices and procedures with the readers of this blog.

Interested in improving the performance of your supply chain or your transportation company, join the Freight Management Best Practices Group on LinkedIn

Regina’s Global Transportation Hub (http://www.thegth.com/) was launched in February of 2011. The 1700 acre property is owned and operated by the province of Saskatchewan. Canada’s Federal Government has provided funds for the road network.

View image

According to Blair Wagar, its chief operating officer, it was developed to achieve several objectives:

1. Try to improve transportation and logistics in Saskatchewan;
2. Bring shippers and carriers together at one location;
3. Help companies drive cost out of their supply chains.

Mr. Wagar pointed out that Loblaw Companies and CP Rail are the two founding tenants. Loblaw’s, one of Canada’s premier food retailers, is occupying a million foot warehouse and is using the Global Transportation Hub (GTH) as it key gateway to western Canada.

View image

CP Rail will begin using this facility as a key intermodal hub this Spring.

View image

This inland port is attracting interest from other leading transportation service providers. Yanke Transfer, a major truckload carrier, will start construction on its 40 acre site in the Spring of 2013 and will run LCVs and temperature control units from this facility.

View image

Consolidated Fastfrate, a large LTL player in Canada, has done a site grading and will also begin construction on its 10 acre facility in the Spring.

View image

From a rail and international shipping perspective, the Global Hub is expecting to handle significant volumes of inbound freight from the Asia Pacific. It also is planning at moving some export volumes to BC (Port Metro) and some via the Port of Montreal to Europe. There are currently 3600 truck movements a week moving through the GTH.

When asked about the GTH’s value proposition, Mr. Wagar highlighted that the roadways in and out of the facility are designed to move turnpike doubles between Calgary, Winnipeg, Edmonton, Regina and Saskatoon. Motor carriers can run triples between Regina and Saskatoon only at this point if they have the proper permit. Loblaw is now doing it.

What is the GTH’s growth strategy? “We are interested in any company looking to expand into western Canada, companies trying to improve their supply chains. We are also looking for companies in the transport business that have an interest in setting up terminals in western Canada. The GTH is also of value to local Saskatchewan companies that are trying to tap the export market. For carriers that wish to do business with Loblaw’s they can co-locate with Loblaw in this facility. The value proposition for shippers is that they can co-locate with truck fleet operators,” stated Mr. Wagar.

Looking ahead to the future, the economy is growing in the west. At Regina’s Global Transportation Hub the land is shovel-ready. “To facilitate land and regulatory approvals, the environmental studies have been done,” commented Mr. Wagar. Companies can go from concept to operations almost immediately. All infrastructure can be used by LCVs.”

Which companies should consider locating a terminal location in Regina’s hub? “Companies have to perform a transport economic study to see if Regina is the right place for them to locate,” stated Mr. Wagar. If their freight flows and the economics work, the GTH could be the place for them.

Manufacturers and retailers spend millions of dollars a year on freight transportation. Freight costs can represent between 1 and 10 percent of a company’s operating expenses. Many companies treat freight costs as a necessary evil. Once a year they engage in an annual ritual, the freight bid or RFP. The current carriers are squeezed in their pricing; sometimes new carriers are brought into the mix if some incumbents haven’t performed. Shippers walk away thinking they have dome their jobs and optimized the value of their freight costs. They haven’t.

Every few years, shippers with a freight budget in excess of $1 million should conduct an independent audit of their freight programs. Just as businesses audit their accounting practices, looking for opportunities for improvement, Transportation departments should do so as well. You might be amazed with what you find.

There are four key components of well conducted Transportation Audit.

1. Face to face interviews with the key transportation professionals using a structured interview format
2. Administration of a written transportation technology and strategy questionnaire
3. Observation of a company’s shipping operations including the packaging of the freight, dock operations , loading/unloading,
4. Analysis of a company’s freight data

The following items are assessed in the audit:

a) Organization of Transportation within business unit – degree of centralization/decentralization
b) Linkage between inbound and outbound freight
c) Where transportation fits within the design of the company’s supply chain
d) Location of plants, DC’s, vendors and customers and how transportation links these components
e) Freight spend as a % of revenue and trend over time
f) Utilization/effectiveness of transportation technology
g) Freight transportation budget versus actuals
h) Spend management/ Off-plan spend (e.g. use of expedited freight transportation)
i) Packaging of freight
j) Loading/unloading of freight – load optimization and load factors
k) Dock operation
l) Use and management of private fleet
m) Mode and carrier selection process/vendor and customer required transit times
n) Analysis of Routing Guide by mode
o) Freight spend data analysis by mode
p) Compliance tracking (e.g. compliance with routing guide)
q) Freight rate benchmarking – is it done?
r) Timing/results of most recent freight bids by mode and results achieved
s) Carrier performance management (e.g. scorecards) – on time service, billing accuracy, claims ratios, customer satisfaction
t) Freight rate auditing process – pre and post-audit

The results of the audit provide a prioritized list of cost savings opportunities. They highlight opportunities to strengthen the transportation organization. The audit also provides a road map for improving processes and customer satisfaction.

Has your company conducted an audit of its freight operations within the past three years? Was your company able to reduce its’ freight spend and improve the performance of its supply chain? If so, please share your experiences with the readers of this blog. If you haven’t conducted a Transportation Audit, you may wish to give it some consideration.

Dan Goodwill is the president of Dan Goodwill & Associates Inc. (www.dantranscon.com), a company specializing in transportation consulting services.