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Top 3 supply chain management issues in 2022 and how to overcome them

Jonas Mehrhoff
Jonas Mehrhoff
July 12, 2022
5 min read

Note on the authors

Heiner Murmann is the founder and CEO of Orkestra SCS, a logistics, technology and services company. In addition, Heiner serves as Executive Chairman for Evolution Time Critical and President of The Five Inc., and as an Advisory Board Member for both Metro Supply Chain Group and Black & McDonald Limited. Notably, Heiner previously held various senior executive roles at DB Schenker, one of the top three global logistics companies, as a Member of the Board of Management responsible for Air and Ocean Freight, and as CEO of the Region Americas.

Arnold da Silva, Senior Ocean Freight Advisor for Orkestra SCS, is head of an ocean freight consulting company where he actively advises global shippers on ocean freight strategy and execution. With 40 years of experience in the ocean freight industry, Arnold served as Executive Vice President for Ocean Freight Region Americas for DB Schenker. Arnold's passion is to conceptualize and implement innovative ocean freight solutions that transform one’s supply chain and promote a shipper's success.

While the current state of the global supply chain is arguably the most unpredictable it has ever been, there are a few universal hurdles supply chain leaders everywhere find themselves dealing with.

While customers have been demanding more and more performance, speed, and savings among other requirements, for supply chain executives, balancing these demands with achieving an undisrupted supply chain has created a new world of challenges.

Let’s explore some of these hurdles below, and map out a few actionable steps to remedy them.  

Problems in achieving OTIF – On Time In Full

OTIF has been defined by various organizations across the supply chain, but the most summarized definition of OTIF would be:

OTIF is a performance metric created to measure the timely delivery (On Time) of the exact quantity (In Full) of goods ordered to the customer.

OTIF is a vital KPI of how supply chains should perform as it encompasses procurement, transportation, and storage.

One of the main challenges that hinder acceptable OTIF performance is the lack of data and visibility on the movement of cargo, preventing supply chain executives from achieving the desired OTIF performance.

Many supply chain leaders find themselves stuck trying to figure out the best period to coordinate and deliver shipments, identifying reasons for delays in deliveries, being met with insufficient visibility of available inventory levels and more. Visibility into OTIF performance is essential, as it provides a thorough analysis of the percentage of shipments delivered within the total carriage time allocated for it. This is crucial when predicting spike in volumes that could affect operations and identifying the most successful haulage patterns and routes currently in use. Another piece that is often overlooked is the ability to track previous shipments and identify any known delay patterns for specific SKUs, routes, and customers.

By analyzing the data of the above factors affecting OTIF performance, a supply chain executive can identify the pain points and take necessary corrective action.

What can you do?

The easiest way to ensure that OTIF remains on track is;

  1. To analyse the complete operational and delivery process
  2. Identify Root Causes for above or below par delivery
  3. The digitalisation of key and repeated processes
  4. Having the right digital tools to monitor performance consistently  

Because OTIF is a performance indicator, it is measurable in real-time and corrective action can be taken where the performance is below or above par.

To measure OTIF accurately, transactional data and the ability to read such transactional data is vital, and this can be achieved with a capable and comprehensive digital supply chain platform and management service.

Inventory levels - demand and shortages

Maintaining adequate inventory levels is almost as vital as achieving the required OTIF performance.

Inventory management can be defined as the tracking of stock moving in and out of warehouses and the ability to identify the quantity of stock available and its location at any given time.

Effective inventory management is one of the key factors that separate successful and well-run supply chains from the others.

If the inventory levels are not managed effectively, the supply chain can face many issues including overstock, understock, miss-picks, and incorrect shipments creating a customer service nightmare for the company.

High inventory levels, whether it is inside a warehouse or in transit, can result in a lot of tied-up capital, while inadequate inventory levels can result in loss of business and reputation.

Inventory management could also be considered a special skill involving various techniques like Just in Time, Minimum Order Quantity, Economic Order Quantity, Buffer Stock, Perpetual Inventory Control, and Demand forecasting among others.

What can you do?

While it may seem like a balancing act, effective inventory management and optimization can be met by having 360° visibility of all inventories in the chain, be it in an external warehouse, somewhere in transit in a container or in a small internal warehouse in a production facility.

Avoiding high logistics costs

The economic development of any country is directly linked to logistics cost as logistics pervades every area of a country’s growth, depending on the region, country, and infrastructural capabilities.

Logistics costs can vary between 8% in many advanced economies to 25% of delivered costs in many developed economies.

Many factors such as ocean freight rates, transportation infrastructure, competition in the market, regulations, tax, and the role that each sector plays in the economy has a big bearing on logistics costs.

Inconsistent demand in transport relative to the size of the country’s economy caused by various factors such as distance of manufacturing zones from coastal ports also contribute to high logistics costs.          

While some of the above costs may be unavoidable to small and medium-sized businesses, the bulk of logistics costs can be controlled and/or reduced by integrating logistics and IT systems.

The very same points discussed above like OTIF performance and inventory management are great ways to reduce high logistics costs.

Other methods include:

  1. Maximizing utilization of space – whether inside the warehouse, a container for FCL shipments, a Console Box, or a truck for LTL shipments
  2. Optimizing floor operations – saving on labour costs which form a big part of warehouse and supply chain operations
  3. Avoiding cargo damage especially during handling of cargo operations, and eliminating cargo claims 
  4. Planning shipments timeously so that everything does not need express or expedited delivery
  5. Automation and a comprehensive IT system/platform that caters to all business needs. While there are several off the shelf products for logistics, it may be beneficial to have a tailor-made solution that adds value to the business on-time performance impacts revenue

Environmental challenges for today’s supply chain executive

Apart from the above challenges, another important factor proving to be a problem for today’s supply chain executive is the environmental impact and carbon footprint.

A study done by the International Trade Forum has shown that the carbon footprint from logistics is increasing from 2108 metric tonnes in 2010 to a colossal 8132 metric tonnes in 2050.

The study also indicated that 30% of all transport-related CO2 emissions from fuel combustion is from the freight industry, which currently accounts for 7% of global CO2 emissions.

transport modes that have less CO2 emissions

Sea freight has the 2nd lowest grams per ton-km emissions as compared to other modes of transport usually used in supply chains, such as air or road freight.

Currently, there is a big push from shipping lines that are ordering more energy-efficient ULCVs (Ultra Large Container Vessels) which reduces the carbon footprint per TEU while using clean fuels like Biofuels, Hydrogen and LNG.

Supply chain executives can assist in the global initiatives to reduce CO2 emissions by setting up sustainable supply chains by using a digital platform.

Actionable steps

A well-managed supply chain involves the effective use of technology which has proven itself imperative for real-time visibility and intelligent data.

For today’s supply chain executive, real-time visibility and intelligent data management are a must for decision making, measuring OTIF performance, achieving effective inventory management, avoiding high logistics costs, understanding the environmental impact, and analyzing the speed of the product to market.

While navigating supply chain disruptions remains an ongoing challenge for all, supply chain executives who use adaptable technology and techniques can control and manage the operations of the supply chain in the most efficient and effective manner.

The solution for all the mentioned challenges revolves around data assisted by a comprehensive, intelligent, and sustainable digital platform that can make sense of the data and provide reports for further action and immediate decision-making.