Top 3 challenges facing today’s supply chain executives

Jonas Mehrhoff
Jonas Mehrhoff
May 17, 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.

The evolution of global trade and advances in digitalisation in shipping, freight, logistics and supply chain has brought the world closer to the consumer and vice versa.

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 few challenges.

Supply chain executives may need to rethink and adapt supply chain operations fundamentally, to meet the present and future demands which are vastly different from the past.

Problems in achieving OTIF – On Time In Full

OTIF has been defined by various organisations across the supply chain, but the most summarised 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.

The lack of visibility and data analysis on the below issues could prevent supply chain executives from achieving the desired OTIF performance.

  1. Knowing the best period to coordinate and deliver shipments
  2. Identifying underlying reasons for delays in deliveries especially in the last mile
  3. Insufficient visibility of available inventory levels
  4. Visibility and analysis of the percentage of shipments delivered within the total carriage time allocated for it
  5. Predicting spike in volumes that could affect operations based on past performance
  6. Identifying the most successful haulage patterns and analysing whether the routes being used are optimised
  7. Understanding the peaks and troughs of various products and seasonality  
  8. Analysing previous shipments to identify any known delay patterns for specific SKUs, routes, and customers

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

The easiest way to ensure that OTIF remains on par 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.

Maintaining adequate inventory levels

Maintaining adequate inventory levels

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.

Any company that is operating a supply chain needs to have an effective methodology for inventory management and maintaining adequate inventory levels.

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 whereas 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.

Effective inventory management and optimization involves the supply chain executive 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.

These logistics costs can vary 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 (which are at exorbitant levels currently), 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, a lot of the 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. Maximising utilisation of space – whether inside the warehouse, a container for FCL shipments, a Consol Box, or a truck for LTL shipments
  2. Optimising 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 already described challenges, another important factor that is 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 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.

Through proper planning and data analysis, the cargo movement can be switched to transport modes that have less CO2 emissions as shown in the chart below.

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.

Action points

A well-managed supply chain involves the effective use of technology which is 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 analysing the speed of the product to market.

While navigating supply chain disruptions remains an ongoing challenge for all organisations, 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.

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Top 3 challenges facing today’s supply chain executives

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