The Parts Are on the Way, but at What Cost?

Sourcing parts and negotiating prices may be the most evident functions of supply chains, but the piece between when the parts ship and when they arrive gets a fair amount of attention, too. And it should. Without the seamless art of transporting goods globally, everyone would be unfulfilled.

To that end, I thought you would appreciate a quick update on what's happening in this part of the supply chain landscape via the Council of Supply Chain Management Professionals' (CSCMP) newly released, 23rd Annual "State of Logistics Report." (The report is free for members, and can also be purchased here. A press release with general information is here.)

The report notes that while a slow recovery is underway, things aren't yet back to the pre-recession levels of 2007, and probably won't be for a while. Some key findings of the report, which shares numbers from a broader, third-party logistics professional's point of view, and not specifically with an eye on electronics, are:

• US business logistics costs rose to $1.28 trillion in 2011, a 6.6 percent increase from the previous year, and accounting for 8.5 percent of US gross domestic product (GDP)

• Overall revenue, for all transportation modes, was 15.3 percent higher than in 2010

• Railroads gained market share and did not experience capacity problems faced by the trucking sector. Trucking companies are also using intermodal rail help to offset the impacts of driver shortages, as well as the costs of acquiring and maintaining new equipment

• In spite of tightening capacity and an overall decline in volume, trucking rates were up five to 15 rates in 2011

• Even with the air cargo sector's record year for exports, the industry still experienced a decline, with domestic air cargo revenue down more than three percent, compared with less than a one percent decline in international revenue

• Ocean carriers' woes continued, with growing excess capacity, rate erosion, service declines, and operational losses

• Inventory carrying costs continued their rising trend in 2011, while overall inventories returned to pre-recession levels -- signaling a possible cause for concern for the economy. Inventory carrying costs increased 7.6 percent, and were tied to higher costs for taxes, obsolescence, depreciation insurance, and the rise in inventory levels

So, what do we make of this information, and how can high-tech supply chain managers use it to their advantage? As with most supply chain discussions, planning and exception-management know how is always critical in evaluating logistics operations.

It seems like the first area worth a quick once-over is inventory management: Do the levels appropriately match current supply and demand pictures?

If trucking rates are up, trains are gaining market share and air cargo revenue is down. This signals to me that it may be time to check back with your 3PL and see if goods are moving appropriately through the right modes.

In the longer term, this issue with "trucking capacity" may mean more than just having a limited trucking fleet available. If a recent Wall Street Journal article is correct, in some regions, including Europe, road-haulage operators are finding it hard to recruit enough drivers.

Citing Eurostat statistics, the WSJ article explains that across the European Union, 78 percent of goods transported by land go by road. Changing demographics and the lack of job appeal is leaving the trucking industry with gaps.

How much of this will become an issue within the electronics sector?

Please weigh in on how you're better managing logistics.