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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.

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

  1. _hm
    September 25, 2012

    Bring manufacturing close to home. Along with transportation, it will bring ten more advantages.

     

     

  2. SP
    September 26, 2012

    Agreed if the transport medium by road is reduced, cost of logistics are bund to go high. And ultimately parts are going to get expensive. But truck driver's job isnt a fancy one. Its a hectic job with less pay. The risks are more.

  3. Himanshugupta
    September 26, 2012

    In last few years i have seen something quite interesting happening in India as far as logistics and supply chain is concerned. With the advent of e-commerce in last decade and now it becoming a rage, these companies are building their own courier and postage network rather than relying on pre-existing private and public services. I do not know the real reason but i think tha better customer service, bit expensive but more reliable service and long term planning can be some reasons. I know that in US, FexEx and UPS etc are usually preferred for e-commerce services but not in India. I wonder whether any such activity is happening in other emerging countries.

  4. Himanshugupta
    September 26, 2012

    Rather than bringing manufacturing close to home, i will prefer either manufacturing at low cost destination or at home because either reduce logistic and supply chain simple or keep it at low cost. A middle way can be of little benefit.

  5. bolaji ojo
    September 26, 2012

    _hm, Sorry, a great deal of the manufacturing that's been transferred outside the United States and other Western nations isn't coming back but I do agree that high-end production may return as manufacturers consider their total cost, including logistics.

  6. Houngbo_Hospice
    September 26, 2012

    @Bolaji,

    Anyway, that is good news even if all the jobs dont come back home. But as you said, the surge will depend on the production cost in the home country. Apparenty in the US, manufacturing jobs are coming home fast according to this article.

  7. Daniel
    September 27, 2012

    HH, we cannot say like that, Obama is trying his level best to bring back atleast some of the companies and to stop outsourcing. But again it may be for a short while still completing the next presidential election. Last week he also announced certain packages including tax rebate and exemption for native companies.

  8. stochastic excursion
    September 27, 2012

    Bringing manufacturing closer to where goods are purchased would involve effort, and involve a lot of urban planning.  Will phasing out the off-shoring logistics, with all its sunk costs, be more economical in the long run?  The numbers indecate that this may be true.

  9. Jennifer Baljko
    September 27, 2012

    _ hm – bringing manufacturing back closer may offset the transportation costs, but it may not lessen the total, longer-term costs, and that's still what will drive business decisions.

  10. Jennifer Baljko
    September 27, 2012

    Himanshugupta – That's an interesting trend, thanks for sharing the news. Do you know which companies are setting up their own delivery services? Any high-tech companies? I'd love to look into and maybe do a story about it. Thanks.

  11. Jennifer Baljko
    September 27, 2012

    Hospice – Thanks for sharing the link. I'll check it out. I tend to agree with Bolaji — I can't imagine all manufacturing will come back to the US, but rather some select portions within some industries could make it back onshore, if all the numbers and risk assements somehow come into balance.

  12. Jennifer Baljko
    September 27, 2012

    Stochastic – I agree with you… there's a lot of pre-planning and urban redevelopment work that needs to be done before manufacturing can come back in any significant way. Also, there has to be tax incentives in place to bring businesses back to certain cities, and a relatively skilled and reliable labor force to employ. Doing this pre-planning work will be expensive initially. However, there are many blighted neighborhoods and cities that once had a strong industrial base that could benefit from some sort of private-public collaboration to re-establish manufacturing. The big hurdle will be fighting the “not in my backyard” syndrome… will local residents want a big chip production facility  or a factory that makes metal casings for electronic devices down the street? Many hheavy industries were linked to health and environmnetal issues, and costs towns and companies a lot of money to clean up when they left before. Certainly there will people who won't want these factories back, or at least won't want them near their houses.

  13. Houngbo_Hospice
    September 27, 2012

    @Jacob,

    “Last week he also announced certain packages including tax rebate and exemption for native companies”

    Thanks, tax rebartes are good incentives. Hopefully, these good intentions and the job onshoring momentum will not slow down after the election.

  14. Mr. Roques
    September 27, 2012

    Do you have the information on the cost difference between all methods. There must be breakeven points based on kilometers, etc between them. 

    Perishables and other products need a specific transportation method but others are more flexible. 

  15. Himanshugupta
    September 27, 2012

    Jennifer, the companies that i know are mostly local companies and involved in e-retail business. i do not think that you know any of these companies though they have been growing very fast and plan to hit 100 million USD business within 5 years. Some of the most notable are: flipkart, tradus, zabong.

  16. Himanshugupta
    September 27, 2012

    @Mr.Roques, i think that rail-road is the cheapest for land/intra-continent transportation and shipping is cheap for inter-continental transportation. Though such mode of transportation are slow and might require extensive supply chain management. I am pretty sure that both organic and inorganic products are transferred but organic product require special attention and conditions so that they can be consumed at the destined place.

  17. stochastic excursion
    September 27, 2012

    Inertia at all levels has to be faced, especially as our increasingly transient society makes involvement in local government less of a priority for ordinary citizens.  On the other hand, there have been advancements in the caliber of professionals responsible for planning the growth and change of communities.  I'm guilty of optimism here, but I think the few who are inspired may determine the course of change for the better on US shores.

  18. Taimoor Zubar
    September 30, 2012

    ” Many hheavy industries were linked to health and environmnetal issues, and costs towns and companies a lot of money to clean up when they left before”

    @Jennifer: That's a very valid point. Unfortunately, when people are calculating the cost of a project or comparing two projects, they tend to ignore the social costs completely. In many cases, it may not just be an abstract cost – companies may have to pay for the damage to the environment out of their own pockets and that's a significant cost.

  19. hash.era
    September 30, 2012

    These are Indian online companies which are very much similar to eBay isn't it himsnshugupta ?

  20. hash.era
    September 30, 2012

    Jennifer I think it's good if all the companies do not come back to USA since then it will give the investors to diversify the market to other countries which will indirectly bring revenue to USA

  21. Himanshugupta
    September 30, 2012

    @hash, these companies are as similar as apart from e-bay. I think, on ebay anyone can sell but these companies are more like amazon…online e-stores for very much everything.

  22. Daniel
    October 1, 2012

    HH, even I have the same thought. He is trying to do something before the election, but I don’t know how long such momentums will last. Once after the next year presidential election, wait and see on how much spirit he can take it further.

  23. hash.era
    January 30, 2013

    Ok I got it. It seems much clearer now but dont you think the process is the same still ?

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