Coming to Terms With Today's Supply Chain Challenges
The terms used in the supply chain industry have taken on added significance - not only for those involved in the logistics industry, but also for those making site selection decisions
Logistics professionals aren't quite as formal when it comes to updating their vocabularies. However like Oxford, they are constantly conferring additional significance to terms that have been around for decades.
Such is the case with most of the nine terms below. Some have direct ties to distribution real estate. Others may seem a bit more obscure. But all are critical ones for you and your colleagues to know as you try to make more meaningful decisions for your company's supply chain operations.
What It Means to Supply Chain Professionals: Congestion refers to any volume of traffic that substantially exceeds the capacity available in a particular place. Over the past decade, congestion has been responsible for impeding the flow of transportation and increasing delivery volatility throughout the supply chain.
What It Means for Site Selection: Contrary to how it might appear, evaluating different potential facilities' transportation access isn't a matter of comparing apples to apples. A warehouse or trucking terminal located 10 miles away from key pick-up and delivery points in an area that's prone to high levels of congestion is going to require more travel time - and rack up a higher amount of expense and carbon footprint - than one situated in a less heavily trafficked area that's the same distance away. That doesn't mean the former location might not wind up being your best choice. However, it does mean you'll need to factor this drawback into your final site selection plans.
What It Means to Supply Chain Professionals: The added fee that transportation carriers charge to offset any fuel prices increases that have occurred between a transportation booking (or contract signing) and a product's transit is known as a fuel surcharge. Although all carriers use the same baseline for determining if increases have occurred (a U.S. Department of Energy index of fuel prices that is updated weekly), they have many different ways of applying it to customers' final bills.
What It Means for Site Selection: You cannot eliminate the unpredictability of fuel surcharges - or the fact that they will substantially increase your company's overall freight bills as long as oil prices remain so high. Nevertheless, your site selection proficiency can help your company keep a lid on it in two key ways. First, ensure you have a distribution center network that doesn't require trucks to travel too far out of their way to pick up or deliver loads. Second, make sure each of those facilities has ample truck doors available, because trucks that spend time idling outside your distribution centers while waiting for a dock space can burn significant amounts of fuel.
What It Means to Supply Chain Professionals: Green is the unofficial "color" of the sustainability movement - and a growing concern to all supply chain professionals because freight movement accounts for an estimated 20 percent of the world's total carbon footprint.
What It Means for Site Selection: While you can't completely eliminate your company's transportation-related carbon footprint, you can help significantly reduce it by choosing distribution center locations that minimize the miles required to reach them. You can also opt for logistics facilities that use more sustainable lighting, landscaping, and climate-control technologies.
What It Means to Supply Chain Professionals: The process of delivering small-quantity orders to end-users is the last mile. Often erroneously considered synonymous with only small packages, last mile actually encompasses the final delivery of any kind of product to a home, job site, or office, including products such as furniture, appliances, large electronics, medical equipment, cabinets, and building supplies.
What It Means for Site Selection: With computer access and online shopping still growing, businesses need to assume that there will be more, rather than fewer, of these kinds of deliveries in their supply chain futures. As a result, proximity to a wide number of zip codes could become an increasingly important consideration when deciding if it's time to add new logistics locations, where to locate them, and whether or not it might make sense to use some that are operated by third-party logistics providers.
What It Means to Supply Chain Professionals: This refers to a public-private partnership between the Environmental Protection Agency and transportation companies that is designed to encourage more sustainable transportation practices and minimize the supply chain management industry's impact on the environment.
What It Means for Site Selection: Even if finances don't yet permit your company to build or move to a LEED-certified distribution center, there are still other ways your company can participate in more sustainable logistics practices - including working with more carriers that participate in this highly successful initiative.
What It Means to Supply Chain Professionals: Stem time is the amount of time between when a truck leaves a distribution center or terminal and when it makes its initial delivery. Stem time is considered to be some of the least productive - and therefore least desired - transportation time in a company's supply chain, especially in the last-mile delivery sector.
What It Means for Site Selection: If your company is considering a distribution center in a remote locale simply because you've been offered highly attractive leasing arrangements and tax incentives, think again - and then exercise some due diligence to first find out how dramatically it will affect your carriers' average stem time. Often, the potential real estate savings offered by these deals may be vastly outweighed by the increased transportation costs.
What It Means to Supply Chain Professionals: Optimization refers to a highly systematic and mathematical technique that can help companies choose the best option for addressing a supply chain challenge or need. Many companies rely on optimizations to help them determine how many distribution centers they should have, where those distribution centers should be located, and how those distribution centers should be laid out. They also use them to build cost-efficient loads and routes.
What It Means for Site Selection: As supply chains have become more global and taken many companies into markets where they're never operated before, companies have become far more willing to embrace this decades-old technique - and far less inclined to choose locations based simply on gut feelings or rules of thumb. Expect to use this practice more often in coming years.
Third-Party Logistics Provider (3PL)
What It Means to Supply Chain Professionals: Any transportation or warehousing company that is capable of providing multiple logistics services for shippers is a 3PL. According to Armstrong & Associates, more than 75 percent of domestic Fortune 500 companies now use at least one 3PL.
What It Means for Site Selection: If your company is outgrowing its current in-house distribution centers or expanding into new markets, but is reluctant to commit capital for a new operation during these tough economic times, it may wish to consider using a 3PL's warehouse instead - or asking a 3PL to perform some of the services it needs.
What It Means to Supply Chain Professionals: An area's existing supply of roads, ports, waterways, airports, and railroad tracks comprises its transportation infrastructure. Most logistics professionals are concerned that a significant percentage of the world's transportation infrastructure (including our country's interstates and railways) is either too aged or insufficient to support the traffic expected to move through it.
What It Means for Site Selection: Although the presence or absence of an area's transportation infrastructure is a factor that is out of most companies' control, that doesn't mean it shouldn't be a prime consideration when it's time to compare and contrast the merits of potential locations. Look closely not only at the quantity of an area's available transportation real estate, but also at the quality because poorly maintained roads, for instance, can not only slow truckers down, they can also add up to additional wear-and-tear to their vehicles. In addition, do your homework to find out if there are any infrastructure repairs or expansions planned in the near future. While those improvements could be beneficial to your company in the long run, they do have the potential to throw a monkey wrench in your supply chain efficiency during construction.
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