Mitigating disruption in transportation amidst COVID-19
With economic activity grinding to a halt in most industries, transportation companies are...
This is an unprecedented time of disruption and volatility.
With economic activity grinding to a halt in most industries, transportation companies are trying to adjust to the dynamic market conditions. Recent numbers from Geotab show commercial transportation in the U.S. and Canada is operating at 89% capacity for heavy trucks, while transportation to grocery stores is at 90%. At the same time, there is a 96% decrease in passenger flights, and intermodal traffic is at a 10-year low.
Capacity is being dispersed differently throughout the country, because most industries are shut down or severely curtailed. That means when ocean containers stopped arriving in February, California’s capacity was moved elsewhere. What started in Asia had extreme ripple effects around the world.
Diversification lessens disruptions
The global pandemic is showing the need to be more diversified. Trucking companies built around a specific customer base shut down when that industry shut down. Oversaturation in one market or customer base means disruptions hit harder. Companies supporting the food and beverage supply chain saw traffic jump exponentially, as grocery stores remained open and in high demand.
The ability to see these potential events before they happen, develop strategies to reduce risk, and provide the ability to flex up or down will be key to success in the market.
Independent owner operators may be the most diversified, because they can quickly pivot to haul a variety of items. They are spot providers who are not bound by dedicated contracts and pick up from load to load. But even their back-up plan to switch to another industry like construction when volumes are down is ineffective in a pandemic.
The industry has experienced disruptions before, but nothing on this scale. Lessons learned could put companies in position to handle future disruptions better. For example, severe weather can cause issues with supply chain and transportation, as Texas-based grocer H-E-B learned from hurricanes. When the state went into COVID-19 lockdown, it was able to keep stores stocked because of adjustments they made to tighten their resiliency post-hurricane. Disruptions can be the opportunity to build stronger organizations.
Challenge of aging systems and workforce
Technology laggards are having a tough time in the current conditions, but that pain should provide motivation to review technology solutions and embrace new tools.
Like many industries, transportation is dealing with a tenured and experienced workforce. Tracking and managing are often done via disconnected spreadsheets, with most of the day spent calling and emailing transportation providers. In some cases, companies are waiting for in-bound calls. Many companies still have manual systems. The businesses work because they have a group of people with years of experience.
But no matter how much experience your workforce has, it was probably not prepared for a disruption of this magnitude. In a dynamic and disrupted market, they may not be making the right decisions because they have never experienced this kind of event before. If a company hasn’t invested in new technology, employees may not be equipped to change direction.
Customers trying to manage unexpected demand do not want to spend all day on the phone or sending emails to find capacity. For example, one game maker experienced a surge in demand as families stuck at home started buying more board games, but it has been difficult for the company to compete against larger retailers to get truck space. In these situations, a company looking for capacity could benefit from a real-time API rating solution to get a rate, confirm a truck, and then have a platform provider source and assign the transportation vendor.
Preparing for the next disruption
Companies which invested in technology are going to be in a better position. Technologies that produce and encourage network effects provide better insights into the market, as opposed to reacting as a single participant within the market.
With the right technology, analytics, and metrics, companies could have seen the coronavirus trends as early as January. The analytics would have identified some of their clients increasing full truck loads to their stores. The data meant they had time to react before the disruption hit the market, but companies without a technology base had no idea and were unprepared.
The plan of attack depends on your business, and the size and scope of your industry. If you have the ability in this extreme moment of change, it can be an opportunity to step back and measure the effects on your business and ask tough questions. Was it due to the changing environment or some internal technology constraints? If your customers are closed, you can’t deliver. But if your customers are open, are your manual processes and reliance on experience impacting the connections between business functions and trading partners?
Funding technology projects is always a challenge, and transportation traditionally does not have capital to invest in expensive technology. Based on this disruption, there may be a trend to create more inexpensive offerings with mobile capabilities. It may be as simple as drivers opting in to allow companies to track them via cell phones.
Ultimately, the goal is to have a single, clear view of the entire transportation network from ocean containers to truckloads to less-than-a-truckload tracking. But this is aspirational. For now, the continued progression of a multi-pronged approach to driver visibility includes platforms with mobile capability at the center.
Moving beyond disruptions
This disruption will cause some companies to fail. The best defense is reviewing and reflecting on the data now to make fact-based decisions.
Transportation is already a tough industry. According to FreightWaves, more than 600 trucking companies went out of business in the first half of 2019, and COVID-19 will accelerate the demise of any who were already struggling. Without processes and technology, responding in a disruption is nearly impossible. Those companies that survive need to take the opportunity to learn, re-evaluate their corporate strategy, and be ready for the next time.
For more information on procurement, supply chain and logistics topics - please take a look at the latest edition of Supply Chain Digital magazine.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”