Protean Supply Chains: Ten Dynamics of Supply and Demand Alignment

CHAPTER 4Dynamic Living Models

During the Great Recession, many companies hit a wall in their attempt to control transportation cost in the supply chain. None of the traditional cost control measures seemed to work anymore. Supply chain and logistics managers consolidated less-than-truckload shipments into full truckloads and then converted truck shipments into intermodal shipments. They switched from air express to truck express for rapid delivery. On international movements, they gave up air cargo and switched their shipments to ocean carriers. Despite all those efforts at cost control, transportation expenses rose, driven in large part by the price of oil, although tightened carrier capacity in the transportation market was also a factor.

With no way to control the two key factors driving up transportation expenses, was there anything a company could do? Yes. Revamp the network. Think of the supply chain as a grid with each supplier, each factory, each distribution center (DC), and each delivery point such as a customer's DC or store as a node or point on that network. The distances between points in the network determine the length of transportation haul. Since carriers as a general rule charge on the basis of miles traveled to deliver a shipment, optimal placement of each node can shorten the transits from plant or DC to customer, thus reducing shipment costs.

But there are other factors that impact shipping costs besides the length of distance between network nodes. Take inventory ...