Lean on Me

Analyzing economic forecasts is like untangling spaghetti. But one thing is certain—recent economic trends are putting more pressure on supply chains.

Each year, when the Council of Supply Chain Management Professionals issues its State of Logistics report outlining the major economic forces and trends shaping logistics, my first impulse is to see in which direction the numbers are moving. This year is no different. But another significant story lies below the surface of those trend lines.

When Rosalyn Wilson presented the State of Logistics results at the National Press Club in Washington, D.C., on June 15, 2011, key discussions centered on capacity. The industry achieved near equilibrium in capacity and demand toward the end of 2010, said Wilson. From there, the outlook is for tighter capacity in most modes, except ocean freight. That trend should continue for a variety of reasons, and any sharp increases in demand could present problems for shippers.

When discussing motor carrier capacity and fleet sizes, Wilson noted that new truck purchases are up, but don’t meet replacement demand. That won’t add capacity over time. And with new regulations and anticipated rules changes, the problem may not be limited to seats, but finding drivers to put in them.

One constraint on the truck manufacturing segment speaks volumes for other supply chains. Most production and associated supply chains have been applying lean practices, reducing order volume and limiting safety stocks to avoid overbuilding. Truck manufacturers have experienced this effect through their supply chains and, in some cases, it has caused reliability problems. Other production operations have experienced disruptions as well, leading to slowing or closing manufacturing plants temporarily as supply issues are resolved.

It can be difficult to separate inbound supply chain reliability issues caused by the disruptions from Japan’s major disasters earlier this year from the ripple effect of leaner practices along the supply chain. The fact is, controlling costs by thinning out production and purchases makes sense—if you have the tools to do so effectively. Not every supply chain has the people, processes, and technology to avoid trouble.

Leaner production coupled with lower inventories requires greater attention to demand planning and a strong, responsive supply chain. One key to that responsive supply chain is closer collaboration with suppliers—sharing more details about your business and demand planning as it develops and changes. Suppliers will need strong planning systems of their own to ensure their response remains in line with your changing needs.

Many supply chains have successfully built systems and relationships with Tier I suppliers. But while some companies look at the relationships their suppliers have with the next tier up the chain, only a few actually develop relationships that deep into the supply chain. That approach may need to change.

As we ensure suppliers have the tools to meet our demands, we increasingly need to look at their suppliers to ensure they have the people, processes, and technology to keep pace with the demands passed through to them. This includes connections between suppliers. As transportation capacity tightens, it won’t be sufficient to know that you can get a truck or rail slot when you need it. You’ll need to know that your supply chain can get consistent, reliable, quality service.

When you go lean in your supply chain, you also lean more heavily on your partners. Make sure you know their capacity to support you.

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