TRENDS
NEWS & EVENTS SHAPING THE FUTURE OF LOGISTICS
18TH ANNUAL STATE OF LOGISTICS REPORT: Taking Inventory of the Supply Chain
T he biggest news of 2006 was what didn’t happen, not what did. A year of relative calm, however, isn’t giving way to complacency. Instead, businesses are proactively, if privately, tinkering with and tightening supply chains to streamline processes and build additional scalability into their net- works, observed Rosalyn Wilson at the Council of Supply Chain Management Professionals’ 18th Annual State of Logistics Report in June. “The story this year is the underlying drivers of business logistics costs, and the changes in how companies manage their supply chains. No single defining event, such as Hurricane Katrina or soaring fuel prices, occurred in 2006 to explain the trends,” reported Wilson. What’s Driving Priorities? These drivers, namely transporta- tion and carrying costs, are setting the pace for the way businesses approach supply chain priorities. Resigned to the fact that tactical approaches will do little to spark economies on the trans- portation front, businesses are stoking strategic initiatives deeper within their global networks. Such vision inevita- bly comes at a cost though–businesses are carrying more inventory through- out their supply chain to mitigate longer transit times and rising trans- portation spend.
The good news? Carrying more inventory isn’t necessarily a cause for concern, but rather a reaction to changing supply chain needs, Wilson explained. U.S. Business Logistics Spend Hits $1.3 Billion in 2006 CARRYING COSTS ($1.857 Trillion, All Business Inventory) BILLIONS Interest $ 93 Taxes, Obsolescence, Depreciation, Insurance $ 252 Warehousing $ 101 SUBTOTAL: $ 446 TRANSPORTATION COSTS Motor Carriers: ■ Truck — Intercity $ 432 ■ Truck — Local $ 203 SUBTOTAL: $ 635 Other Carriers: ■ Railroads $ 54 ■ Water INTERNATIONAL DOMESTIC $ 32 $ 5 ■ Oil Pipelines $ 10 ■ Air INTERNATIONAL DOMESTIC $ 15 $ 23
“Managing logistics in today’s com- plex global environment costs more,” she added. The past few years have brought the challenges of moving both domestic and global freight under a microscope – specifically magnify- ing the capacity, congestion, and cost issues shippers and consignees have faced while managing shipments over the Pacific and over the road. Leaning on Deeper Inventory This difficulty has inevitably forced global businesses to reconsider other areas of their supply chain operations. “The strategy in the era of just-in- time manufacturing was to remove excess inventory from the system, slim- ming inventories to bare minimum levels. We demanded reliable transpor- tation services that could deliver when promised, making it possible for firms to reduce inventories and implement streamlined supply chain management strategies,” explained Wilson. But the events of the past few years – notably the terrorist attacks of Sept. 11, the West Coast port strike, and Hurricane Katrina – have com- pelled companies to accommodate safety stock within their supply lines, pushing inventories back to their sup- pliers, to meet spikes in demand and manage exceptions accordingly.
■ Forwarders
$ 27
$ 166
SUBTOTAL:
$ 8
Shipper-Related Costs Logistics Administration
$ 50
TOTAL LOGISTICS COST $ 1,305 SOURCE: Council of Supply Chain Management Professionals
July 2007 • Inbound Logistics 33
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