Operating a world-class supply chain requires the ability to respond quickly to transformative events, both sudden and expected. This ability to manage global operations, often involving a complex asset-based ecosystem, is becoming the defining capability for leading organizations.
Even with new supply chain tools for calculating optimal costs and improved monitoring methodologies, supply chain managers are frequently tested when unanticipated events disrupt shipping, such as Iceland’s Eyjafjallajökull volcano. Contrary to sudden events impacting commerce, the lead time before the opening of the expanded Panama Canal gives companies the chance to plan for this likely disruptor and develop fulfillment capabilities with flexibility to quickly take advantage of new opportunities.
While the implications of the expansion are somewhat uncertain, the completion of the expansion looks assured. The construction is on schedule, and the first ship is expected to pass through the expanded canal on Aug. 14, 2014 — 100 years to the day after the first ship sailed through the canal.
The $5.2 billion expansion will make global commerce more efficient for shipping to and from the east coasts of the Americas and beyond, and could provide a new set of options for shippers.
Over the past 30 years, all-water traffic through the Panama Canal has fluctuated as corporate supply chain managers have considered the various trade-offs of using West or East Coast ports. While the vessels are operated by ocean carriers, routing decisions are made by the supply chain managers for the shippers. Specific estimates vary, but East Coast ports are anticipating an increase in the number of shipments that are rerouted through the Panama Canal when the expansion is complete.
Paul McClintock, senior vice president and chief commercial officer for the South Carolina State Ports Authority, expects the flow of goods to increase significantly to its port after the canal’s expansion. As one of the few deep-water ports on the East Coast, Charleston expects to benefit where other ports may not. Charleston already has invested $800 million in new terminal capabilities to prepare for the opportunity that it foresees.
“Distribution centers and cross-dock capabilities are improving on the East Coast, with third-party logistics companies locating here. That’s an indicator of opportunity, and the establishment of a fourth corner for landing and distributing goods in the U.S.,” McClintock said.
Building potency into the supply chain today will prepare U.S. importers to take advantage of changing route economics with the Panama Canal expansion. It also will enable them to respond to the various challenges that regularly arise in today’s volatile markets: major swings in supply, the entrance of new competitors, shrinking product life cycles, rapid changes in the availability and prices for commodities, currency fluctuations, unfolding political events and disruptive natural disasters.
New technology and resource capabilities will be needed to make optimal choices not just for routes and ports, but also for the location of future distribution centers, other infrastructure and suppliers. Two primary capabilities include:
-- The ability for freight buyers to calculate the true cost of any one route quickly and accurately. This provides others in the supply chain organization with the information to calculate a product’s total landed cost — That is, the sum of all expenses necessary to develop, produce, deliver and sell a product. They can make their decisions based on the impact to true costs.
-- The people, processes and technology to route, execute and track the movement of goods at the stock keeping units level. Having real-time information on the location of goods enables quick changes as goods are transloaded from a single ocean container onto multiple domestic containers bound for multiple distribution centers. Results are reduced inventory costs and the ability to deliver product quickly when immediate needs arise, whether the result of unexpected changes in demand, or sudden disruptions to supply.
To provide these capabilities, a company’s enterprise resource planning system must be seamlessly integrated with other essential technologies. Shippers then can act on the insights gained with visibility into the location of goods whether on water, at intermodal points or on land. Together, these technology solutions support the ability to analyze the costs and benefits of multiple complex scenarios:
-- A transportation management system that compiles and routes shipments through the supply chain.
-- Warehouse management systems that manage inventory as it moves through nodes throughout the supply network.
-- A global trade management system tracking inventory from point of acquisition to point of sale for visibility all the way down to the stock, keeping units level whether product is on the water, in customs or on the road.
-- Network design tools that can build optimal distribution networks to maximize new trade routes and allow what-if scenario modeling.
Taking advantage of the opportunities presented by the Panama Canal expansion calls for effective fulfillment strategies and capabilities that take time to develop. Supply chain decision makers with the skills and empowerment to make real-time decisions based on reliable demand forecasts that integrate technologies will be the winners. Now is when to consider what your organization can accomplish in the intervening years to compete as a high performance business when the expanded canal opens in 2014.
Bill Read is managing partner at Accenture Supply Chain Management and leads the North American Supply Chain team. Contact him at email@example.com. Brooks Bentz is a senior partner in Accenture Supply Chain Management and leads the North American Fulfillment Practice. Contact him at firstname.lastname@example.org.