Opportunities in tough times

Opportunities in tough times

The possibility of a lengthy and deep recession is forcing companies to look closely at their supply chains for cost-saving opportunities.

According to Peter Levesque, the Hong Kong-based senior vice president for international logistics solutions at CEVA Logistics, there are three potential opportunities for shippers to achieve cost savings associated with Asia sourcing. The primary objective of two of the three ideas is to more completely fill the interior space of the container, thereby reducing the total number of containers shipped without a reduction in overall cargo moved. The third, known as origin postponement, aims to make better use of lower costs in Asia without sacrificing speed to market.

Ensuring that containers are filled to the maximum extent possible has been a priority for many logisticians this year. Merchandise, whether electronics, apparel or household goods, tends to be light enough that a container can be packed to capacity without busting through weight restrictions. The crucial question is how to accomplish this. Earlier this year, companies grabbed the low-hanging fruit, simply urging those directing the stuffing of containers at the manufacturing plant or consolidation center not to allow boxes to be sealed with empty space.

The effort has proved successful, and carrier executives acknowledge the trend has taken a slight but noticeable bite out of their trans-Pacific eastbound volumes. But shippers also admit that simply paying more attention to loading is an opportunity that will evaporate quickly as stuffing practices improve. And because cost pressures are sure to endure, superiors will soon ask, "What have you done for me lately?"

Taking stuffing to the next level is what Levesque is talking about. More effectively managing the conversion of a purchase order into a loaded container, for example, means exerting more control over how container loading is planned out to begin with. This is one area where 3PL services can add value. For example, CEVA transmits computer-generated load plans to its clients' factories to help improve utilization of vendor-loaded containers.

Going further requires the redesigning of cartons, a practice that also can yield savings in packaging costs if less cardboard or other materials are used. The most basic example is shoes. Think of how much unused space there is inside a shoe box. Those who have redesigned shoe boxes have realized large savings in materials and shipping expense.

Levesque said this is another area where 3PLs can add value. "We provide customers with package re-engineering services that allow clients to redesign factory and retail carton dimensions, in order to optimize container utilization, reduce paper waste and reduce the total number of containers shipped."

The ultimate achievable savings are 8 to 12 percent improvement on carton cube utilization, 5 to 10 percent reduction in packaging material, and 5 to 20 percent savings in freight cost per unit due to the increase in load density. These savings are not realized overnight, and presuppose commitment from non-logistics units, which usually requires buy-in and leadership from senior management. When such savings are attempted but not achieved, it's usually because of internal barriers among a company's merchandising, procurement, sourcing and supply-chain operations. However, once accomplished, transportation cost savings are achieved down the line, not just in containers but in trucking and rail as well as customs. Levesque said utilization of packaging redesign among shippers is still in the early stages, "but I don't think that the adaption process will take long."

Origin fulfillment takes the importer down a different road, and involves the pushing of as much value-added logistics service as possible back to the source country in Asia, where labor, materials and real estate are cheaper. This is the thinking behind the much-touted, but still marginally utilized distribution center-bypass strategy that involves shipping direct from the port to the store, the idea being to reduce U.S. distribution center costs. The tradeoff is that goods located farther from point of sale can't be repositioned quickly.

Levesque said the origin postponement model allows customers to use the manufacturing point of origin as the value-added logistics service center and their global distribution hub. Companies employing this strategy are able to delay decisions on the final destination of their products until the last possible moment, package products at origin to meet end-consumer requirements, and ensure that those products are shipped to meet actual demand. These are all just ideas, of course, but savings have to start somewhere.

Peter Tirschwell is senior adviser of The Journal of Commerce. He can be contacted at 973-848-7158, or at ptirschwell@joc.com.