As technology evolves and demand increases, supply chain managers are facing new challenges particularly as they attempt to compete on a global level. Traditional supply chain operations utilizing an optimization engine based on a single network can no longer provide the service that businesses and consumers require.
Complacent companies struggling to meet customer demands with the systems of yesterday will be left behind as forward-thinking companies grab market share.
What can supply chain leaders do overcome the common stumbling blocks? Technology is one part of the solution; companies must also shift from managing the supply chain as a cost center, to a modern model that makes supply chain a strategic, competitive asset.
A collaborative, connected model
Embrace a supply chain that relies on cooperation and collaboration versus siloed, internal operations. This “macro-optimized” approach offers the speed and flexibility needed to compete in today’s market. It supplies access to partners around the world, allowing businesses to locate the resources needed on demand, and provide capacity where and when needed.
Macro-optimization involves looking at opportunities available through multiple networks. To accomplish this, businesses must have access to a global trade network that allows access to a broader, wider community of other shippers, trading partners, carriers, freight forwarders, and so on. A single-instance, multi-tenant environment for the accumulation of all of the data involved is also necessary, giving companies the ability to manage all transactions and activity in one place.
Macro-optimization vs. micro-optimization
There is a basic limit to the effectiveness of a traditional micro-optimized model because it is inherently limited to a business’ own orders, rates, and carrier capacity. This means that there is a finite amount of opportunity for consolidation and backhauls. On average, logistics teams see four to 10 percent sub-optimal output from micro-optimization. Macro-optimization gives companies the tools to deal with that inefficiency, helping them find new opportunities with partners within the global trade network, and encourages the sharing of resources for a better return on investment.
An example in real life: Shippers sharing capacity
Capacity constraints can be a daily issue for shippers. In a market with a fixed amount of capacity, you have the same group of shippers trying to outbid each other for a less-than-truckload pick up. The “winning” shipper ends up overpaying, and the carrier ends up sending a truck down the road with empty space. With macro-optimization, shippers can share capacity on less-than-truckloads or on backhauls. If a shipper always moves freight on a lane to California, but never has a return load, another shipper could use that empty capacity on the backhaul for one of their difficult lanes. Now, both shippers saved money, and the carrier didn’t waste empty miles.
An example in real life: Parcel zone skipping
A group of small parcel shippers located in one major city can use macro-optimization to pool together their freight. Now, they can engage in the cost-saving option of zone skipping. They move their freight by carrier several zones away, and then distribute the parcel to a major distributor like UPS for delivery to save money. This option is not available if they stay in their own siloed operation. But with macro-optimization through a global trade network, the power of the network takes hold and provides new cost-saving opportunities.
The benefits of changing your supply chain model do not stop with cost savings. Companies that have already shifted to a global trade network model are experiencing remarkable velocity, with flexibility to adapt quickly. Sharing resources within a network makes for a better return on investment, creating a more efficient process that can meet the demands of today’s competitive market. A macro-optimized, global trade network approach is the future of supply chain.