The Hidden Costs of Complex Logistics Chains
Costs arise not only from the duplication of efforts, delays and greater compliance-related activities. Even greater hidden costs insidiously work their way into the cargo owner’s logistics chains—the inventory related costs of absorbing supply chain transit time variability. Shipment transit time variability and the cost of running out of merchandise drive the decisions regarding the proper amount of “buffer” stock that must be kept by any consignee, and the higher the transit time, the higher the “buffer” stock levels need to be. The cost of this additional “buffer” stock includes the cost of capital, the cost of warehousing, the cost of accounting for it and the cost of obsolescence. These “hidden” costs are enormous and the advantage those firms that can wring those out of their cost structures will be equally large.
The cargo owner is not the only logistics participant that loses due to shipment transit time variability and the lack of a tightly integrated, real-time information sharing system. All asset-based carriers, from the origin trucker to the steamship line, airline or railroad, to the delivering trucking company, all have enormous amounts of capital invested in their ships, planes, rolling stock, containers, chassis, trucks and trailers. Every minute of nonscheduled downtime where that equipment is not moving is profit lost for its owner forever.
This compares to the unsold seat on a departing aircraft, which is why Priceline and even Sabre’s Travelocity offer such value to their airline customers. Not only do asset-based carriers suffer when their equipment is underutilized or kept out of service unnecessarily, others in the logistics chain also suffer because of a lack of real-time information sharing. There is considerable waste for warehouse and container freight station operators who invariably have extra labor when it is not needed and not enough when it is. These overages and underages are due, in a large part, to not knowing exactly when shipments will arrive, what they contain, and when and where the goods are needed next. Many in the logistics chain are unengaged until the cargo physically arrives and the container or trailer doors are opened. Simply put, there is considerable waste built into the global supply chain environment due to a lack of coordination and sharing of accurate and timely information.