Addressing the last link in the chain

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The adoption of a sound strategy at the port-to-destination leg of the supply chain can have a direct impact on the amount and position of inventory, accuracy of forecasting, availability of product at DC, store or manufacturing line, and ultimately the level of sales of the receiving organisation.

With the effort involved in transporting goods from destination port to inland DC accounting for as much as 35 per cent of total end-to-end supply chain costs, increasing numbers of companies are demanding a much more sophisticated approach to this crucial link in the supply chain.

Companies are not only working hard to keep costs as low as possible, but they must also deal with delays caused by congestion in the ports. Direct sourcing is driving an annual increase in traffic at European ports of between five and ten per cent per year.

Increased security measures to counter terrorism threats and reduce stock shrinkage have also conspired to make things more difficult. New legislation such as the Authorised Economic Operator scheme, under which traders in the European Community are certified as secure and reliable partners, and the International Ship and Port Security code add an extra bureaucratic challenge to trade, while checks add a further time burden to ports.

Supply chain managers are also coming under pressure to improve service levels or at least improve service level consistency. With peak season issues at destination ports meaning that offload from ship to destination times can be as much as six days, the destination end of the chain demands more focus.

The old model in which a customer waited at the other end of a phone for a call to say that the ship carrying their containers has just docked before they arranged collection just doesn”t work in today”s complex business environment, and doesn”t match the need to cycle product into finely balanced DC operations or transport networks within very tight time windows.

Even port-centric distribution strategies involving moving goods from centres at the dockside to destinations around the country are problematic when space to build distribution facilities at ports may be limited and expensive, and warehouses near ports may not be best placed geographically to service a national distribution network.

Lastly, there is the more holistic approach to develop a port to distribution centre (P2D) approach, combining existing portside assets and new port-centric solutions, with customers” existing inland distribution networks and assets in a flexible way. A sort of destination-centric approach rather than a port-centric one.

P2D logistics looks at the supply chain as a single entity and allows relatively dynamic and joined up destination-centric supply chain decisions that drive out cost, improve agility, offset the impact of congestion and deliver improved service levels using information and capability from along the entire supply chain.

This strategy is about controlling the whole supply chain and managing the information and handover of assets along the chain so that companies prepare loads at origin taking account of destination demands, move goods through ports quickly and under the control of the DC and utilise both portside facilities and internal assets as efficiently as possible.

We have adopted an approach which integrates downstream products, and manages and plans port to DC movements across five ”columns” of activity:

1. Upstream Co-ordination of Inbound Movements – making sure goods are handled in the most efficient manner when they arrive at their destination and to ensure that they meet at destination or downstream

2. Port to Distribution Centre Operations – the essential close management and optimisation of how loads move through ports, for example optimising the free time available

3. De-consolidation and Product VAS Services – ”joining up” container movement through the supply chain, from origin to port, using efficient management

4. Transport / Inventory Optimisation – how to reduce empty running, make the best use of container capacity, using in-house fleets to improve the movement of products to their destination.

5. Visibility and Control Tower Management of the entire process – a key element of the whole process. Visibility means transport assets can be used in the best way. For example we have introduced ”control towers” which focus on monitoring and coordinating supply chain activity, carefully balancing demand and cost.

As a function of its end-to-end solution, DHL is enabling a large DIY retailer to move product from the docks at Felixstowe by rail to its Daventry railhead. Control tower staff balance free time at the port and railhead, with demurrage and detention costs, and available in-house fleet capacity, using the fleet during its downtime to shuttle containers back and forth from the railhead to local distribution centres and into the network at a time when vehicles would normally be idle.

The P2D approach and its control towers manage the intake at the distribution centre and arrival at the port. They track the sea leg and help supply chain managers take decisions about how goods are packed. Well-drilled processes help to ensure that goods move quickly off ships to distribution centres. Based in the downstream end of the chain but looking and planning backwards, the control tower is able to react to events and redefine the supply chain instantly.

This helicopter view needs to be combined with improved processes at the order end of the chain. When we receive purchase orders at origin, we can utilise container planning technology, devising container loading plans to minimise wasted space and optimise the offloading at destination, to suit the P2D demands.

Loading to plan

At the same time our loading teams across Asia will visit the vendor to assist in the loading of the container to the plans provided, taking into account the size and design of boxes with respect to the demands of international and domestic transport, DC storage and retail shelves.

The emphasis on visibility inevitably involves deploying new technology to track and trace shipments and certify their provenance. Increasing security concerns ensure that a number of supply chains now deploy radio frequency identification (RFID) using satellites to track goods over long distances.

Integrated technology is vital to this enterprise. Warehouse systems and transport management software need to dovetail with one another, while business communications and freight documentation must be exchanged as seamlessly as possible. Event management software provides an insight into incidents within the supply chain and the opportunity to adjust or pre-plan loads as they hit the destination port.

With an independent platform it is possible to exchange information with all the parties involved in the logistics process. This approach is very flexible and makes it easy to add new partners/customers.

Technology that can deliver immediate benefits is particularly valuable because as globalisation grows apace so do the volume of transactions, the number of partners and the quantity of problems to manage. However, tight control of corporate purse strings will not allow logistics departments to solve their problems with people, forcing them to look for solutions elsewhere.

Improving the final leg of the supply chain goes right back to the point where goods originate. If a company wants to cross dock a container – move its contents directly at a distribution centre into the vehicles that will take it to its final destination – then the container must be planned and loaded in a specific way at origin. Our P2D approach uses this as its basic premise.

The DHL organisation responsible for collecting products for shipment in China have a unique opportunity to pick that load from individual store locations so that it comes out in store-picked order at a distribution centre, relieving downstream pressure during peak season or product launch phases.

Using these concepts, DHL has set up value adding deconsolidation centres for one growing high street retailer at the two main UK ports in Southampton and Felixstowe. The centres receive stock on containers and sort and palletise by SKU – by stretching the existing retailer warehouse management systems (WMS) into the deconsolidation centres we are able to enter the product into the WMS at the point of receipt in the Centre. That product then becomes ”available to pick”.

The customer is then able to pick and pack DC or store loads at either its own DC or at a deconsolidation centre. In addition we then utilise that customer”s fleet, or other available transport capacity, during its down time or on empty movement legs, to collect the product and move it into the existing network either via the DC or direct to store. This has driven major savings out of the network in the areas of transport and DC operations.

P2D logistics is becoming a central element in the supply chain. What many of our customers are doing in this area is at the leading edge – with our help they are treating the supply chain as an organic entity which flows and flexes across the seasons. It is not just a matter of speeding up the flow of goods but of optimisation of the value and cost to meet the destination demands of the chain and ultimately the customer.

Decisions have to be made along the way. If half a container has product you need now and the other half has product you need in six weeks” time you have to unload it with the prospect of additional demurrage charges. Effective supply chain management is thinking about what goes inside the container ahead of time so that unnecessary steps are eliminated.

Mick Jones is divisional managing director, DHL International Supply Chain. Email: [email protected]

Key points

  • With the effort involved in transporting goods from destination port to inland DC accounting for as much as 35 per cent of total end-to-end supply chain costs, a new approach is needed

  • P2D logistics looks at the chain as a single entity and allows dynamic and joined up destination- centric decisions that drive out cost, improve agility, and offset the impact of congestion


further reading

  • Supply chain management is at one of those once-in-decade crossroads when it”s time to make significant changes to accepted practices

  • It can take a pharmaceutical company 15 years to bring a drug to market. Improving the clinical trials supply chain can reduce lead time.

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