Introduction: freight delays as a source of inefficiency in the supply chain
Long-distance imports are often associated with the need to coordinate the supply chain in processes that involve several concatenated steps and under the responsibility of different stakeholders – for example, manufacturing, shipment to the port of origin, export processing, transportation to the port of destination, processing of the importation and transport to the destination. In this context, delays originating in one stage of the process can generate mismatches in subsequent stages, exacerbating lead time variability and impairing the performance of the chain as a whole.
The consequences of lead time uncertainty are above-optimal operating costs, as they are related to increased inventory levels and the complexity of the supply chain: uncertainties in delivery times are associated with the need to maintain higher safety stocks, the in order to sustain the desired level of service; in addition, the increased complexity stems from the difficulty of coordinating, under uncertainty, an extensive network of partners – for example, customers, suppliers, transporters, port operators etc.
Should the supply chain choose to accept the risk of delay by not taking any mitigating action, the severity related to the occurrence of specific transport delay events will depend on several elements, such as the relative duration of the delay, the time at which the delay was detected and whether stakeholders were informed of the delay in a timely manner. To illustrate, suppose a long delay originated close to the expected time of arrival (ETA) at the port of destination; in this case, it is likely that stakeholders will not have time to coordinate corrective actions. On the other hand, suppose a short delay arose before the ship's departure from the home port; in this case, the shipowner has enough time to provide a revised ETA to the other stakeholders, minimizing inefficiencies in the other links in the chain.
The source of variation in lead time can be related to several reasons, such as late availability of cargo, late collection of cargo, insufficient port operational capacity, insufficient transport capacity, labor disputes, social demonstrations and severe weather conditions, in addition to other causes not provided.
However, as such sources of variation are not under the control of supply chain links, it may be impracticable to completely prevent their occurrence. Fortunately, the expected consequences of such sources of risk can be alleviated by employing some known mitigating and reactive actions, such as: (1) alignment of interests and information among stakeholders; (2) use of contingency plans based on data analysis; and (3) implementing buffers and alternative plans. In all these cases, the effectiveness of actions can be leveraged and reinforced by better cargo visibility.
Figure 1 – 3 Risk Mitigation Actions
mitigation strategies
Alignment of interests and information among stakeholders
Inefficiencies related to shipping delays can arise from the asymmetry of interests and information between supply chain stakeholders. For example, let's assume a scenario where the supplier (or its logistics operator) does not have the appropriate incentives to make the cargo available at the port of origin at the expected time; in this way, the port operator, not aware of the delay, would have wasted scarce resources that had been previously reserved for that specific operation. This situation can be mitigated through coordination contracts and partnerships with suppliers to share information and jointly mitigate risks.
Coordination contracts can promote improvements in the relationship between stakeholders, making the performance-maximizing behavior of a given stakeholder congruent with the global optimum of the supply chain.
The joint risk mitigation strategy can take the form of a mutual commitment to risk management and can be operationalized by collaboratively identifying and monitoring risks, using local intermediaries to find reliable suppliers in unfamiliar parts of the world, or employing joint business continuity plans. business. Such strategies are useful in case of late availability of products, late withdrawal at the port of origin, insufficient transport capacity or insufficient port operational capacity.
Regarding the aforementioned scenario, the sharing of information among the supply chain stakeholders would have avoided, in the first instance, wasting resources for the port operator.
Contingency plans based on data analysis
Predictive analytics for early identification of supply chain risk events can be applicable to cases of severe weather conditions and other unexpected situations between the port of origin and destination. This set of mitigation strategies involves creating exception detection and early warning systems for events that deviate from planned parameters, monitoring critical locations in the supply base, as well as weather monitoring, news and social media monitoring. .
Buffers and alternative plans
When preventive actions do not work, the impact of transport delays can be alleviated by implementing buffers. For example, port operators and transporters could maintain excess storage, handling and transport capacity to be used when needed, and both the supplier and the buyer could maintain safety stocks, classified by their level of criticality.
Concurrently, contingency plans can be utilized in a number of ways to avoid lengthy delays, such as having a list of pre-approved alternative ports and multiple modal choices.
Conclusion: cargo visibility as a lever for effective risk mitigation
We can argue that the effectiveness of the mentioned mitigation strategies is a function of the quality of known information about the load. Thus, an improved visibility scheme provides better information about the status of the cargo and increases the success of our risk management model. Visibility can be improved in a number of ways, such as tracking systems, control towers and databases that update in near real time.
Good cargo visibility is an extremely valuable input for analytical models and one of the most important pieces of information to be shared among supply chain stakeholders, as well as serving as a trust-building tool for aligning incentives. In a practical way, by reducing uncertainties, good cargo visibility alleviates the need to increase inventory levels and reduces the need to adopt inefficient alternative plans.
