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Operating a world-class supply chain requires the ability to respond to transformative events, whether they are sudden surprises or predictable well in advance.
This ability to dynamically manage the operations of a global enterprise, often involving a complex asset-based ecosystem, is becoming the defining capability that leaders are aspiring to. With new tools for identifying the optimal total landed cost, as well as monitoring methodologies spread along supply lines, these leaders are able to quickly adjust flexible operational components and dynamically manage the business.
The smoke and ash from Iceland’s Eyjafjallajökull volcano forced companies to react to a major shipping disruption. The four-year lead time before the opening of the expanded Panama Canal gives companies the opportunity to plan for this potential disruptor, and should serve as a catalyst for reexamining the distribution network today and building a dynamic supply chain with the flexibility to adapt as the environment changes.
A Plan for the Canal
The expansion of the Panama Canal, set for completion in 2014, will add a third set of expanded locks connecting the Atlantic and Pacific Oceans and greatly enhance the Canal’s ability to serve the operations of global enterprises. The largest container ships on the ocean today, which can carry 12,000 TEUs (twentyfoot equivalent unit containers), cannot transit the Canal’s locks. The largest vessels that can fit through the Canal today carry approximately 5,000 TEUs. Additionally, the time required to move through the Canal will decrease. Faster transit times, combined with the larger shipment size, could provide a new set of options for shippers to consider for goods moving to and from various parts of the Western hemisphere.
The $5.2 billion expansion of the Panama Canal will help to remove this constraint on global commerce for more efficient shipping to and from the East Coasts of the Americas and beyond. The key elements of the expansion include:
These changes will also increase the number of ships that can move through the Canal in a day to speed the flow of goods.
A Potential for Change in the Flow of Goods
Larger vessels will provide economies of scale that could change existing trade flows or even create new ones. For example:
Stakeholders and Potential Winners
Carriers will ultimately shape shipping routes, following those that offer the greatest cost advantages, but others do have a stake in the expansion of the Panama Canal.
At Look at Today’s Options
Container routing decisions by carriers are based on intricate calculations involving a complex network of port calls, varying vessel sizes and inland transportation involving rail and truck. The tradeoffs for shipments from Asia to the US East Coast are myriad:
A Look at 2014 and Beyond: More Options, More Complexity for Shippers
Over the past 30 years, all-water traffic through the Panama Canal has fluctuated as corporate supply chain managers have considered the various trade-offs of using west or each coast ports. While the vessels are operated by ocean carriers, routing decisions are actually made by the supply chain managers for the shippers. Specific estimates do vary, but east coast ports are anticipating an increase in the number of shipments that are rerouted through the Panama Canal when the expansion is completed. Cities hoping to attract the business include New York, Boston, Norfolk, Charleston, Miami, Jacksonville, Port Everglades, Savannah, New Orleans and Houston.
However, a number of factors in the US have been in a state of flux and may affect routing choices for containers, by far the largest shipping segment. These reflect the complex trade-offs that need to be managed by the shipper's supply chain decision-maker.
Capabilities Needed to Work the Opportunities
A dynamic supply chain is a key characteristic of high performance businesses. Building dynamism into the supply chain today will not only prepare importers to take advantage of changing route economics with the Panama Canal expansion, but also to respond to the various challenges that regularly arise in today’s volatile markets: major swings in supply, the entrance of new competitors, shrinking product life cycles, rapid changes in the availability and prices for commodities, currency fluctuations, unfolding political events and disruptive natural disasters.
New technology and resource capabilities will be needed to make the optimal choices not just for routes and ports, but also for the location of future distribution centers and other infrastructure. Sourcing choices may change as well.
Tools will be needed to give freight buyers the ability to determine the true cost of any one route quickly and accurately. Such tools should calculate the total landed cost: the total of all expenses necessary to develop, produce, deliver and sell a product. This information will be valuable throughout the organization. For example, along with identifying ideal routes and destination, these calculations may also reveal that the current low-cost source country may no longer be the best choice for achieving the lowest delivered cost to the customer.
Tools will also be needed to create a dynamic supply chain, which has the people, processes and technology to route, execute, and track the movement of goods movement at the SKU (stock keeping unit) level as they are transloaded from a single ocean container onto multiple domestic containers bound for multiple distribution centers. This has the potential to reduce inventory and storage costs while also creating the ability to quickly deliver product when immediate needs arise, whether the result of unexpected changes in demand or sudden disruptions to supply.
To provide these tools and capabilities, a company’s enterprise resource planning (ERP) system must be seamlessly integrated with other essential technologies:
These tools support the ability to analyze costs and benefits of complex scenarios with multiple scenarios and then act on the insights gained with visibility into the location of goods whether on water, at intermodal points or on land.
February 22, 2011
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