Neal Williams, Group Managing Director of Priority Freight examines the growing trend in the use of Expedited Contingency Logistics (XCL) within the supply chain network.
As supply chains grow in complexity and extent so the potential for breakdown or delay increases. Add this to the ever-present risk of supply disruption through production difficulties and the need for expedited freight becomes ever more crucial to manufacturers, retailers and all whose operations rely on remote suppliers.
The faces and characters of globalised supply chains have undergone some profound changes over the last five years as a succession of factors have conspired to fundamentally alter the relationship between manufacturers and their logistics service suppliers.
The world has become an incredibly more complex place, in what seems like an intensely short period, previously the data on outsourcing large swathes of production to lower cost regions spoke for itself, but the input values have changed, and quickly.
Labour and land costs in the manufacturing clusters of China have shot up, as have fuel costs; freight rates have swung violently; the world economy has been hit by several waves of financial crises. Lastly, the world itself has suffered a series of dreadful natural disasters: Tsunamis, floods, volcanic ash and more recently political crisis and upheavals that have at times brought disruption and delays to the supply chains or at times a shuddering halt.
Corporations have responded to these multiple disruptions to their supply chains in a number of ways, most obviously by increasing their spend on express freight. Shipments of goods and parts, the lack of which potentially could shut down production lines, suddenly had to be sent around the world at short notice.
Express shipments have always represented a percentage of spend in any large organisation’s supply chain, but that spend, by its very nature, was unpredictable. Our services represent an expenditure that often results from failure, perhaps because of a weak supplier base or poor geographical coverage by a logistics provider.
In recent years there have been an astonishing number of events that have had a disruptive impact on global supply chains. These events have demonstrated to manufacturers that, if previously their budgets for material supply had been factored as cost A and their logistics as cost B, then the spend on expedited services would be represented by cost C; whereas now manufacturers are entering cost C as part of their regular budget calculations. A, B and C are now all combined to make a total cost consideration. This has effectively created a new sector of supply chain provision: what we have come to call Expedited Contingency Logistics, or XCL.
The process of XCL becoming a defined part of supply chain operations; as much a defined part as freight forwarding, modal freight transport and contract logistics, has been underway for about the last five years. Over the past six to twelve months multiple OEMs have come out and publically tendered for XCL contracts as part of their overall logistics spend, thereby aligning part of their budgetary component to us and companies like us.
Manufacturers have realised that there is a trade-off in outsourcing to lower cost regions. There are longer lead times, but by taking the benefits of lower production costs they also accept that they run the risk of occasionally having to use XCL services. Equally, services like ours are an essential cost if you are not carrying any stock and are outsourcing large parts of your storage requirements.
So there is a trend to lock-in expedited freight on a contractual basis, because shippers have realised that the need to use premium freight products is inevitable. While this is an enormous opportunity for us, it also presents substantial challenges, such as developing a strong, long-term relationship with our shippers.
Because some customers are now giving XCL its own budget,
such services are being tendered by procurement departments that are commoditising XCL in the same way as they source materials and that means applying commodity-type pricing. This is not an easy thing to do: how does a shipper prescribe a value to something that is largely unpredictable and equally, how do you sensibly bid for something like that?
Shippers’ procurement departments are trying to commoditise our services while we are trying to turn that commodity into a relationship. Unfortunately many prefer the impersonal process of tendering through web-based platforms, which naturally leads to commoditisation.
Developing this process to its logical conclusion, there is a real danger that customers will not appreciate the true value XCL services deliver beyond that of transporting an item from A to B as quickly as possible.
That said, there are signs of a demand for XCL services on a 4PL management fee, cost-plus basis; rather than a transport fee-plus-profit margin. We know that the largest shippers are moving along that line because they see it as the only way to build a mutually satisfactory relationship with their service providers.
This model creates the grounds for longevity of relationships; it provides the opportunity to study customers’ operational needs and understand where the risks and potential for failure lies. The consequences of failure are what we deal with on a day-to-day basis. For many OEMs, such as automotive manufacturers, these risks may not exist in their own supply chains, but in the supply chains of their tier one suppliers and below, the tier two, three and four suppliers. The sphere of XCL is wide-reaching.
Some of the OEMs are already encouraging their suppliers to use the same XCL provider as themselves to enhance the holistic view of the subsidiary supply chains that contribute to their own. Issues at the tier two or three stage can be identified and feedback provided to the OEM. If a tier one supplier to the OEM has a problem with a tier two supplier that is going to impact the production line of the OEM.
A major component is information, as the ability to execute is also of paramount importance. If the tools provided are good enough to show where problems occur, then the supply chain can be made more robust. But being able to use those tools effectively requires the existence of a strong relationship. Is it the expedited freight company’s business to profit from moving as much time critical cargo as possible or should its aim be to work with the customer to reduce that requirement? We firmly believe an XCL provider’s role is the latter.
The XCL approach encourages planning and efficiencies. Having the comfort of a strong relationship with an XCL provider prevents any disruption in a manufacturer’s supply chain from turning into a production disaster.
Life – It can be a sprint after all
Load date /time: 11 October 20:14
Origin location: Leverkusen, Germany
Delivery date/time: 12 October 07:00
Destination location: Midlands, UK
Payload: One pallet critical parts
Life is more like a marathon than a sprint we are told, though some would say it should not be compared with a race of any length! However, some aspects of life require a real sense of urgency. For Priority Freight these aspects are part of everyday life, as this typical case study exemplifies.
At 19:00 on October 11 last year, Priority Freight received a call from a German Tier One auto component supplier. There was an aspect of their life that needed some urgency injected into it. The request: what was the quickest solution to collect a pallet of auto parts at their plant in Leverkusen and deliver it to the OEM’s facility in the UK Midlands by 07:00 the next morning?
The answer: To utilise Priority Freight’s athleticism. The race, in this case, was on.
Priority Freight’s German office dispatched a vehicle which arrived at the Leverkusen site 45 minutes later at 19:45; the pallet was loaded by 20:14 and arrived at Cologne airport by 21:30. Screening and documentation processing was completed in time for the charter flight’s departure time of 00:01.
The aircraft arrived at Birmingham airport at 01:50 where a suitable vehicle was already waiting for the consignment’s arrival. The baton, so to speak was handed from aircraft to road transport and the vehicle left the airport at 02:10. The driver was hardly out of breath when he made the delivery in Castle Bromwich at 02:30. The cargo had arrived and broken the finishing line some four and a half hours ahead of schedule.
Some of us occasionally sprint in order that others can proceed at a more leisurely but well-planned pace.
It’s in the Bag
Load date/time: 18:40 Day One
Origin location: Myslenice, Poland
Delivery date/time: 12:00 Day Two
Destination location: Birmingham, UK
Payload: Ten pieces of auto-parts. ‘Suitcase-sized’
Priority Freight’s UK headquarters received a call at around midday from Cooper Standard Automotive with a request to move urgent parts from their Polish facility in Myslenice. The consignment was required at their customer’s plant in Birmingham, UK by noon the next day.
As with many urgent consignments, the exact packaging dimensions and collection time unknown as the product was still in production. However, working closely with the factory through Priority Freight’s Polish office, it was estimated that a courier would be able to hand-carry the items and that they would be completed and ready for pick-up by 18:00 that evening.
The Polish office therefore organised an experienced On-Board Courier (OBC) to be at the factory in Myslenice at 17:00 to ensure that he could be on his way just as soon as production of the parts was complete. Good communications with the factory also ensured that the parts were packaged for hand-carrying. The usual packaging for an airfreight shipment would be too bulky to accompany a passenger. Suitably equipped with a large suitcase, the courier left Myslenice with the consignment at 18:40.
The next morning, travelling on the first flight from the nearest airport, Katowice at 06:05 via Munich, Priority Freight’s Courier arrived at Birmingham Airport at 10:20. Carrying the all-important suitcase he made the delivery to Cooper Standard Automotive in person with plenty of time in hand!