Supply Chain Frontiers Issue #26. Read all articles in this issue
How valuable is in-transit shipment visibility? The answer depends on the cost of the technology involved and the inherent need to keep tabs on the goods being shipped. A joint research project including the MIT Center for Transportation & Logistics (MIT-CTL), the Zaragoza Research Center (ZLC), Deutsche Post World Net and DHL Exel, provides a clearer picture of the levels of visibility that are appropriate for different supply chains.
Impaired or deficient in-transit visibility can lead to excessive inventory carrying costs, premium freight expenses, and extended cycle times. In contrast, improving the view of shipment flows increases supply chain performance on key metrics such as on-time delivery and customer service quality. For example, apparel company Liz Claiborne reduced import transit times from 12 to seven days and eliminated seven to 10 days of inventory by deploying a more advanced system for keeping an eye on shipments.
Given these potential gains the argument for investing in advanced supply chain visibility capabilities seems convincing; but there are some drawbacks that should give companies pause.
When compared to conventional track and trace technology the ability to bring cargo movements into sharp focus in real time is complex. Shipments moving internationally can be consolidated and deconsolidated at various points in the distribution network, creating different units from truck loads to pallets and individual product units. Intermodal moves are particularly complicated in this sense because there are many handoffs between operators. The information on these flows has to be shared by various stakeholders and associated information systems in different countries. Also, the way in which these systems respond to irregularities can vary significantly, complicating the end-to-end exception management process.
The researchers looked at the advantages of in-transit visibility systems in industries that stand to benefit from this type of technology, such as pharmaceutical, fast-moving consumer goods, and automotive. They also developed simulation tools to quantify the value of the technology in specific supply chain scenarios and created a framework for assessing the ROI of these systems.
The first step is to take a close look at current supply chain characteristics and processes and determine which visibility-enabled actions can improve performance. Shipment problems that occur regularly due to a lack of early warnings should flag the need for better monitoring systems, for instance. The technology can bring new opportunities such as the ability to allocate in-transit inventory to customer orders instead of waiting for shipments to arrive at the distribution center. In doing this analysis, managers should concentrate not only on improved visibility but also on supply chain performance. For instance, reducing lead time variability is an important plus only if the net effect is improved customer service or a better bottom line.
Having determined which actions would improve supply chain performance, it is necessary to pinpoint the ones that offer the highest potential for achieving the gains envisaged. To make wise investments in visibility, managers should strive to quantify the benefits of the actions identified in the previous analyses. In some cases this will be straightforward; an example is calculating the savings that accrue from less damage to temperature-sensitive shipments. When the quantifiable gains are more ambiguous, it may be necessary to carry out some detailed modeling.
The researchers looked at the value of visibility over assets moving through an intermodal transportation network. The reliability of such a network depends on the probability that every shipment arrives at a transshipment terminal before outbound transportation begins. The team considered different modal splits and various levels of visibility capabilities. At the basic level managers do not receive information on delays and can’t use emergency shipments to prevent stockouts. Not surprisingly, on-time delivery performance was low in this scenario. On levels two and three, managers receive more information on in-transit shipments with different degrees of frequency, and the on-time delivery metric improved with each level. At the highest level, air freight costs were cut dramatically and buffer times in transportation chains were reduced as well.
The research shows that the benefits of in-transit shipment information vary with the type of supply chain involved and the actions required to capture certain levels of value. Companies can decide how detailed shipment information needs to be in order to meet both their efficiency goals and operational needs.
For more information on the in-transit visibility research project please contact Jarrod Goentzel, Executive Director, MIT-Zaragoza International Logistics Program.