Over the last months, supply chains have been the topic of conversations in boardrooms and on the street. More than ever before, people are analyzing how supply chains work, how cargo is shipped and how to improve both processes. The ruptures that have occurred have caused empty shelves in stores and backorders on many items.
At ports like Los Angeles, the heavy influx of ships overwhelmed the availability of docks and dozens of ships were forced to anchor out in the ocean for days before they could load and unload. In the fall of 2021, Marine Traffic, a ship-tracking website, counted more than 50 container ships outside Long Beach and Los Angeles. We have started talking about supply chain fluidity and resilience, but what do these terms really mean?
To answer these questions, we turned to Louis-Paul Tardif, an expert in measuring supply chain performance linked to trade. Mr. Tardif developed the concept of fluidity in supply chains, a concept that integrates all modes of transport in measuring the end-to-end performance of supply chains and their productivity. As Director of Multimodal Performance and Economic Analysis at Transport Canada, Mr. Tardif has seen the evolution of supply chains first-hand. We asked him about his thoughts on supply chain fluidity, resilience and why organizations need to have both to remain competitive.
Why is everyone now talking about supply chain fluidity and ruptures?
During the last two years, we have been seeing ruptures in the supply chain, and fluidity that is completely outside the range of normal, and this will probably continue for a while. For example, freight that usually moves from Shanghai to Chicago in 23 to 25 days, today is taking from 45 to 60 days. This is having a huge impact on inventory, on products on the shelves on what people can get and how quickly. It is affecting everyday items, furniture, construction materials and even higher-cost specialty items.
These ruptures were caused by COVID and the resulting lockdowns in North America. Increased spending on expenditures such as work-related items because people were working from home, as well as spending on things like renovations because they were not travelling or vacationing, put unexpected pressure on supply chains. The system is prepared for extra pressure during expected events, such as back to school, the holiday season or Chinese New Year, and planning is done ahead of time to accommodate the increase in required goods. The unexpected increase in purchasing due to COVID meant that the entire system’s timing was off. A huge amount of goods was pushed into a pipeline that was never designed to handle that amount at that time.
Can you explain what is meant by supply chain fluidity?
Fluidity in a supply chain is a term that refers to the ease and speed that cargo moves from one geographic area to another, and from one mode of transport to another. The more fluidity that there is, the smoother the freight moves, without interruption and delays. A supply chain with high fluidity does not experience ruptures often. Fluidity is now being affected and people are trying to find solutions.
Why should transport and logistics companies measure fluidity?
Companies need to find a way to measure their productivity within their supply chains. Fluidity is a non-traditional way of doing this, but it can provide a base by using time as a common denominator. Measuring fluidity allows you to determine a level of productivity related to the speed or velocity of your supply chain and then link it to customer service or inventory levels. It’s important to keep in mind that fluidity can become a competitive advantage, but you must build your fluidity measurement on solid principles.
How would you build fluidity?
There are two steps that must take place to build fluidity. The first is governance, where you determine who is involved in providing the data, what is the purpose of the data, and who can see the data. This data is very sensitive so you must have proper governance of the partners involved to make sure everyone agrees on how the data is handled. The second pillar is the transparency or visibility of the data that you wish to have, i.e. what data, for what purpose, what it measures, etc.
For example, if you are a company in a long supply chain and you want to establish KPIS and metrics, you want to understand ruptures, where and how they are occurring, and you want to find ways to mitigate them. An excellent starting place is the port or airport. Many large port authorities have governance policies that would allow you to access information as a customer, as well as visibility platforms and fluidity matrices. Ports are at the centre of all the activities, so they have a governance group that allows various partners and agents to interact and share data. Private companies would be other places to investigate.
The next step would be to agree on what data should be collected to measure fluidity and the level of transparency that should be given to that data given that it is sensitive. Many companies can aggregate that data, however, a port or airport that serves multiple clients will be able to collect far more data than a private company and can help how you define performance measurements and factors, like the degree of reliability and variability of your supply chains, and ultimately get into predicting the performance of your supply chains with a reasonable level of confidence.
Once you have defined governance and you have the data from the visibility, you can amalgamate all this data to obtain a measurement of fluidity. As we see now with ruptures in supply chains, the step that follows governance, visibility and fluidity is resilience, and this is where you get added value.
How does resilience add value?
Resilience is about predicting. Once you have the data, and you know what the data means and what you are measuring, you want to be able to estimate the resilience of your supply chain given all your metrics. Using the agreed-upon data, you can start using AI or machine learning approaches to establish a sense of resilience.
There are two components to resilience. The first is a warning system that lets you know that your resilience is about to be challenged. It could be due to a strike, an environmental event like a fire, or the system lacking the capacity to accept a larger volume of freight. The benchmarks and KPIs of fluidity will show how your system is performing, should be performing and what is the buffer or the elasticity of the system. The buffer will be necessary due to manpower issues, trucking issues, shipping schedules and more. This leads to the second component, which is referred to as the predictive aspect where you use predictive analytics to react to disruptive events and to recover from them without significant impact on operations.
How can technology play a role in gaining a competitive advantage?
There are technology companies that can act as integrators to help supply chains establish governance, visibility, and fluidity and then develop resilience models to improve operations and remain competitive. Other technology companies offer a Software as a Service (SaaS) approach through cloud services. We also have technology companies that offer visibility solutions for the trucking industry, for example at the gates, using cameras and facial recognition, to reduce human intervention and errors. So, the fluidity of supply chains is about the integration of various levels of information gathered through various technologies. It is also about transformation within a sector or even a company.
Nuvoola Ai is an example of a company that uses artificial intelligence to help supply chains become more efficient. In our next blog, we will explore how new, innovative solutions can improve security, accuracy and more.