Although this year is unlikely to beat the chaos of 2020, the challenges of last year are not yet behind us. Since the start of the pandemic, shippers have faced problems with space, equipment, and rising spot rates, creating a turbulent market.
As we work through 2021, the biggest challenge is predicting how those issues will impact business decisions.
Making predictions in the current climate of uncertainty can be overwhelming, which is why building a resilient supply chain should be the priority. Whilst you can’t influence the changing circumstances, you can focus on increasing the adaptability and flexibility of your organisation to ensure you’re in the best position to weather any setbacks.
Resilience is the ability to be adaptable and recover quickly when something unexpected happens, but in many cases being resilient also means challenging the status quo. What worked in the past may not be best practice for 2021, and it is wise to reconsider your current strategy and practice scenario planning instead. For example, after the turmoil of 2021, ask yourself, ‘What have I changed in my setup to be better prepared?’ The more you adapt in response to previous issues, the better prepared you will be for the future.
With that in mind, how can buyers find reliability in such a volatile market and make smart purchasing decisions? The key is to build resilience and flexibility into the supply chain, starting with optimising the decision-making process.
The tempting thing to do in a volatile market is to try to tighten agreements and focus on fulfilling commitments. However, it is important to consider how flexible this makes your business. If the market changes suddenly, you may not be able to keep to the agreement or, even worse, you may be limited in your response strategy to the decisions you have already made. The trick is to increase the number of decision points and apply this formula across the supply chain.
Flexport advises splitting volumes into three categories: fixed, semi-fixed, and volatile to still make use of structural agreements, but at the same time allow you to respond better to any market changes.
For example, by dividing your business into areas where you need more and less reliability—rather than looking at the portfolio as a whole—you are more flexible. You can also do the same with centralised and diversified sourcing and opt for single or multiple carrier agreements, depending on the needs of the business area.
Flexport has observed many customers pivoting to this kind of decision making. Marjon Van Veen, Senior Manager of Accounts noted one customer facing difficulties with securing enough capacity ahead of a big promotional campaign:
‘They prioritised promotion orders into A, B, and C categories, giving the freight forwarder full decision rights on getting as much cargo moved as possible, whilst having full insight into which cargo needed to be prioritised.’
To build resilience, it is necessary to look at your end-to-end supply chain and identify the bottlenecks that might hinder your strategy from achieving the desired results. Solving an issue in one part of the supply chain can be completely mitigated if it is offset by a new roadblock somewhere else.
In many cases these bottlenecks come from:
As the market situation changes constantly, the challenge is to pre-empt issues and be aware of what is happening across the full supply chain to correct minor issues before they become major ones.
Nick Barber, Global Accounts Executive at Flexport, gives an example of an e-commerce customer in Germany who noticed the equipment situation in several ports in China becoming a major issue:
‘Using a diversification strategy, they managed to get hold of more containers but came across a major bottleneck with a trucking partner in China. After changing the strategy, the partner was less accustomed to the procedures in more remote ports, which resulted in higher trucking transit times and several containers being left on the quay. If every step of this decision was analysed ahead of time, the bottleneck and subsequent delays could have been avoided.’
In order to reduce the impact of supply chain bottlenecks, Flexport recommends:
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With the market so volatile, it may not be the right time to consider expansion into other areas, unless, of course, it is necessary to pivot in order to stay afloat during a crisis. There is a difficult balance to strike between being tactical and dealing with the chaos of the past several months and reacting to the day-to-day. However, for sustained growth and success, strategic changes in the supply chain shouldn’t be neglected entirely; be ready to change direction as soon as the market starts to ease again.
As Nick explains:
‘The worst thing to do in this situation is nothing, paint over the cracks, and continue with business as usual. We’ve seen trends where carriers may be reluctant to offer fixed and longer term deals but that shouldn’t stop you from implementing improvements to the supply chain. Reconsider what your core business is and ensure you are meeting current goals and expectations as well as preparing for rapid expansion in the future.’
As business operations return to more normal levels, consider:
In summary, to best prepare for any volatility in the years ahead and build a resilient supply chain, you should:
In addition, the supply chain has become better at dealing with uncertainty; and there seem to be signs that disruption could be easing in 2021. To avoid delays, extra costs, and headaches, consider each aspect of your supply chain separately, gather information at every stage and build in as much flexibility as possible.
Carefully preparing to face an unpredictable market is the best way to help you navigate it successfully.
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