Under the current COVID-19 global pandemic, managing risk in the supply chain has taken on a renewed importance. Procurement teams continue to struggle with finding available suppliers and shipping capacity to enable supply chain responsiveness. According to the Harvard Business Review, “vital information is often not available or accessible across their global teams. As a result, their response to the disruption has been reactive and uncoordinated, and the impact of the crisis is hitting many of their companies full force.” The vital information in question has another name—logistics metrics that enable better management of risk in the supply chain. Shippers need to understand the top metrics to track and manage risk through the current and future disruptions. Obviously, it’s a broad range, so let’s start with the top five.
The first metric is really a combination of multiple metrics that form the carrier performance scorecard. Carrier adherence to on-time delivery, carrier delays, average length of delays, and total carrier costs averaged per shipment are essential metrics to maintaining a positive relationship throughout disruption.
Maintaining adequate control over inventory remains a problem for modern supply-chain managers. When risks materialize, inventory may be subject to instances of panic buying, a run on necessities, and other external factors. As a result, more companies reorder products to make up for demand. Carriers will experience a decline in available capacity due to increased volume of total freight shipped. However, prolonged disruptions, such as the novel coronavirus disruption, will inevitably cause a demand shock, leading to a drastic reduction in available shipped rate and higher rates. At the onset of any crisis, supply chain leaders must begin tracking the percent of carriers with declines in available capacity to stay informed of the overall health of carrier performance.
Is not enough to simply track carriers affected by limited capacity during disruption. Shippers must track the percent of carriers with available capacity across specific modes. Remember that understanding availability of capacity within modes is essential to taking advantage of multimodal transportation options and alleviating higher freight rates. While preliminary reports regarding the performance of the industry for April 2020 are still in the works, the severe disruptions within the industry alludes to a sudden spike on truckload freight rates.
Another critical metric to track in managing risk in the supply chain is the total landed cost for all procurement processes. During disruption, total landed costs will increase as more activities may be necessary to secure supplies. It is a simple concept; more work on the part of individual shippers and carriers to move freight and meet the demands of disruption will inevitably lead to higher labor costs.
Suppliers will also see a change in the fastest-moving SKUs. Take the example of cleaning supplies under the current situation. As SKUs began to fly off shelves, shippers had to immediately look for alternative suppliers. Tracking the total number of alternate suppliers with available product for fastest-moving items is a critical component of a successful risk management and mitigation strategy. Moreover, shippers should also track the difference in cost per SKU when working with a given supplier, changes in the shipping timeline, and opportunities to avoid unnecessary expenses in the shipping thereof.
During a time of crisis, employees need data to make informed decisions, and sharing of information forms a critical step in successful mitigation of risk in the supply chain. Only through attention to detail and ability to understand the actual impact of risks, i.e. disruption to the operation, can organizations survive major disruptions, including COVID-19 and the upcoming Atlantic hurricane season. Start tracking these top 10 metrics now. In the next blog, we’ll take a closer look at the remaining five metrics for risk management during disruption, particularly focusing on the impact of the upcoming hurricane season and new disruptions in the industry.
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