By Richard Koch | Associate Director | Chainalytics Australia
We’re a nation of independent thinkers in Australia, with a unique and vibrant culture unlike any other in the world. When it comes to supply chain efficiency, though, the maverick ideology that lives so deeply within Australians is constrained by many factors including a small population, vast distances between capital cities and poor road infrastructure.
Despite the fact that the transportation industry in Australia is arguably one of the world’s most innovative, the vast majority of freight transported on Australian roads travels via the relatively expensive less-than-truckload (LTL) freight mode. That means most trucks we see daily are burning fuel, causing congestion on overused suburban and urban roads, and using man hours–despite the fact that they are only 40 to 50 percent full.
And it is expected to get worse; much worse in fact, as greenhouse gas emissions in Australia are expected to double by 2050 – unless we take a new approach.
While some Australian companies may have optimised their supply chains up to a company level, this is not enough to sustain competitive advantage into the future. At this juncture, we might want to take a look at companies in other industrialised countries that have already adopted a more-formal approach to transportation collaboration, optimisation, and consolidation freight management that helps them achieve economies of scale and resultant savings.
When business-as-usual ceases to make sense, it’s time to collaborate and innovate.
Put simply, our current approach in Australia puts us behind the curve and with our increased role in the global economy; it also puts business and even our economic growth at risk.
So, how does Australia begin this transformation?
First, we can gain insights from the words of Charles Darwin, who noted: “In the long history of humankind those who learned to collaborate and improvise most effectively have prevailed.”
After that is understood, we then address and incorporate the following factors into our strategic supply chain plans for success:
1. Network Complexity
Developing largely in a vacuum without many outside influences over several decades, supply chains in Australia have become extremely complex and fragmented. With a population of just over 23 million, we also have several thousand freight carriers. Time is showing that this logistical network complexity is adding expenses for every player in the supply chain and resulting in inefficiencies at every level; as seen in problems like half empty trucks clogging busy suburban roads and slow turnaround times at distribution centres.
2. Global Competition
Globalisation is certainly nothing new, but competitive forces are accelerating and driving changes that will ripple throughout the market. A good example of this can be seen in the recent growth of grocery retailers ALDI and Costco in Australia, forcing change in grocery supply chains throughout the land. An industry currently dominated by Coles and Woolworths, these companies currently make up more than 70 percent of the supermarket sector in Australia and maintain control of their inbound supply lines and freight from many of their suppliers.
If ALDI and Costco can maintain an edge in supply chain efficiency and pass efficiency of scale savings on to their customers, they have a distinct advantage in this extremely cost competitive market. This type of global competition will continue in every sector, forcing Australian companies to compete on a truly global scale against others that have gleaned best-in-class practices from their multinational operations experience.
3. Transportation Collaboration
Transportation collaboration between companies, even competitors, we’ve seen can reduce transportation costs by more than 20 percent. But the benefits don’t stop there: Collaborators also enjoy boosts in service levels, SKU visibility, customer satisfaction and more capital to funnel back into business operations for growth. Sharing transportation resources also has tremendous sustainability benefits, not to mention the public relations value of taking more trucks off of already congested roads.
Though easy to espouse, transportation collaboration is often difficult to achieve. Many companies don’t know where to begin. While not the only option available, 3PLs are in ideal positions to broker collaborative transportation deals, acting as freight matchmakers and coordinating logistics. Cloud technology is also a catalyst for pushing transportation collaboration forward as these platforms give all stakeholders involved inexpensive access and equal real-time visibility into supply chain management systems.
4. Load Consolidation
As more and more European and US manufacturers have experienced, by co-locating warehousing and consolidating orders with other suppliers so they ship at the same time and fill trucks completely or increase their density, companies can maximise the value of transportation collaboration; think of consolidation as a multiplier for collaborative tactics. Suppliers are highly motivated to consolidate with each other because it gives them more leverage in reducing costs and eliminating waste. When these savings are passed on properly, it only increases their competitiveness to retailers.
Supply chain consultants and industry organisations, like Chainalytics, can help overcome roadblocks to warehouse and order consolidation by acting as third party intermediaries that foster trust and bridge corporate a and cultural divides. They also help companies find partners that make the most sense to consolidate with, maximising the benefit of the relationship while also reducing the associated challenges.
If all of this sounds like a major change to the way supply chains have traditionally been managed in Australia, that’s because it is. There’s no doubt that Australia’s burgeoning market is becoming more competitive while at the same time introducing new complexities. However, this complexity can be simplified by leveraging horizontal collaboration and load consolidation to bridge the efficiency gap that exists today. The biggest hurdle in turning this into reality is simply overcoming the notion of continuing on with business as usual.
“The most damaging phrase in the language may well be – ‘We’ve always done it this way’.” – Grace HopperClick to tweet
As I mentioned earlier, I think it’s important to learn from Darwin: Only companies with strong collaborative partners will be able to reduce complexity and compete efficiently, leaving those who don’t behind in the dust.
Richard Koch is Associate Director for Chainalytics’ Logistics practise, where he supports the firm’s continued growth in the Australian region. Richard has over 25 years of supply chain consulting experience, including facility design and engineering, outsourcing and third-party logistics and supply chain network optimisation. He is also highly experienced with software evaluation and selection as well as operations management, with particular emphasis on freight and transport optimisation.