Ask just about anyone and they will tell you they have seen the signs of a global supply chain crisis. The stacked containers at the Port of Long Beach and Los Angeles have been symbols of a long-simmering problem.
For better or worse, the public is now aware of what the “supply chain” is and how it impacts their lives. The public’s appreciation for essential supply chain workers is at an all-time high. Problems remain, of course, from extended port delays to labor and product shortages. Ongoing pandemic-related concerns and the increasing frequency of extreme weather events clouds the horizon.
Meanwhile, consumer demand is higher than it is has ever been. Everyone is ordering online and the need for reliable transportation continues to expand. And while industry stakeholders work hard to find solutions, old problems remain. Companies will need to use technology and a changing regulatory landscape to find effective solutions.
How Demand Has Impacted the Market
The supply is not a monolithic thing. Indeed, it has always been dynamic and almost living. Yet, a series of events has led to a perfect storm in supply chain challenges. Yet, out of every crisis there rises opportunity. The first disruption came in the form of skyrocketing demand. Thanks to the COVID-19 pandemic, consumer demand has increased in almost every direction.
Just about every age group and demographic sat inside their home and filled their time with new things. The rise of e-commerce as the primary method for acquiring ‘things’ looks to be one of the most monumental shifts in retail behavior in a generation. Consumers are also less likely to wait a long time for online orders.
When consumers expect their goods to be delivered and quickly and cheaply as possible, the market must adapt. E-tailers and retailers must figure out how to deliver fast and at low cost, which is a difficult logistical challenge for many companies. Fortunately, with the help of third-party vendors and new technological solutions, trucking companies and shippers are moving to more innovative distribution models.
New Distribution Models Streamline Efforts
New and innovative distribution models provide safe havens from uncertainty. Many are moving to more on-demand ordering, drop shipping, personal shopping services, and curbside or in-store pickup. In some cases, we have seen big e-commerce companies partnering with legacy brick-and-mortar retailers to each’s benefit.
The interesting thing to remember is that once new ways of doing things get introduced, they have a habit of sticking. If a consumer expects to be able to return something to Kohl’s that they purchased on Amazon, they won’t be happy if they suddenly can’t.
Still, labor shortages continue to plague companies up and down the supply chain. Whether it be a lack of in-store employees, truck drivers, or port workers, industries in all verticals find it increasingly hard to find talent. Companies both big and small have adjusted by finding new ways to adapt to consumer demand. Some look to automation and others simply reduce their product offerings. CEOs get creative when industry evolves.
The Transition to a Distribution Center Model
Companies are increasingly turning to various kinds of new distribution center models. Distribution centers provide ways to stock and ship out items quickly. The key is to have the right items in the right amounts on hand at the right times. Sound complicated? It is. And entire industries have sprouted up to address the logistical challenges.
The most common distribution model is the hub and spoke mode. This model is named because it resembles the spherical shape of a bicycle wheel. In the middle of a wire-spoked wheel is the hub. Each spoke gets what it needs to operate from the hub. The hub is the operational center of the organization.
There are many examples of hub and spoke models. Grocery is probably the most obvious. Consumer products are often loaded into a single truck at a distribution hub then sent to individual locations along the spokes. The hub and spoke model are also used often in the airport and airline sector. Both people and goods can be moved around using a distribution center mode.
How do Trucking Companies Use Hub and Spoke Models?
The purpose of an LTL shipment us to transport smaller shipments on a truck to a particular destination. Still, it is not always possible to get a single pallet from Nevada to Texas via a one-way shot. To make things more efficient, LTL carriers set up shipping distribution centers, or hubs. They can then bundle these smaller shipments together at the hubs and send them out along the spokes to their destination.
Utilizing the hub and spoke method not only saves the LTL motor carrier and their shipper more money, but it creates greater efficiency in the transit process. It also allows the shipper to expedite the transit of their goods if needed.
In a perfect world, a shipper would be able to fully manage their logistics from endpoint to endpoint. The idea would be to utilize a single truck, but the supply chain is a bit more complex than that. Most LTL shippers simply cannot use full-freight shippers for their logistics needs. Those that use a hub and spoke model introduce greater flexibility into that equation.
The Key is to Create Efficiency
A central hub is designed to receive goods, route those goods, load them, then send out multiple shipments at a time. A motor carrier will typically choose a hub distribution location that is as central to their network as possible. A lot of trucking companies (and other companies) use big Midwest cities like Denver and Houston to serve as their central location.
Whether hub and spoke or otherwise, trucking companies and other logistics providers develop distribution center models based on maximum efficiency. Distribution centers can receive multiple LTL shipments each day. Many hubs can see up to 100 individual loading docks active at any given moment.
Trucking companies simply need to invest in warehousing and distribution center space. Many companies are entering into creative leasing agreements and finding cheap land in rural places.
How Did the Holiday Season Go?
You can’t talk supply chain without bringing up the holiday shopping season. The massive rise in e-commerce performance culminates in December. How was December 2021 and is there anything we can glean from last year’s performance?
First, holiday shopping season 2021 is likely to be remembered as an incredibly difficult year. Manufacturers, consumers and shippers all had to make hard decisions on what products they would purchase and stock up on. Retailers have had to weigh having a wide array of products against streamlining production and increasing overall efficiency.
In the end, consumers did not have as much choice as they would normally be used to during a normal Christmas shopping season. Many shops, whether online or brick-and-mortar, did not have what consumers needed and had no way to replenish their stocks with the items they need.
Some manufacturers simply decided to discontinue or cease production of an item. This is especially true if production of the item is highly labor intensive or if the margin is slim. This is where distribution centers come in. There was already a trend towards them before the pandemic, but now they take on even greater importance.
What’s Ahead for the Supply Chain?
One of the biggest problems with analyzing the supply chain is information. There is a lot of information out there. Which of it should you rely on? Trucking companies and other industry stakeholders are working on a connected global supply chain solution focused on driving efficiency.
Technology must also continue to play a role. Technology solutions will be needed to analyze the massive amounts of data being generated and counted upon to make future decisions. Companies will need to adjust their operations in a dynamic environment and make quick calls on important business decisions.
The fleet manager of the future will need the ability to dynamically adjust their operation based on real-time data coming in from moment to moment. As more companies adapt this model, the entirety of the supply chain will become more flexible and adaptable. This will increase efficiency over the long term and have a positive impact of transportation sectors companies across the board.
When it comes to a connected supply chain, decisions must be made in a deliberative way. Companies should not approach operations from a siloed mindset. From trucking companies to distribution centers and shippers, each interested party needs to communicate with the others to properly get the job done.