Shippers Focus on Pricing, Service for Supply Chains

This story appears in the Nov. 22 print edition of Transport Topics.

FORT LAUDERDALE, Fla. — Competitive pricing and reliable service remain in the forefront as shippers optimize their supply chains, executives with three large retail firms said.

“Predictability is so important in order to run a supply chain,” said Mike Mabry, executive vice president of logistics and distribution for Lowe’s Cos. Inc., Mooresville, N.C.  “We have very sophisticated cost models. Almost all the time, transportation cost is the trump card when we make the decision as to where to buy [products].”

Mabry spoke here during the National Industrial Transportation League’s TransComp and the Intermodal Association of North America’s Expo. Brian Hancock, vice president of supply chain for Whirlpool Corp., Benton Harbor, Mich., and Richard Wallace, vice president of supply chain operations at J.C. Penney Co., Plano, Texas, agreed with his viewpoint.

“We take a look at the supply chain as a whole,” Wallace said. “We’ll always look at a balance of cost and service.”

Hancock then used an example to drive home the value of service consistency.

“We have manufacturing plants that [build] 20,000 washing machines a day,” he said. That is enough to completely fill up those plants in two days and stall further production if carrier delays disrupt the flow of goods.

Because the meeting last week focused on intermodal, all three executives homed in on rail/truck potential and performance.

“We want to use intermodal more and more,” Wallace said, “but I can’t sacrifice service. We are about driving improvement to try and overcome the headaches we face.”

Specifically, he said, shipments through Chicago once again are delayed by two or three days, as they often were until 2009, when rail volumes fell and the problems eased.

“Our facilities can only make up so much time” when there are delays, he said.

Mabry also stressed the importance of intermodal service quality, saying that reliability was the “ante” that was needed to participate in the business.

All three also said they would like to see more intermodal routes, as well as new freight shipping options such as the widening of the Panama Canal, which is due to be completed in 2014.

“We want to look at new opportunities,” Wallace said. “That’s something we are very interested in.”

One of those opportunities he cited was Canadian National Railway Co.’s intermodal service from Prince Rupert, British Columbia, to Chicago, with goods arriving reliably just four days after unloading at the Canadian port.

“We are really happy about that,” he said.

“You always have to have new options,” Hancock said, particularly as shippers have become tired of hearing carriers say they need rate increases because they are saddled with driver availability and capacity problems.

Options are important, he said, “because you don’t know where the next tsunami, hurricane or political unrest is going to be.”

All three executives agreed that efforts to reduce supply chain costs have made substantial advances, though more needs to be done.

No more cost reductions are available from supply chain efficiency, but “there is waste everywhere,” Hancock said. “Anytime you have a product in motion with variables, you have waste. It’s how you manage that variability.”

“The reason a lot of people are saying that there aren’t any more costs to be taken out is that the ‘low-hanging fruit’ already has been taken,” Mabry said.

“Are we optimized?” Mabry said. “We are certainly optimized for yesterday. We are certainly not optimized for tomorrow. There are a lot of systems coming online to become more efficient.”