There appears to be a lot of frustration lately on both sides of the transportation equation. Shippers are grumbling about rising rates and the fairness of fuel surcharges while at the same time remaining concerned about capacity. Carriers of all sizes remain adamant that the only reason today’s rates seem so hard to swallow is because shippers feasted for too long on a diet of repressed pricing. But the larger carriers are getting anxious about their smaller competitors’ willingness to hold the line on rates and surcharges.
Change has shifted the balance of power in the shipper-carrier relationship in your favor. The challenge for carriers is to not get carried away with that power – even though it’s fair to say some shippers have in the past when they held all the cards. The challenge is keeping your growing sophistication about getting proper value for your services in balance with shippers’ continuing need to watch costs.
Every year in the fall we conduct a survey of about 700 shippers. We ask them to identify their greatest challenges. Every year they tell us the same thing: Reducing costs is their top concern and it’s their top concern by a wide margin.
Meeting the difficult challenge of rates that not only deliver a fair return on your investments but also allow your customers to remain competitive, I believe, must begin with having the courage to accept the real importance of supply chain, the role of shippers and carriers within it, and the resulting consequences.
The stakes are much, much higher than before. Supply chain management is growing up. And so is the awareness among C-Level management of supply chain’s power and its ability to affect overall company performance.
There have been a number of impressive studies conducted recently that have been able to show a DIRECT link between supply chain performance and financial performance. I want to briefly tell you about two of them:
A study by Accenture and Stanford University a couple of years ago used data from more than 600 major companies across 24 industries over a six-year period. The study looked at companies considered supply chain “leaders” and at companies considered supply chain “laggards”. It calculated financial performance for each company based on its change in stock market value growth during the study period. Here’s what it found:
The compound average annual growth in stock value of the supply chain leaders was 10 to 30 percentage points higher than that of the laggards. In short, the study proved supply chain excellence makes a huge difference.
That study focused on what happens when you get supply chain management right. What happens when you get it wrong? What happens when as a result of either your service or your customer’s practices, or miscommunication between the two of your or other suppliers something screws up big?
An ongoing study conducted by the University of Western Ontario and the Georgia Institute of Technology tracked how the stock market reacts when companies announce that key product that has to be at a certain place at a certain time– can’t be there, for whatever reason. In years past a reasonable assumption would have been that such a screw up just makes for unhappy customers but in the end there really isn’t a huge impact on stock price.
Well, that assumption is dead wrong.
Public companies announcing supply chain disruptions suffered an immediate 7% loss in stock market value. Imagine taking seven per cent of what you will earn this year and just throwing it out the window. Supply chain disruptions were proven to be more damaging than announced decreases in capital spending, IT problems, and plant closings. In fact there is little more damaging to a company’s stock performance than a supply chain disruption. The average destruction in shareholder value for each of the 861 disruptions analyzed, ranged from $120 million to $140 million.
Nor was this a hole that was easy to climb out of. Over a three-year period, those companies announcing supply chain disruptions suffered an incredible 30-40% valuation loss.
With such statistical evidence about the importance of supply chain management it’s no surprise that a recent survey of senior executives found that almost 80% believed that effective management of their supply chains would have a “large impact” on their companies’ ability to achieve strategic objectives in the future. Or that another study found that almost half of CFOs planned to become much more involved in supply chain management issues by 2005. Or that 70% of executives surveyed agreed that their CEO now views supply chain management as either “very” or “extremely” important.
What’s all that mean to you?
Simply the fact that for years the transportation and logistics managers your sales people called on were ignored by their own company executives. Now, the same people that used to ignore them are suddenly becoming very interested in everything they do. Transportation and logistics managers – your key customer contacts — are IN the spotlight.
Question is will your future dealings with them help them shine or tarnish their image?
With more than 25 years of experience reporting on transportation issues, Lou is one of the more recognizable personalities in the industry. An award-winning writer well known for his insightful writing and meticulous market analysis, he is a leading authority on industry trends and statistics. All posts by Lou Smyrlis