What Does Congestion Mean for the Supply Chain?

By July 29, 2015 August 27th, 2015 Dedicated Services, Logistics, NationaLease, Supply Chain

We know how growing congestion affects the trucking industry, but it’s an issue that impacts multiple disciplines in a company as well.

If you read the industry publications, you know there are multiple issues that the trucking industry is dealing with; but the ones that are generating major concerns are the shortages in capacity, drivers, and techs, as well as the crumbling, underfunded infrastructure that creates costs in time, money, and customer relations. But those concerns are not limited to those in the industry. They affect customers as well; especially those in the supply chain responsible for making sure that they have the inventory necessary to conduct business.

A recent article in the Harvard Business Review, “Is Your Supply Chain Ready for the Congestion Crisis?”  deals with the specific issue of congestion. Although the article deals with port, rail, and airway issues, as well as trucking and infrastructure, it does paint a picture of how this problem impacts planning in the supply chain function. The writers, George Stalk and Petros Paranikas, both of the Boston Consulting Group, explore how this congestion should be causing companies to rethink their entire supply chain and logistics planning. As the article states, “With growing congestion a global megatrend, companies have a choice. Either accept it (and its higher costs and lower profits) or take control of your fate with strategic, game-changing actions that cut time and costs from the supply chain.”

The article goes on to list the main drivers of the coming crisis: not enough port container capacity; railway systems that are already near capacity; a woefully inadequate and expensive airport system; and, of course, highways that can’t keep up with demand. In the last category, and the one of most importance to the trucking industry, the article notes that the last great U.S. highway expansion occurred in the 70’s. That’s anywhere between 35 and 45 years ago; and it’s slowed considerably since then. But traffic just keeps growing. In fact, as the authors state, “the load factor (total vehicle miles traveled divided by lane miles) is growing 10 times faster than capacity is.”

The impact on business is frightening, especially to those responsible for making sure supply meets demand. Congestion can lead to an overstock or out-of-stock situation and that leads to significant costs. Overstock can lead to discounted prices, which leads to margin losses. Out-of-stock is even worse…not only are there lost sales, there’s also the good possibility of lost good will with customers and that has an even longer-term impact. According to the authors, companies may not be able to totally eliminate the effects of congestion on their supply chain, but they can mitigate them with four actions: improve process efficiency; improve information flows across the entire supply chain network; reduce variability in both suppliers and distribution centers; and compress transit times. The trucking industry should work closely with its customers, finding ways to reduce the impact of traffic congestion by enhancing its customers’ logistics capabilities, and offering dedicated contract options.

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David Beaudry

About David Beaudry

David Beaudry is Director of Logistics Engineering and Consulting for NationaLease. He brings 25 years experience in surface transportation, logistics engineering, and consulting. His earlier career includes management posts with Ryder System Inc. and National Freight. He holds a Bachelor of Science degree from Central Connecticut State.

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