Supply Chain Pain: Rethinking Business Priorities (Part 1)

Looking back to the start of 2020, supply chains were firing on all cylinders. Service quality was strong and logistics costs as a percentage of U.S. gross domestic product were on the decline. It was a great time to be a supply chain professional!

Much of the success was predicated on supply chain stability and lean operating strategies. Companies pursued limited inventories with rapid replenishment. Contract negotiations often had a win-lose undertone. Excess capacity and nonessential relationships were streamlined.

Fast forward two years and those stable conditions are a mere memory. Under the combined weight of an ongoing pandemic, capacity crunches, climate issues, and international conflicts, those efficiency-focused supply chain strategies have proven to be very fragile.

Significant disruptions have become more commonplace as companies struggle to maintain consistent product flows and to control operating costs.

Given these changing dynamics and outcomes, lumber supply chain professionals cannot afford to rely on dated tactics. They must rethink priorities and adapt to current market conditions—and this is the key to keeping customers well-stocked with product.

To better understand what is truly important in the current environment, we reached out to supply chain experts who provided valuable perspectives regarding how to address the lingering supply chain challenges.

While there is no silver bullet solution for these problems, the experts’ collective wisdom coalesces into four priorities for alleviating supply chain pain that we address over the span of three articles.

The first priority is: Embrace Contract Flexibility

Supply chain professionals thrive on process standardization and contractual commitments. Under normal conditions, this pursuit of consistency promotes capacity stability and cost certainty.

With many aspects of lumber supply chains in a state of flux, strict adherence to rigid thinking, constrictive methods, and long-term contracts can be counterproductive. Having an open mind and embracing flexibility allows companies to quickly pivot when conditions change.

A focus on flexibility is valuable for transportation contracting, according to Kenny Lund, executive vice president at Allen Lund Company, LLC. He recommends trying to be less constricted by the types of long-term agreements that are commonly in use.

“We’re seeing all kinds of contracts,” says Lund. “There are monthly contracts, quarterly contracts, and annual contracts where rates adjust each month. We see micro-bids. Most of the variety is driven by shippers and so many different transportation needs.”

Adding the use of spot market transportation purchases also creates flexibility for lumber companies. It alleviates the need to directly manage so many different small carriers and helps work around capacity challenges, according to Lund.

“The best operating companies use a mix of contract transportation and brokerage,” notes Lund. “Brokers help smooth out market volatility: we know where the trucks are and where the problems are.”

We will consider the other business priorities in subsequent articles.

Source: Blue Book Services, Inc.