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Insight: First Things First – The Power of Partnerships

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First Things First

The power of partnerships

April 20th, 2021   ·   By Rob Garrison

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Every week, Mercado CEO Rob Garrison pens his latest learnings from the supply chain industry as part of an on-going series. Each article aims to share a little insight into what's going on that week, and to help foster discussion amongst industry professionals across levels, geographies, and companies.
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I love this approach by CMA to partner with their customers for mutual benefit. Shout out to Ed Aldridge and the team for creating real solutions to real problems.

The opposite of this approach is to try to solve problems with a hammer, such as blank sailings, which help no-one in the long term. Of course in the short term it helps to keep rates artificially high. In the medium term it creates chaos due to equipment imbalances, and for the carriers customers it impedes their ability to reliably serve their customers. Even without blank sailings, schedules are only 39% reliable as it is.

A better way would be for carriers to understand how customers operate their businesses, and for customers to understand what are the carriers primary cost drivers or bottle necks. This would need to be a top to top forum as most carriers have centralized decision making at their company headquarters. Fortunately there are a lot of great talents out there like Rick Gabrielson or Mark Baxa who could mediate such a forum.

When I was an importer I met with the President of a very large carrier. During our conversation, I asked him what his biggest customer driven operating expenses were. He said:

  • #1 was no shows. Similar to the hotel and rental car industries, when a container is reserved (or worse repositioned) and it's a no show, it costs money. It's both an opportunity cost, and the cost of positioning the asset.

  • #2 was forecasting. Customers would constantly over or under forecast, and vessel space is both fixed and highly perishable. Once it pulls out of port the empty spaces can't ever be filled.

  • #3 was empty re-positioning. If we moved our cargo to the Midwest for example, it was often difficult for them to get a return load, so they had to empty reposition the equipment back to the west coast.

  • #4 was the cost mentioned in this article which is referred to as dwell time. Carriers can't make money when their containers are not in motion.
The solution we came up with was to include these issues in our contract, which created a win/win. My company got incentives if we exceeded the KPI's, and they got a much more profitable client.

It's always seemed strange to me that an industry so dependent on each other often operate as though they are adversaries. The solution is to create a forum to seek understanding of the issues on both sides, and create a new dynamic for mutual benefit.
"In an 'ideal' world, an importer would have at least one backup country, and one back up supplier for every critical product... All of this sounds good on paper, however it's actually incredibly difficult in practice."
One key reason is the dominance of China. Many importers are concerned about China as a sourcing point due to increasing tensions between the countries. However, the reality is that China dominates mfg in Asia, and they are very good at it.

As a result, quitting China is hard, as you will see in the excellent analysis below by Rita Rudnik.

A second reason is much more mundane. Most importers lack a robust database of their suppliers, and their supplier's suppliers. On the surface this sounds ridiculous, however we have gone through decades of 'predictable' supply chains where this wasn't a priority. Using the example above, most of the bike importers I spoke to were simply not aware of how reliant their suppliers were on Shimano.

My guidance to all importers is to address this database issue quickly. Beyond resiliency, knowing a lot about who makes your products, and who makes their parts, is also critical for understanding things like cost, ESG, and sales.

About the author

Rob Garrison, Mercado CEO
A highly accomplished Global Supply Chain executive with 25 years of experience, Rob Garrison has provided strategic vision and leadership to Fortune 500 companies. Rob has an impressive history of building agile, technology-enabled supply chains, and he has an established track record of forging high-growth partnerships, positioning organizations for success and launching innovative technology solutions that significantly improve end-to-end supply chain efficiencies.

Rob is currently CEO and founder of Mercado Labs.
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