Supply Chain
Article | August 17, 2023
Even though there are distinct differences between demurrage, detention and port charges, many are still oblivious to these differences and there have been several questions on this blog relating to these charges.
This article is about how demurrage, detention, and port charges work.
International Trade and CostsWhen it comes to international trade, majority of the buyers and sellers use Incoterms to decide what each other’s responsibilities and liabilities are in terms of the business, especially related to costs.
Generally, there is very little room to manoeuvre in terms of additional and unbudgeted costs incurred on the shipment and therefore in their own interest it is important that the buyers and sellers take necessary precautions to ensure that all known costs relating to the business are discussed and finalised before the shipment commences.
There are many entities involved in the process of shipping a container from Point A to Point B, each with their own cost component, all of which have to be covered either by the seller or the buyer.
Demurrage, detention and port charges are just some of these costs that may be applicable in a shipment.
While some of the port charges are valid and unavoidable, demurrage, detention and some of the port charges (like port storage, early arrival, late arrival, amendment, shifting etc) are entirely avoidable if everyone in the chain follows the process that they need to follow.
What are port charges?
Port charges, as the name suggests are a set of charges levied by the port or terminal which the container passes through.In terms of container shipments, port charges may include but not limited to below :
Terminal Handling Charge (THC)
Is quite simply the charge levied by the port for the loading and discharging of a container from the ship.. THC differs from port to port, terminal to terminal around the world and is charged both by the load port and discharge port.If the cargo is transhipped anywhere along the route, then the transhipment port also charges this THC but that is paid by the shipping line directly to the port and this quantum is usually included in the ocean freight charged by the line.
Early Arrival Charge
A charge levied by some of the ports/terminals for a container that arrives in the terminal BEFORE the stacks into which it is to be taken has been opened.. Early arrival can happen due to various reasons like a container missed the stacks for the previous vessel narrowly, but since the container is packed, it needs to be taken to the port, The acceptance of containers prior to the stacks/gate open is at the discretion of the Port/Terminal Operator and on the circumstances surrounding the operation of the vessels.
Late Arrival Charge
A late arrival charge is a charge levied by the port for a container that arrives in the terminal AFTER the stacks into which it is to be taken has been closed.. This could be due to delays in documentation, packing delays, inspection, trucking delays and many other situations.The acceptance of containers after the closing of stacks/gate is at the discretion of the Port/Terminal Operator and on the circumstances surrounding the operation of the vessels and if the containers can be accepted without disrupting the schedule of the vessel and ports.
Stuffing/Destuffing of Containers
Some ports/terminals allow the stuffing (packing)/de-stuffing (unpacking) of the containers within the port area and charge customers based on the port tariff.This activity may happen at ports that provide CFS services and allow containers to be packed or unpacked in the port or due to some mistakes when the cargo was originally packed – say incompatible hazardous cargoes packed together.Depending on the port/terminal/country, the port charges may be charged directly to the customer (importer or exporter) or to the shipping line, who in turn will charge this to the customer.
Of course, this is not the full list of port charges but these charges have been mentioned as it relates to the subject under discussion,Demurrage and DetentionWhile some of these port charges may be unavoidable, demurrage and detention charges on the other hand are avoidable charges, but in a lot of cases due to mishandling, miscommunication, misunderstandings and not following the proper protocols, these charges occur..When they do occur, these charges may create quite a financial impact on the whole business and sometimes these costs could be so prohibitive that some customers abandon their cargoes at the destination due to these costs.
Although the most common market practice is to combine demurrage and detention, there are several cases where these are charged separately, and therefore it is important to know the difference between demurrage and detention.
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Warehousing and Distribution
Article | June 16, 2023
Improve supply chain operations with innovative inventory management best practices. Uncover the techniques for achieving exceptional supply chain performance in the B2B competitive marketplace.
Effective inventory management is critical for businesses seeking to optimize their supply chain operations and improve their warehousing & supply chain distribution efficiency. By employing demand optimization techniques, inventory management aims to strike the right balance between meeting current and anticipated future demand while minimizing unnecessary inventory costs. Organizations that maintain optimal inventory levels can mitigate challenges associated with inventory, such as overstocking and stockouts.
In supply chain management, inventory optimization is vital, as it directly impacts organization’s ability to thrive. For any enterprise selling products, the effective management of goods is essential. Without adequate stock levels for sales or fulfilling customer orders, revenue generation and overall income can be severely hindered. Inefficient inventory management, leading to stock shortages, can create stumbling blocks for businesses. Conversely, improper stock tracking resulting in excess inventory can strain financial resources. As these issues compound, it further contributes to inventory imbalances, eventually leading to bottom-line losses from expired or redundant stock.
According to a recent Statista survey, 40% of the supply chain industry has already adopted advanced technologies to optimize its inventory and using networking tools.
The above data signifies the importance of optimizing and managing inventory for improved supply chain performance. Inventory analytics, typically overseen by an inventory manager, offer valuable insights that aid in understanding and enhancing inventory performance. Inventory management best practices help achieve effective inventory optimization, crucial data points encompassing products, suppliers, procurement, purchases, and sales that are meticulously tracked within the inventory management system. These data, in turn, serve as the foundation for formulating inventory metrics aimed at demand optimization.
This article explains the techniques to optimize and manage inventory with the inventory management best practices that helps overcoming challenges, addressing procedural considerations, and highlighting the significance of implementing these methods. Additionally, it explores the benefits of adopting solution for improved supply chain distribution network.
1. Implementing Standard Inventory Review Systems
To enhance supply chain operations, adopting standard inventory review system is essential, which can significantly contribute to inventory optimization efforts. Two effective methods to review systems include the continuous review system and periodic review system. In the continuous review system, fixed quantities of items are ordered in each cycle, providing a steady and consistent approach to inventory management.
On the other hand, the periodic review system involves collecting products at predetermined intervals, considering the inventory levels at that specific moment. Embracing these standardized review systems empowers businesses to streamline inventory processes, maintain optimal stock levels, and improve overall supply chain efficiency.
2. Streamline Stocktake
Supply chain operations can be improved by streamlining the stocktaking process, which involves meticulously counting and managing inventory. A well-structured stocktake procedure ensures accuracy and prevents losses by keeping staff engaged and focused.
To achieve accuracy and earn profits, businesses must:
Schedule stocktakes strategically to minimize disruption in regular business operations.
Prioritize cleaning and organizing the stockroom before the stocktake to facilitate efficient counting.
Clearly define the item count and the counting methods to eliminate guesswork.
Conduct comprehensive stock counts, leaving no room for assumptions.
By implementing these measures, businesses can optimize inventory management, identify discrepancies promptly, and maintain precise stock records. The streamlined stocktake process contributes to smoother supply chain operations, reduces inventory-related errors, and enhances overall productivity and profitability.
3. Utilize Cloud-Based Inventory Management System
Transitioning from Excel inventory management to a cloud-based inventory management system is critical to enhancing supply chain operations. It is considered one of the most used inventory control best practices. Unlike locally-installed applications, cloud-based software offers numerous advantages, enabling businesses to pay for essential features and effortlessly upgrade as needs evolve. Companies can efficiently manage costs with a predictable subscription fee tailored to feature requirements and team size. Seamless upgrades become hassle-free as business growth justifies a move to a more robust platform, ensuring scalability.
Additionally, cloud technology provides continuous support, ensuring smooth operations and quick issue resolution. With a dedicated support team on standby, businesses can focus on optimizing inventory management, managing warehouse automation, and driving overall productivity. Embracing cloud-based inventory management is a business-changing decision that unlocks increased agility, accessibility, and cost-effectiveness for long-term success.
4. Implement Adequate Quality Control Practices
Enhancing supply chain operations requires the implementation of robust quality control practices. Accurate quality control processes play a pivotal role in maintaining inventory quality, directly impacting customer satisfaction and business growth.
Effective steps include developing comprehensive checklists, outlining stock-taking procedures, followed by standard operating procedures to qualify or disqualify products with effective warehouse management systems. By adhering to these protocols, businesses can prevent issues of overstocking or understocking, ensuring customers receive only appropriate merchandise.
Companies can strengthen their reputation, increase operational efficiency, and cultivate lasting customer loyalty through this inventory optimization best practice. The seamless integration of quality control practices into the supply chain fosters a thriving business environment built on excellence and customer-centricity.
5. Preparing Well Planned Inventory Budget
A well-structured inventory budget is one of the industry-used inventory management best practices to enhance logistics distribution and supply chain processes. Managers commonly utilize an annual inventory budget, meticulously prepared before procuring inventory. The budget is designed to encompass the total cost of ownership for the upcoming accounting period, encompassing materials cost, fixed operational expenses, transportation and logistics charges, redistribution costs, and other miscellaneous expenses impacting the inventory's total cost of ownership. By crafting a comprehensive inventory budget, businesses gain financial clarity, optimize resource allocation, and ensure efficient inventory management throughout the year. A well-planned budget empowers informed decision-making, minimizing financial risks and driving overall supply chain success.
6. Carrying Safety Stock Inventory
Operations in the supply chain require safety stock inventory – a strategically maintained surplus of inventory to protect against market demand and lead time fluctuations. By implementing safety stock, businesses can avoid revenue loss, customer attrition, and declining market share that may arise in its absence.
Safety stock is vital with the advantages it offers:
Protection against sudden surges in demand.
Prevention of stockouts, ensuring uninterrupted customer service.
Compensation for inaccuracies in market forecasts.
A buffer for longer-than-expected lead times, averting production delays.
Incorporating safety stock as a fundamental inventory management best practice empowers companies to achieve operational supply chain resilience, optimize customer satisfaction, and maintain a competitive edge in the dynamic market landscape.
7. Optimize Inventory Turnover Rates
Optimizing inventory turnover rates is a critical metric that frequently measures inventory sold or used within a specific timeframe, typically a year. Calculating turnover rates provides valuable insights into market demand, identifies obsolete stock, and guides inventory management decisions.
Inventory turnover can be improved through various strategies, such as experimenting with pricing to attract more customers and boost sales, liquidating obsolete stock to free up capital and storage space, forecasting customer demand accurately to maintain optimal inventory levels, and redistributing inventory among warehouses for better stock availability. By optimizing inventory turnover rates, businesses can reduce carrying costs, minimize stock obsolescence, and enhance overall supply chain efficiency, as well as gaining competitive advantage in the market.
“It’s been my observation that the business world has a weak understanding of inventory management and control. They are trained shallowly, and sometimes they apply only shallow experience to their practices. Sometimes, that works out great. In my 30 years of experience, however, I have seen that a lot of money can be saved by training and managing inventory control in-depth.”
-Inventory Control Expert Dr. Pyke
Final Thoughts
Adopting advanced inventory management best practices is crucial for supply chain optimization in the competitive B2B environment. Standardized inventory review systems and streamlined stocktakes optimize control and accuracy, minimizing disruptions. Cloud-based inventory management offers scalability and continuous support, facilitating data-driven decisions. Adequate quality control ensures inventory quality, driving customer loyalty. Well-planned budgets lead to financial clarity and precise resource allocation. Safety stock inventory and optimized turnover rates fortify businesses against uncertainties, boosting efficiency and profitability. By embracing these practices, logistics professionals can enhance supply chain potential, achieve lasting success, and gain a competitive advantage in the market. With a data-focused approach, these strategies pave the way for streamlined operations, stronger customer relationships, and sustained growth.
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Transportation
Article | April 26, 2023
The rapid growth of e-commerce continues to create new challenges for retailers as they plan distribution strategies. One of those challenges is managing the high volume of returns. One in three shoppers returns items, and more than half read a company’s returns policy before making a purchase. Retailers lose $50 billion annually due to inefficiencies in processing returns, and distribution centers handling returns need 15% to 20% more space than a traditional facility.
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Software and Technology
Article | April 19, 2022
The unsurprising investment eagerness of venture capital funds is manifesting in an automation tech glut in the distribution center space. Motivated by enabling trends like labor and land shortages, DCs are amid an automation transformation. Never has defining an automation strategy been more important.
There’s no shortage of VC cash available to logistics tech startups
With a brightly shining spotlight centered on supply chains for the past two years, it’s no surprise that total funding in logistics startups has seen a dramatic increase – growing at over 70% CAGR (Compound Annual Growth Rate). Logistics technology startups raked in over $25 billion in the first three quarters of 2021. That’s more than half of the total amount raised in the whole of 2020, and the incentives for continuing investment persist.
The rise of the of the “micro” DC
“Micro” is a relative term. The size of a micro fulfillment center (MFC) can range from 5,000 to 50,000 square feet. Those reduced square footages allow location in dense urban areas, typically within 40 miles of most of their intended customers. In addition, smaller footprints lead to reduced rents compared to a standard customer fulfillment center (CFC), and the proximity to consumers makes for lower final mile delivery costs. It’s no wonder that MFCs accounted for more than half of the logistics real estate leasing activity in the third quarter of 2021. The “urban logistics” trend is fueling demand for these highly automated, smaller locations.
Vertical logistics integration grows ever more fashionable among retailers
It’s a very “in” thing right now, these acquisitions and partnerships, and they won’t be going out of fashion soon. For example, American Eagle took in Airterra and its parcel optimization tech and third-party logistics (3PL) provider Quiet Logistics.
Target started early. They bought Grand Junction, a software platform that helps retailers determine the best delivery method and track carrier performance, in 2017. Their 2020 acquisition of Deliv brought with it same-day delivery routing technology that they’re now applying to their 2021 purchase, on-demand delivery service Shipt. Target uses Delivs’ tech to generate more efficient routes for Shipt.
Kroger has partnered with UK’s e-grocery specialist Ocado to build automated CFCs across the US and expand their retail footprint. The first CFC opened last spring in Ohio and their second in Florida later that year. They plan to open 20 CFCs over the next three years.
“The proliferation of DC automation solutions and modalities, the rise of MFCs in high-density urban areas, the increasingly automated vertical integration of logistics, and the need to rapidly expand order fulfillment capacity have all, in combination, advanced the need for and application of clearly defined strategies concerning the implementation of automation technology. Do not operate without one.”
Vikas Argod, Principal, Supply Chains Operations practice at Chainalytics
Coping with shortages in warehouse space and labor availability
Third quarter, 2021 US demand for industrial real estate exceeded supply by 41 million square feet. This pushed the national vacancy rate in the fourth quarter down to a record 3.7% in the Cushman & Wakefield US National Industrial MarketBeat report for Q4 2021. Who knows what the record might be when the Q1 2022 report breaks in a few weeks?
On the labor side, the December 2021 US unemployment rate was 3.9%, lower than in December 2019 (3.6%) yet reflecting a tighter labor market. Labor force participation rates are at 61.9%, nearly 2% below February 2020 levels, because of lingering effects of the COVID-19 pandemic. The rising wages and signing bonuses of the past year offer silent testimony to the ongoing constraints in today’s labor market.
Both trends will remain with us for the near- and mid-term, making an automation strategy a necessary part of your DC operations as you attempt to mitigate the effects of both. In addition, warehouse labor shortages are most pronounced in markets with high distribution center densities – Greater Memphis, In-land Empire, Allentown, PA, et al.)
Building the capability to rapidly open DCs at scale
No other factor drives home the need for a coherent DC automation strategy like this one. Let’s explore it with an example.
We’ll call this “A Tale of Two Companies.” One jumped on the automation bandwagon without hesitation – not a bad thing – but applied no strategic groundwork. The other is, well, Amazon.
Company one responded to increasing demand by creating DCs in their usual, strategically located fashion. However, with automation, the lack of a logical strategy led to adopting “the best that money could buy.” So, while these DCs work fine on their own (most of the time), each employs unique implementations from a variety of vendors, with little to no overlap of methods, capabilities, and management procedures between DCs. It’s functional, but a needlessly complicated hodgepodge.
On the other hand, it definitely looks like Amazon has a standardized automation strategy. One that can easily adapt to exploit the individual physical specifications of any space. This makes it simple to arrive and equip it with a standard package of automation solutions. That’s probably how Amazon blanketed the US with over 400 new DCs in just the last two years. They waste no time or money on repeating unnecessary decisions along the way.
Now, we all can’t have the resources of an Amazon. However, the rise of on-demand warehousing companies like Stord and Flexe allow organizations to dramatically decrease the cycle time of standing up additional fulfillment capability.
Developing an automation strategy will feel familiar. It begins with benchmarking, order profiling, current performance drivers, EBIT targets, and theoretical evaluations of newer technology options. All this leads to the creation of a decision framework for DC automation. The goal here is achieving alignment among the leadership on critical capabilities to focus on. These include rapid fulfillment, labor shortage, capacity constraints, safety challenges, or sustainability. Those that commit to this process will start slowly but finish with a strategy that will underpin thousands of decisions and enable sustained rapid growth.
If, in the end, you decide that automation is not right for your operation, that’s a perfectly valid strategy as well. So long as you have a method to evaluate all of your options, and you base your decision on cost-service-sustainability trade-offs, the right strategy for your organization may be no automation at all.
There’s no point in chasing shiny robotic objects if automation makes little sense.
The rise of automation and the multitude of technologies to choose from require the development of a strategic decision framework. Contact us and see how Chainalytics – an NTT DATA company – can be your guide in developing this critical part of your foundation for growth. Our top supply chain talent, enabled by proven, leading-edge digital assets – tools, methods, and content – deliver actionable insights and measurable outcomes to some of today’s largest and most complex supply chains.
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