How I Built a Strategy To Withstand Any Market Condition
To better understand the shipper perspective on integrating data into supply chain strategy, we asked Steve Abiadal, Sr. Director of Logistics (formerly at SunOpta) and Coyote customer, how he manages it. Steve has over 15 years of logistics experience at global food shippers. Below is his advice.
How I Built a Data-Driven Supply Chain Strategy That Works
As every logistics professional knows, the truckload market can be erratic. Setting a supply chain strategy to cope with its changes can be very difficult — which you know if you’re moving multiple truckloads a day.
Anticipating market shifts can give your business a competitive advantage. Getting caught off guard can result in blown budgets, missed growth opportunities and lost customers.
Data is critical in managing your supply chain.
“Data” is such a broad term and in the context of a supply chain, it can seem overwhelming. If we focus on the right information, we can draw simple, yet powerful insights to guide both our high-level strategy and day-to-day tactics. This requires evaluating information within our supply chain as well as understanding where we are within the market cycle.
Supply Chain Data
There are so many data points in any given supply chain which makes it easy to get lost in the weeds. When managing carriers, we focus on a few core KPIs.
- Primary Tender Acceptance: Failure to live up to commitments makes forecasting difficult, exposes us to rate inflation—and perhaps most importantly—shows a lack of commitment to a long-term business relationship.
- Cost of Non-Compliance: How much in spot market premiums is a carrier costing us? This KPI gives us a concrete number that helps to tell an impactful story, both to the carrier when demanding improvement, and to leadership when explaining rationale.
- On-Time Delivery: Though late deliveries do not always have a direct financial penalty, they are extremely damaging to our customer relationships. If our carriers cannot deliver on-time, SunOpta risks losing the business.
While SunOpta suffered in all three of these metrics to some extent in 2018, we maintained an open dialogue with carriers to drive better performance. Some carriers demonstrated a genuine effort to improve, others did not. This data made our decision-making process much easier.
All supply chain professionals should focus on developing longstanding relationships with core carriers and 3PL partners. Try to avoid hard-and-fast rules, but instead use these KPIs to create a holistic profile for each carrier. Track performance over time and analyze it in relation to market conditions.
Understanding the truckload market cycle framework helps us anticipate shifts, which in turn helps us to be more strategic in financial planning and setting bid strategy.
Specifically, we knew that the market had not yet peaked heading into our bid in January 2018. Though we were already experiencing rate increases and capacity shortages after back-to-back hurricanes in late 2017, we were confident it would get worse in 2018.
With that straightforward insight, we began to prepare our supply chain accordingly.
Instead of adding more capacity in the form of new carriers, we put intense focus on strengthening relationships with core carriers based on market insights. By emphasizing quality over quantity, we were able to drive higher primary tender acceptance in the midst of a very tight market.
Of course, we were not completely insulated, but overall our strategy was very successful. We reduced our exposure to a costly spot market relative to industry peers, keeping a bad situation from getting much worse.
Flash forward to our 2019 bid.
Using the Coyote Curve forecasting data as a guide*, we were confident that the market had peaked and would remain in a deflationary environment for the rest of the year. That knowledge validated our approach of getting our budget back in-line, removing underperforming carriers and strategically experimenting with new providers.
The Coyote Curve is also useful when explaining industry dynamics to leadership. They are not as intimately involved with shipping, and we need a tool to help validate our logistics strategy.
The Curve is straightforward and high-level enough to clearly communicate market conditions. This is especially helpful during inflationary markets (like 2017 and 2018) when there is increased budget scrutiny.
Combining Market and Supply Chain Data
Access to primary and spot opportunities are the best levers we have to reward high-performing carriers and incentivize better behavior from underachievers.
When evaluating carriers, we determine performance using the KPIs mentioned above (primary tender acceptance, cost of non-compliance and on-time delivery). Then, we assess where we are in the market capacity cycle and monitor what types of freight we give to each carrier.
In an inflationary market:
- Spot freight is a huge opportunity for carriers to make higher margins.
- Access to spot opportunities is a privilege—carriers should earn it.
- If carriers fail on primary acceptance or otherwise struggle with performance, do not offer them spot tenders.
In a deflationary market:
- Primary freight is essential for carriers to keep their drivers loaded.
- Access to primary awards is a privilege—carriers should earn it.
- If carriers underperformed when the market was tight, do not reward them with primary lanes on the bid.
As overwhelming and vague as “supply chain data” conversation can seem, with a little insight into high-level truckload market activity, combined with some core KPIs from your own network, we can use data to create more accurate budgets, better manage carrier relationships and set more strategic supply chain strategies.
About Steve Abiadal: As Senior Director of Logistics, Steve Abiadal leverages over 15 years of logistics experience to develop and execute SunOpta’s North American supply chain strategy. Prior to his current position, Steve served in various operations and logistics management roles at General Mills, where he managed logistics flow for multiple manufacturing, co-pack and warehouse locations, developed strategy for inbound raw material networks, and onboarded contract locations to support product growth.
About SunOpta: SunOpta Inc. is a leading global company focused on sourcing, processing and packaging organic, non-genetically modified ("non-GMO") and specialty foods. With about 1,800 global employees, SunOpta's operations revolve around value-added grain, seed, fruit and vegetable-based product offerings, supported by a global sourcing and supply infrastructure. SunOpta leverages full truckload (dry van and temperature-controlled), intermodal and LTL to move nearly 30,000 annual loads across 188 shipping points in Canada, Mexico and the U.S.