Dealing with Unpredictable Demand and Fluctuating Volumes: Stay on target as business picks up Lucas Kuehner, Panalpina Inc.

Atlanta, June 2010 Panalpina USA

Panalpina USA – Lucas Kuehner

Atlanta, June 2010 2 Managing the „Unpredictable“ – Advanced Demand Management

Is the Freight Forwarder the new Economist?

What’s certain about the future is that it’s uncertain

Warehouse Network

Producers

Flow of Ownership (via focal company) Flow of Payments (vial focal company)

Flow of Information

Flow of Goods Retailer Network

Wholesaler

Network

Origin(s) Upstream or Source

Destination(s) Downstream or Sink

Warehouse Network

Suppliers

Panalpina USA – Lucas Kuehner

Atlanta, June 2010 4 Managing the „Unpredictable“ – Advanced Demand Management

Common Information Gaps in Supply Chains and the Collaboration Approach

Supply Chain Mis-Alignments: • Uncertainty caused by lack of information

of the demand forecast (Bullwhip effect, biased forecasts)

• Complexity because of multiple players

• Need to coordinate different activities, internal and external partners

• Inventory as insurance against uncertainties (multi-echelon, rippled delta)

• Long replenishment times

• Insufficient definition and analysis of replenishment times

• Sub-optimal utilization of economic order sizes and trade-off versus inventory carrying costs

SC Collaboration Approach: Reduce Inventory (work-in-progress and

finished goods) Sharing information to improve demand

forecast Reliable supply for plant and retail stores Supply Chain Pull instead of Push

Principle Passing responsibility to suppliers for

managing inventory with agreed min/max levels, define lead times and replenishment cycles

More collaborative relationships Improved time-to-market More accurate planning and thus lower

inventory and in-store inventories Overall reduction of Transportation Spent

Benefits of VMI

Panalpina USA – Lucas Kuehner

Atlanta, June 2010 5 Managing the „Unpredictable“ – Advanced Demand Management

Capacity graph – Identifying the “Delta”

Month  Ocean Baseline  Air Baseline  Transport Delta  Demand1  20  4  3  27 2  25  4  3  32 3  42  7  4  53 4  16  1  0  17 5  22  9  6  37 6  52  12  5  69 7  67  16  6  89 8  89  22  13  124 9  110  14  7  131 10  49  4  6  59 11  32  3  0  35 12  20  7  0  27 

Delta Understanding the Delta: • Identify multi-modal capacity

requirements

• Correlate forecasted demand with anticipated supply

• Utilize advance planning methodologies (rolling forecast, statistical probabilities, etc.)

• Understand the lifecycle of the Delta – what drives demand?

• Actively manage the Delta – the larger the Delta, the higher the transport cost premium

• Develop contingency planning for delta bandwidths

Panalpina USA – Lucas Kuehner

Atlanta, June 2010 6 Managing the „Unpredictable“ – Advanced Demand Management

The Strategic View: Ways to avoid the Delta

• Customer segmentation strategies • Identify ‘re-enforcing’ segment demand to spread volume

• Product mix strategies • Establish priorities for products based on value to the business,

mapping their associated extended supply chain and identifying those that require long lead times or are sole-sourced

• Far-sourcing versus near-sourcing • Consider alternative routes to market if goods cannot be moved to

planned purchasers in a timely manner

• Strategic contingency plans: What-if scenarios (volcano) • Consider supply chain diversification strategies to avoid single

points of failure

Panalpina USA – Lucas Kuehner

Atlanta, June 2010 7 Managing the „Unpredictable“ – Advanced Demand Management

The Tactical View: Ways to manage the Delta

• Forecasting • Apply Analytics for Supply/Demand Aggregation

• Rolling Forecast • Periodic update intervals reduce uncertainty • More deterministic decision environment

• Communication Triangle - Shipper / Carrier / Forwarder • Lean SCM execution requires collaborative communication

• Supplier Management • Suppliers are an integral part of the collaborative Supply Chain

and information layer and need to be integrated into the modeling

Panalpina USA – Lucas Kuehner

Atlanta, June 2010 8 Managing the „Unpredictable“ – Advanced Demand Management

The Operational View: Ways to limit the Delta

• Carrier Strategies • Collaborate on contingency plans with (air) cargo handlers to

verify suitability and ensure availability of capacity in a competitive marketplace

• Developing plans for alternative ground transportation via contractual agreements, in advance if possible, as air transport alternatives will be in high demand

• Supplier Management • Familiarizing the organization with suppliers' contingency plans

and related businesses that impact on the supply chain • Reviewing contractual obligations with suppliers and key metrics

such as service level impacts between two parties (fill rates)

Panalpina USA – Lucas Kuehner

Atlanta, June 2010 9 Managing the „Unpredictable“ – Advanced Demand Management

About Panalpina Further information and news about Panalpina can be found on our website at www.panalpina.com. Thank you!