Distribution costs are increasing, as are the challenges of maintaining a robust supply chain – both labor and trucking capacity are tight, and customer demands for fast shipping at a low cost are increasing.
“The cost of the supply chin as a percentage of the total cost of the item has never been higher,” says Rick Holden, vice president of business development at Riverside Logistics Services in Henrico, Va. “Amazon has changed everything in our business, for better and worse.”
Holden is referencing what is known as the “Amazon Effect” – the push for a higher levels of service, faster deliveries (same-day or two-hour) and low-cost or free shipping. The joint pressures of increasing velocity while lowering cost have made it difficult for supply chains to operate profitably, particularly given the increasing cost of transportation and scarcity of qualified labor.
“Just figuring out how to address that from a technology, automation or network standpoint in a profitable way has been a challenge for a lot of our clients,” John Lowe, principal, supply chain and consulting services, at Tompkins International, based in Raleigh, N.C.
The labor shortage has also made it difficult for companies to expand or adjust their distribution center networks to desirable locations with existing infrastructure and access to major airports and freeways. “Everybody wants to be in those areas, and they are all competing for the same labor pool,” Lowe says. “The need for labor is a huge risk area for them for both peak and non-peak times.”
That means driving efficiency in distribution operations has become even more critical.