“Just in case” or “Just in time”? A management philosophy born in Japan is ready to make containerized freight transport more efficient.
The 1970s played a decisive role in the history of trade, shipping and manufacturing. The management philosophy, born in Japan, has been adopted by Western companies as well. One of the clearest examples of this philosophy is the Just-in-Time inventory management system, which was developed and perfected in Toyota factories under the leadership of Taiichi Ohno and became a tool that allows you to meet customer requirements with minimal delays. It was then that Toyota revolutionized the manufacturing world. In essence, this system means working with almost no inventory, when raw materials, goods, or even personnel must be brought in at exactly the right time or shortly before they are needed. By operating under this system, Toyota was able to solve many of the problems associated with maintaining a high level of inventory, freeing up a significant amount of capital and reducing costs. Thanks to the JIT system, it is also possible to minimize the cost of storage, service/maintenance, etc.
The JIT system and its equivalents are now the industry standard in the automotive industry and are also ubiquitous in the broader manufacturing and service verticals. However, while the automotive or manufacturing sectors can afford to wait for an order to be placed and then produce, many other business areas need accurate demand forecasting to implement JIT logistics technology.
A prime example of such an area is the container shipping industry, which also experienced a renaissance in the 1970s with the widespread use of containerization. However, indiscretions in the planning of internal processes and trade imbalances have led to an increase in transport inefficiencies. Empty containers had to be moved from major consumption centers in Europe and the US to major manufacturing centers in China and Southeast Asia. In order to be able to meet demand anytime, anywhere and compensate for long re-deployment cycles, sea carriers store surplus containers. Traditionally, empty containers make up about 30-40% of the total container fleet.
This workflow, alternative to JIT, is called Just-in-Case (“just in case”). It is a method of inventory management in which inventory, goods, and materials are always on hand to be in the right place when needed and to ensure that customer orders are always fulfilled. However, reserve stock estimates in the shipping industry are often based not on hard data, but on the intuition and experience of local agents. They are often very interested in making sure that they have a constant inventory that will satisfy all the orders of potential customers. This desire is in conflict with the desire to work effectively. A company needs to maintain a huge inventory of materials, sometimes for weeks or months of uninterrupted operation, to be able to quickly respond to a decrease or increase in demand. All this requires significant costs and increases the selling price of products.
The opposite scenario, in which the central organization dictates the amount of reserve stocks in the field, also exists. Following the collapse of Hanjin in 2016 (then one of the world’s top 10 air carriers) and the ensuing upheaval, some companies have significantly reduced their fleets. This has created another problem: shortages of essential products in stock as companies struggle to meet consumer demand.According to the Boston Consulting Group (BCG), empty container logistics costs (including moving, storage, handling, etc.) account for about 5-8% of the operating budget and are estimated to cost the industry about $20 billion a year. . Adding maintenance and repair to this, costs can easily reach 12% of a shipping line’s operating costs. According to the CEO of the world’s 6th largest shipping line, Jeremy Nixon, empty containers are a problem that costs Ocean Network Express (ONE) about a billion US dollars.
This raises a logical question: how can carriers move from JIC to JIT to improve profit and loss. Contrary to popular belief, implementing JIT in shipping should be easier than in manufacturing. Just like in production, distribution is carried out by building economical and extremely efficient supply chains. However, in the maritime industry, companies should not rely entirely on external partners who are always ready to supply them with the goods and materials they need on time. Rather, ocean freight carriers can rely solely on themselves or, more specifically, on the use and accuracy of their own data.
Step by step – to the Just-in-Time strategy (“just in time”)
As mentioned above, a precondition for implementing JIT is an accurate forecast of future demand. Currently, the expected demand from small sea carriers and the associated inventory is primarily calculated by sales teams and local agents based on their interaction with customers, based on experience and intuition. Larger and more technologically advanced maritime shipping companies rely on statistical modeling of their own data to identify trends and seasonality, and to forecast demand. However, logistic data often does not meet certain quality standards, and if data pre-processing is not done properly, further data modeling can lead to incorrect conclusions. Machine learning algorithms should be applied to improve the quality of the data used and ensure high prediction accuracy. External factors affecting traffic volumes (holidays, economic indicators, etc.) should also be included in the forecast. This step is critical to determining the optimal values for safety stocks at any given time.
To further optimize their fleets, companies can apply intelligent optimization algorithms that take into account, among other things, all relevant costs (storage, movement, stevedoring, material handling, maintenance, etc.), traffic schedules and redundancy curves. The combination of demand forecasting and cost optimization makes it possible to make data-driven assessments, such as which source to use for restocking (both locally and globally), whether to sort, where to store, or whether to perform maintenance. The risk assessment should also take into account the extent of possible availability and the rate of restocking. Working closely with short-term rental service providers can further improve operational efficiency. If all these elements are used properly, maritime shipping companies can build a highly efficient supply chain, which is simply necessary in order to take full advantage of the JIT system, ready to show itself to its fullest. Thus, the most significant short-term impact of JIT on the profit and loss of a shipping company is the ability to minimize the total size of the fleet to 12% without compromising revenue and service levels.
Despite recent strong financial results from some maritime shipping companies, there is no doubt that 2020 has brought major new challenges for the container shipping sector. In addition to existing US-China disputes and already deteriorating trade, the COVID-19 pandemic is hurting the industry further. In the most apocalyptic forecast, some analysts say the pandemic could lead to the biggest decline in traffic in their memory. All of these factors reduce profitability and put additional pressure on shipping companies to fight for efficiency even more fiercely. So perhaps now is the moment when shipping companies are ready to look for new solutions – and implement the Just-in-Time system.Manufacturers, carriers and traders who want to compete effectively in the marketplace of the future need technology to help them fight for margins and increase profits. As the COVID-19 pandemic has shown, current technical solutions are not enough. The complexity and scale of today’s global trade require new data-driven and machine-intelligence-driven approaches to accelerate the delivery of goods at higher margins, even in times of crisis. It took Toyota time to perfect the JIT system, and it helped the company create a competitive advantage and revolutionize the world of automotive and manufacturing. Today, container shipping operators are also starting to act, using all available means to implement the JIT strategy in cargo transportation.
International cargo sea container transportation is successfully carried out by M&M Ukraine (head office in Kiev, subdivision in Borispol and Odessa) in all promising and demanded world directions. “M&M Ukraine” provides high-quality and safe cargo transportation from European countries to Ukraine, from Ukraine to Europe, to China and to the USA.
Based on materials from www.transmetrics.eu and data from open sources.