Logistics Clusters are Helping Businesses Innovate Supply Chains and find Efficiencies and Cost Savings
The nation’s top freight carriers record an annual empty miles percentage of roughly 12.5 percent. That is to say that trucks are forced to make the return trip to their point of origin empty, because no additional conveyances are available along the route. And the figure is much higher – as much as 25 percent – for private carriers that only carry loads for a single shipper, and thus have fewer reloading opportunities.
Clearly this is a waste of good cargo space, and a lost opportunity for carriers to profit from miles that are already included in a shipping route. Yossi Sheffi, director of the MIT Center for Transportation and Logistics theorizes that empty miles are something that can be largely avoided through migration to “logistics clusters.” As Sheffi notes in an excerpt from his new book Logistics Clusters: Delivering Value and Driving Growth that appears in the Sept/Oct 2012 issue of Supply Chain Brainmagazine: “Delivering freight into a logistics cluster means that there is a high likelihood that there will be a follow-on load going out of the cluster. This is due both to the large number of logistics operators in such a cluster and to the interchangeable nature of freight flows.”
What exactly is a logistics cluster? As reported in Industrial Distribution magazine, a logistics cluster refers to a “geographically concentrated set of logistics-related business activities.”
Dr. Sheffi illustrates the positive impact of a logistics cluster by citing two manufacturers – competitors in some product categories – that decided to join forces and share logistics services in order to more efficiently serve a shared customer via its Vero Beach, FL distribution center. One of the manufacturers, a leading producer of batteries, was sending 9,000 pounds each week to the DC using an LTL carrier. The other, a manufacturer of home cleaning, air care and other products, was averaging 20,000 pounds of freight per shipment with a truckload carrier.
The two manufacturers approached their common customer – a national retail chain – and asked to have its ordering system modified so that the manufacturers’ shipping schedules would be the same. As a result, the two manufacturers are now able to share a single truckload carrier. The results have been win-win: reduced transportation costs, improved carbon footprint, improved on-time delivery and reduced shortages and deliveries. In fact, the customer has been so pleased, it has approached other manufacturers within the cluster area to arrange similar arrangements.
As businesses increasingly search for “out of the box” ways to streamline operations and tweak their supply chains, logistics clusters are increasingly proving to be a valuable way to achieve synergies and savings.