In the intricate web of global trade, few elements wield as much influence as fluctuating fuel prices. For businesses in Kenya, the recent announcement of a 50% fare hike on the Standard Gauge Railway (SGR) compounds the challenges posed by soaring fuel costs. As dictated by the Energy and Petroleum Regulatory Authority, monthly adjustments in retail petroleum prices have become the norm, with gasoline at KES 219.074/liter, diesel at KES 207.438/liter, and kerosene at KES 207.056/liter. These seemingly innocuous figures belie their far-reaching impact on the country's supply chains, creating a complex web of challenges that demand innovative solutions.
The Dual Challenge: Rising Fuel Prices and SGR Fare Hikes
Globally, fuel prices have been on an upward spiral, driven by heightened energy demands. In Kenya, this surge is exacerbated by the recent 50% increase in SGR fares. The implications for supply chains are immense. Industries heavily reliant on transportation networks are likely to witness a surge in the cost of cargo movement. Consequently, this might lead to substantial delays and backlogs, challenging the agility of businesses and posing financial strains on maritime operators.
Maritime Operators in Turmoil
Maritime operators find themselves in a precarious position, grappling not only with the escalating costs of bunker fuel but also with the financial burden of increased SGR fares. These additional expenses are inevitably passed on to shippers, creating a ripple effect across the entire supply chain. This complex interplay of rising fuel costs and fare hikes necessitates a comprehensive reevaluation of supply chain strategies to maintain operational efficiency.
Physical Network Distribution: A Critical Focus
Amidst these challenges, the physical network distribution becomes a focal point. Businesses must reassess their distribution networks, considering the increased costs associated with both fuel and rail transportation. This evaluation requires a meticulous analysis of routes, warehousing locations, and last-mile delivery strategies. Embracing technological solutions like Transportation Management Systems (TMS) becomes pivotal in optimizing these physical networks, ensuring goods reach their destinations efficiently despite the hurdles posed by rising costs.
Fuel Price Management through Physical Network Distribution
There was a time, when it meant something for warehouses found strategically placed adjascent to a working railway line. Think of Karatina Route or Matunda route.. what happened??!! We do have roads, I admit, but I hope that business book I used in highschool was revised..
Anyhow, effective physical network distribution in supply chain management refers to the series of actions that move final products from production to the consumer. It encompasses warehousing, inventory control, order processing, materials handling, transportation, and customer service. When it comes to managing fuel prices, physical network distribution plays a crucial role in the following ways:
Optimization of Transportation: Different transportation modes enable retailers to make their goods and services available. Companies spend a significant amount on shipping costs, nearly 25-40% of the average retailer’s total distribution costs. As fuel prices rise, optimizing the mode and route of transportation becomes critical to control costs.
Inventory Management: Effective inventory control can reduce the need for rush deliveries or shipments, often more expensive due to higher fuel costs. By accurately forecasting demand and managing inventory levels, companies can plan regular, cost-effective shipments instead of expensive, last-minute ones.
Warehousing: Strategic placement of warehouses can significantly reduce transportation distances and thus fuel costs. Storing goods in locations closer to the end consumer reduces the distance products need to travel, leading to lower fuel consumption.
Order Processing and Customer Service: Efficient order processing and high-quality customer service can prevent costly returns or reshipments. These not only disappoint customers but also lead to additional fuel consumption.
Here are a few case studies that illustrate how effective physical distribution can lead to faster shipping, reduced logistics costs, and high customer satisfaction:
Walmart: Walmart’s distribution strategy allows the company to provide high availability levels of relatively common products at a very low cost. Walmart operates one of the largest private fleets in the United States, which enables it to deliver goods from distribution centers to stores in a timely and cost-effective manner. This has resulted in faster shipping times, reduced logistics costs, and high customer satisfaction.
Seven-Eleven Japan: Seven-Eleven Japan has an effective distribution strategy that provides a very high level of customer responsiveness at a reasonable cost. The company operates a dense network of stores and uses sophisticated information systems to forecast demand, optimize inventory levels, and plan deliveries. This has enabled Seven-Eleven Japan to offer a wide variety of products and ensure that popular items are always in stock, leading to high customer satisfaction.
Chewy.com: In late 2013, Chewy.com faced a logistics dilemma: whether to stay with a third-party logistics provider (3PL) for all of its e-commerce fulfillment or take that function in-house. The company’s CEO was convinced that achieving scale would be essential to making the business work and worried that the current 3PL may not be able to scale with Chewy.com’s projected growth or maintain the company’s performance standards for service quality and fulfillment2. After careful consideration, Chewy.com decided to take its logistics function in-house, which allowed it to better control its distribution network and improve customer satisfaction.
Penske Logistics and a Leading Beverage Distributor: When a beverage distributor needed to expand its operation quickly to counter a competitor, they turned to Penske Logistics. Penske helped the distributor rapidly establish new warehousing operations, enabling them to effectively manage their physical distribution and maintain high levels of customer service.
These case studies demonstrate how companies can leverage physical distribution strategies to achieve faster shipping times, reduce logistics costs, and improve customer satisfaction.
Conclusion: Adapting and Thriving Through Innovation
As fuel prices continue their unpredictable trajectory and SGR fare hikes add another layer of complexity, Kenyan businesses face a crucial crossroads. Embracing innovative solutions like Transportation Management Systems and refining physical network distribution strategies are no longer choices but necessities. By leveraging technology, optimizing processes, enhancing visibility, and reducing costs, enterprises can transform challenges into opportunities. The resilience of a business lies not only in its ability to withstand adversities but in its capacity to adapt, innovate, and thrive. In the ever-evolving landscape of global trade, these strategic adaptations ensure that supply chains remain robust, efficient, and adaptable, safeguarding businesses against the uncertainties of the market.
I will be posting here as well as officially in Tenderzville-portalTenderzville Portal, let us grow our supply chain community.
Cheers,
Supply Chain Coded
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