Optical Illusions in Cold Chain Supply

Which line is longer? That's easy, the one on the right Are you sure? Yes!!! ... doesn't the line on the right looks longer to you? Let's measure them.... source: www.eyetricks.com I ran and brought a ruler, measured the lines, and confirmed they have the same length. (...smiled...) But remained skeptical and strained my eyes ... wishing I could do the same to my logic. This optical illusion was one of my favorite when I was a child. I was fascinated by optical illusions (and I must admit that, to this date, I still enjoy them very much) because my eyes bended my logic. Throughout my years in the biotech/pharma industry, I have found many professional "optical illusions" that create inefficiencies in the cold chain supply. Like in the example above, we must find the ruler and measure the lines to find their true length. If not, the optical illusions will bend our logic and we may select an incorrect solution. One of these "optical illusions" is found in the airfreight shipping container selection process. Airfreight is the preferred transportation mode in the biotech/pharma industry and indisputably the most expensive. Efforts to manage the logistics costs are applied by the supply chain links which often work in isolation struggling with their own optical illusions. An example is the RFP (Request for Proposal) process to select the freight forwarder and container supplier. Cost is very important in any RFP and the winner is often the supplier with the lowest price. Although the RFP process is a very useful and powerful tool to drive costs out and reduce risks, it can potentially become a victim of an illusion and fails to unlock greater savings. A similar scenario is found in the packaging design and validation processes. It is common to look for the most robust containers to ensure the product temperature range is maintained during validation and throughout distribution. Many times, the packaging solution lasts well beyond the distribution needs rendering over-designed containers. With an over-cautious approach,one expects to find high-end technology containers (e.g. Vacuum Insulated Panels or VIP, Phase Change Materials or PCM, etc.) with a high price tag to go along with them. The scenario is repeated at the warehouse by selecting containers based on the cost, ergonomics or assembly time. Most container suppliers have off-the-shelf and customized solutions so they appeal to the RFP’s, packaging design and validations and warehouse needs. On the other hand, freight forwarder and carriers do not share any of the previous concerns and are limited to the container weight and dimensions and how the containers affect cargo optimization. The role of supply chain is to compile these "optical illusions" and collaborate with all links to find the true measure to optimize the distribution process. Expanding to emerging markets and facing rising fuel prices makes the airfreight expenditure to increase quickly. A quick comparison of the containers' actual cost (how much the container cost to purchase), containers' pack out (cost of labor associated with packing the product into the container) and airfreight expenditure (transportation costs associated with delivering the packed containers to the customers) will show that the biggest expenditure category is: "AIRFREIGHT". In my experience airfreight can range between 50-80% of the total cost of distribution, therefore the container RFP, the robust container technology, the ease of assembly and other internal concerns must be aligned to airfreight optimization efforts to reduce landed cost (total cost of ownership) of logistics. Dissecting the shipping charges helps us identify what drives the costs. Shipping charges include airfreight and surcharges (fuel, security and handling) and they are calculated by multiplying the rates (airfreight, fuel, security and handling) by the weight. The direct relationship between weight and cost is easily understood so if we shipped more weight we pay more in shipping charges. Efforts to minimize the weight are often included in the packaging optimization projects by shipping more product and less "packaging" (pallet, insulation, refrigerated and frozen gel packs,etc). We are in front of an optical illusion and although reducing the weight (more product less packaging) in the airfreight container selection ("packaging optimization") seems the right approach, we must find the ruler and measure the lines. The ruler in this case is how carriers invoice airfreight. Freight carriers compare the container's actual (gross) and dimensional (volumetric) weights and invoice the greater weight (a.k.a. chargeable weight). People working in transportation are well aware of how shipping charges work but other supply chain links (e.g. engineering, validation, sourcing, container suppliers, etc) don't. Most biotech/pharma products are light weight and have low density containers so this concept is critical to unlocking significant savings. Let's say a container's actual weight is 240 kg (this includes pallet, insulation, refrigerated and frozen gel packs, temperature monitors, etc) and the product is 60 kg. The cargo's actual total weight (gross weight) is 300 kg. Freight carriers will use the shipper external dimensions to calculate the dimensional weight. Let’s assume the dimensional weight calculation is 500 kg. Therefore shipping charges are calculated based on 500 kg and not on the 300 kg being shipped. The extra 200 kg become the additional shipping charges. Accounting for all the shipping (i.e. annual number of containers), the savings can be significant if we unlock the additional shipping charges. What I propose to you is: If you are in transportation/logistics, measure the "additional" shipping charges coming from the difference between actual and dimensional weights because that money can be collected as savings. If you are in warehousing, collaborate with transportation, packaging and sourcing. You may own the material budget for the containers and selecting a cheaper or quicker-to-assemble container seems logical but your decision may have a greater impact (when you look the other expenditure category: freight). If you are in packaging, select the container design that matches the actual and dimensional weights or minimize the difference between these two numbers as much as possible. If you are in sourcing, understand that a cheaper container may provide savings in the material expenditure category but may increase the shipping cost category. Work with the packaging expert to rank suppliers based on the impact to the logistics landed cost. If you are a container supplier, collaborate with your clients, carriers and freight forwarders to create designs that will give the optimum chargeable weight (actual weight = dimensional weight). If you are carrier or freight forwarder, capture the difference between actual and dimensional weight. Report the shipping charges linked to these packaging inefficiencies and offer to collaborate with your client to find a packaging solution. If you believe there is no advantage to this collaboration because you may be shrinking your invoicing, you may be soon in a RFP process for carriers or freight forwarders. You want a healthy and organic revenue that comes from the collaboration of the supply chain links. If you are in upper management, encourage the collaboration among your supply chain leaders (warehousing, transportation, sourcing, packaging, etc) to find solutions that bring savings, reduce the airfreight carbon footprint, reduce material waste, etc. I'd love to hear some of your experiences so please feel free to share them here. I leave you with some questions .... What is the breakdown of your logistics costs (freight, material and labor)? How big is the gap between actual and dimensional weight for each of your containers? What is your containers' dimensional factor? Do you use actual weight or dimensional weight to calculate your shipping surcharges? Until the next post.... First published on Temperature-Controlled Supply Chain Have Your Say Rate this feature and give us your feedback in the comments section below

Optical Illusions in Cold Chain Supply

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