The key to creating efficient transport operations both for demand spikes as well as periods of average consumption lies in the concept of demand pooling. Find out how technology can help medium and large-sized businesses in long-tail markets to take advantage of demand pooling in order to create more efficient daily operations.
For industries susceptible to large seasonal fluctuations, coping with periods of high demand remains one of the main challenges. This is the case not only for medium-sized companies that work with just a few transport providers, but also for larger players that tend to distribute their transportation operations among 5-10 transport providers. As a result, logistics directors are required to dedicate significant time and resources to preparing for seasonal peaks, instead of improving the efficiency of their daily operations.
This pressing issue of demand fluctuation is widely discussed in the industry, and was one of the main topics addressed by expert Simchi Levi in his influential research into supply chain optimisation, ‘Designing and Managing the Supply Chain’ (2003). Levi addressed the concept of risk pooling: “a statistical concept that suggests that demand variability is reduced if one can aggregate demand, for example, across locations, across products or even across time.” This is an idea that can be leveraged in operations, production and insurance, but is also highly applicable to the transport industry. For firms operating in industries with noticeable demand peaks, risk pooling can be an effective way of tackling the challenge of seasonal fluctuation.
Applying Demand Pooling In Transportation
In logistics, this principle of demand pooling can be applied by aggregating demand from a large number of shippers from medium to large enterprises, working across different industries and shipping various goods. The higher the number of clients needing shipments, the higher the chance they’ll have counter-cyclical demands that can be balanced against one another.
For example, the beverages industry can hit demand spikes of over 50% during summer time while the toys industry often sees an increase in sales of up to 80% over Christmas holidays. A logistics company working with both companies would be able to aggregate both consumption curves and take advantage of countercyclical demand in order to minimise overall fluctuation, as demonstrated in the chart below:
The effects of more even demand stream, as a result of demand pooling, can be beneficial for supply chain management in the following ways: firstly, companies can achieve higher order-fulfilment rates during both average and peak demand periods. Secondly, demand pooling increases the flexibility of logistics operations since firms can leverage spare transport capacity in times of low demand, in order to provide extra resources to deal with demand spikes in another industry. Overall, demand pooling allows supply chain managers to create more efficient, robust and responsive logistics processes.
Leveraging Technology To Become More Agile
Traditional logistics providers tend to tailor their services to a limited number of larger industry players, or specialise in one industry or geographical zone. This means they are directly exposed to typical demand fluctuations for this industry or geographical zone. This causes these providers to struggle to maintain service levels and standards during peak periods. Therefore, they’re forced in turn to subcontracting, to pay spot market prices, or end up falling short when it comes to providing transport services.
Ontruck’s large portfolio of diverse customers of varied organisation sizes, geographical locations and industries facilitates putting the demand pooling concept into action, therefore offering its benefits to customers. By leveraging new technology, big data and statistical analytics, Ontruck has the capacity to forecast peaks in demand in various industries and increase supply base accordingly in advance. Thanks to the use of mobile technology, Ontruck can allow its customers to tap into a larger pool of drivers thus minimising the spot shipment costs and effectively managing demand peaks. Indeed, Ontruck guarantees its customers 99% truck availability for any spot shipment and 100% availability for any contracted recurring shipment.
By providing its customers with higher load coverage, increased flexibility and benefits of big data analysis, innovative companies such as Ontruck enable logistics directors to achieve a higher level of order fulfilment at all times, including peak periods. The outcome of this is a more cost-efficient and agile supply chain.
With Ontruck, Supply Chain Managers can focus on innovation, supply chain standardisation and optimisation, without the need for seasonal firefighting during periods of high demand. To further streamline its services, Ontruck is currently working on a module that allows for full IT integration with large enterprises and their TMS platforms.
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