How to Cut $35M From Your Budget from One Year to the Next

airplane-flying-at-sky

September 19, 2019

As the end of the year approaches, so does the end of the budget. Is your CFO tightening the purse strings? Is your HR team putting on hiring freezes? The bottom line is always a concern—for every department. So for you procurement and supply chain folks out there, here’s a big pro tip for cutting those budgets: You can slash your spending on emergency air freight.

by Dan Ciszek

Every company with a supply chain knows it: Supply chain disruptions happen. Whether it’s a fire, a hurricane, a strike, a bankruptcy or something else, it’s virtually impossible to get through any major stretch of time without a single unpleasant surprise. That’s why procurement and/or logistics departments often require budget for emergency air freight.

One of the most extreme cases of emergency air freight was the Meridian Magnesium plant explosion in Michigan, back in May 2018. When the plant shut down due to fire, it halted the production of Ford’s F-150 truck series—production of the vehicles required the magnesium produced by the plant, and it was the only site in North America capable of delivering it. The F-150 series was the company's major money-maker, generating $100M per day in revenue, and Ford knew they had a big problem.

For Ford, emergency air freight was the answer. And not just your average emergency air freight: Ford paid to use a military transport built for the Soviet armed forces to deliver the materials it needed. In fact, it was the same plane that carried boats to assist during the Deepwater Horizon oil spill in 2010. And it worked: Ford was able to resume production after only a 2-week disruption.  

Of course, this is an extreme example of the need for emergency air freight. But more mundane examples happen frequently, and are still expensive. A hurricane caused a halt in a supplier’s production? Emergency air freight. A worker strike closed a port? Emergency air freight. Bankruptcy shut down a supplier unexpectedly? Emergency air freight. These incidents aren’t uncommon, and they all add up to a hefty price tag.

But it doesn’t have to be this way.

Imagine a scenario where you could easily identify the vulnerabilities in your supply chain, so you could eliminate single-source suppliers before a disaster forces you to realize how critical they are to your supply base. Or, imagine a scenario where you were alerted to all these incidents before they happened—so you could make accommodations in advance, and didn’t have to employ any emergency air freight at all. (Don’t think it’s possible? Check out the predictive insights that warned of a Vancouver port strike and the bankruptcy that shut down crude oil refineries.)

Here’s the big takeaway: If you’ve got a line item in your budget for emergency air freight, taking proactive steps to reduce your supply chain risk is one way to cut it—by a lot. And we’re not just talking hypotheticals here: One riskmethods customer saw their emergency air freight costs go from $35M to $0—year on year.

So: If you’re not proactively mitigating your supply chain risk, this blog should give you 35 million reasons to start. Need some more? Don’t hesitate to drop me a line.

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