What to Know About Digital Cold Chain Solutions
By TransVoyant Team
TransVoyant recently hosted a fireside chat with Derron Stark, a partner from EY-Parthenon, about choosing and leveraging digital partnerships for cold chain. Derron is part of EY Parthenon’s strategy and transactions practice. He leads supply chain offerings for health sciences and wellness, including life sciences, med tech, and healthcare.
Derron wrote a paper in collaboration with Merck about digital cold chain partnerships and solutions, which included a case study on the use of TransVoyant as a digital partnership solution. TransVoyant’s VP of Solution Consulting recently chatted with Derron about choosing and managing partnerships with digital cold chain solutions providers. Here, we listen in:
T.C. Baker: Derron, what do you see as some of today’s biggest cold chain disruptors? What should people be watching for?
Derron Stark: We’ve talked a lot about this with clients. The more obvious disruptors we would think would be delays in shipping delays or misplacement of pallets and shipping containers. But what we’ve anecdotally heard from most of our clients is that it really has to do with handoff points where a truck is backed up to a dock and the door is opened. Then the pallets don’t get moved to the correct storage location with the refrigeration requirements or any other type of transfer point. So that’s where we’re seeing the biggest disruptions
But there’s obviously the potential of weather disruptions to shipments getting into ports or into locations. And when it’s not a temperature-controlled shipping platform but instead more of a shipping container that’s been qualified for a certain amount of time to maintain temperature, but then the time goes beyond its qualified temperature control period, that’s another point of potential disruption.
You’re just reminding me of a situation this past summer where one of our customers had a tractor trailer load of vaccines in Las Vegas in the middle of the desert heat. The door was left open and the product hadn’t been pulled out of the truck quickly enough, so our alarm bells were going off in our control tower and we were notifying the LSP to either get those doors closed or get that product into ASAP because product was about to go bad. So, yeah, handoffs are one of the key challenges.
I guess also stepping back a minute and just thinking about the article, what was the motivation to take pen in hand for that?
It was a couple of things. One is we’re seeing a big focus with our clients across the board on operational excellence, cost versus opportunities. The focus for years has been on four walls of manufacturing, and we’ve started to see clients look more broadly to expand their focus to not just P and L, contributing cost reductions, but how do they avoid losses and take cost out of inbound transportation, outbound shipping.
The second thing was our client, Merck, was looking at some serious losses in a key lifesaving drug that was very expensive to manufacture. They were looking for opportunities to reduce those discards and shipping losses. They started by implementing a real-time monitoring solution. In this case it was TransVoyant, although there are other solutions that we work with including FourKites and ParkourSC.
Merck implemented TransVoyant as a platform to monitor in real time and be able to intervene. And there’s actually an example in the paper where there was a shipment with DHL in Brazil that was out of temperature range and TransVoyant sent an alert to the planning hub, then the planner got on their cell phone on a weekend and called DHL and said, “You need to look into this particular shipment.” They had the actual number on the shipment code and got DHL to intervene and move that shipment into refrigeration and save millions of dollars in product loss.
It’s a cost avoidance. It doesn’t hit the P and L, but I think everybody realizes there are benefits not only in cost savings but in the lives impacted by having that product get to customers or to hospitals and ultimately to patients.
One of the things that I found interesting in your article was the table, which is really packed full of insights and nuggets of value. Would you mind walking us through that?
Sure. The article started off by looking at the options, what are a company’s options in improving their shipping visibility and cost control. It wasn’t so much focused on temperature control per se, but there are a variety of options to improving control of shipping and costs.
Figure 1: Choosing the most effective digital cold chain solution depends on business criteria and goals.
The first one on the table is indexing and contract structuring, which is really just a mechanism to negotiate and hedge shipping rates and volumes, create blocked space agreements, and even put some indices in place. It creates more formalized control of shipping costs as well as visibility into shipping lanes and availability. This is a particularly good option for smaller companies that have fewer routes and lower total volume.
The second option we looked at, which has become popular over the last six to eight years, is utilizing broker platforms where it allows a digital broker, a freight forwarder, to see incoming demand and better plan with companies how to consolidate shipments to be more efficient and cost effective.
Then there’s an integrated service offering with more visibility to availability and tracking and pricing. This solution trends towards the middle, between the more localized international scale and size of business with a mid- to high-volume of supply chain complexity. It’s actually less expensive to implement because the pricing is on the broker, where the contracting and indices is a lot of internal work. It does require more resourcing to manage than the contracting just in terms of ongoing monitoring.
And then the final solution, which really brought us to the case study that we had with Merck. This is the digital partnership, which is an end-to-end integrated solution to address future shipping disruptions and create partnerships with carriers, agents, distributors, and 3PLs via a digitized control tower. It includes real-time alert tracking and is supported by a service team, has dynamic scheduling, enables real-time interventions, and gives real-time visibility to shipping slots and the ability to mode shift. This was a big advantage to Merck because they’re able to shift from air to ocean fairly dynamically, which has both a cost and an ESG impact.
It tends to be more global businesses that employ this last solution. The supply chain complexity is much higher and it’s really the best business case because it’s much more costly to implement. It’s a large solution, it has a lot of people involved. It takes multiple years to fully implement. The capabilities don’t all come online at one time.
When we talk about the case study that’s in the paper, it really started for Merck with implementing TransVoyant as a real-time tracking tool. And then with the real-time tracking, TransVoyant supplied the control tower oversight to actually monitor and action the alerts that were coming, and even intervene. That was the first phase, that real-time monitoring for cold chain control. The second phase was activating the platform to engage with an actual carrier. Multiple carriers were integrated into that system and could look at the demand for shipping from Merck and the availability of shipping slots from both air and sea carriers. I believe they have land or road carriers now as well.
Being able to dynamically plan those shipments and be more cost effective, helps Merck be more aligned to their disruptions in production where they have to make changes and can shift shipping needs. So, it’s really been a significant endeavor overall and just cost savings for lost material. I think we estimated 1-2% of total product revenue saved. There’s a significant ESG impact and there’s a significant cost reduction in the mode shifting. I think the overall business case was for a typical company was 3-5% of product revenue potentially saved across all those different factors.
That’s a huge number! Anything north of 1% of product revenue is generally going to be very significant. Let’s talk a little bit about the value of knowing in advance that a shipment is going to be a certain number of days or hours late. Can companies realize value with those insights?
Absolutely. To that point, when the Suez Canal was blocked however many years ago that was now, Merck was able to see exactly how much product and what product was in that blockage and was able to divert from another warehouse to fulfill customers for what was going to be late. So even though they couldn’t speed up advancing the delayed shipments, they were able to backfill the demand from other locations in Europe.
Could you maybe expand on the resourcing requirements? I don’t know if we covered the headcount topic fully.
Yes, so one of the value drivers that Mark had in mind was that once you pay that higher cost to implement this type of digital solution, there is a business case not only for the cost avoidance and cost savings, but that there’s a reduction in the total number of full-time employees needed to manage the total planning, shipping, and planning process as well as the intervention process. Their stated target was to go from 40 planners to four. I think that was pretty aggressive, and I don’t know for a fact how many they did reduce, but they did make a significant reduction in the number of planners required to run the process.
We often get asked to help automate processes or streamline to make people more productive. I’m often hesitant to talk about employees in terms of the value proposition because nobody wants to build a business case based on headcount reduction. That’s just not a fun topic.
Agreed. And the reality is I believe that it wasn’t a headcount reduction, it was a shift of headcount from purely managing distribution logistics planning into other parts of the planning organization. But, to your point, that’s other people that didn’t need to be hired. So, on a net attrition and headcount growth, the run rate over time was reduced.
Well, it’s been great chatting with you, Derron. Any final thoughts on this before we call it a day?
The only thing that I would add is that this is a downstream visibility solution. We work with other clients, as well as Merck, on upstream visibility also. The solutions aren’t necessarily the same, but true end-to-end supply chain visibility, which we’ve been in the industry talking about for a long time, the tools are out there now.
I would say that you take it in pieces and build up that capability. Just as the case study shows, Merck started with real-time tracking, moved that to shipping integration and visibility to their partners, and then moved to upstream visibility and supplier monitoring for inbound risk. So, it is a journey. It takes time, it takes planning, and it takes a lot of forethought. I don’t want to give the impression that this is a one-stop shop for a solution.
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