Pandemic-driven price spikes highlighted long-standing challenges
When the COVID-19 pandemic struck in 2020, this global manufacturer of primary batteries and portable lighting products was among the many organisations impacted by shipping and supply chain challenges. Compounding the issue was the fact this client was using an Excel spreadsheet approach as its primary shipping cost analysis tool. While ocean freight costs and lead times had been steady prior to COVID, the pandemic drove increases in costs, which leapt up to 10 times prior charges, lead times, which jumped from three days to more than 15 days, significant port backups and complications with inland transportation . The client realised its previous method of tracking costs was not sustainable considering these rapid industry changes, had an immediate need to improve the accuracy of its ocean freight forecasting to understand the impacts to its business. This was not unusual for any consumer goods company; ocean freight had been so steady over so many years that this sudden increase impacted everyone.
An initial analysis involved manually processing a considerable amount of data around hundreds of components including destination ports, types and sizes of shipping containers, etc., all Excel-based. Protiviti leveraged the Microsoft Azure platform to perform an initial cleaning and sterilising of all the data, with a goal of ensuring that every source and destination combination would be at a high level of accuracy. This would enable the client to operate with the confidence that its 30, 60, 90 day and beyond forecasts would be accurate as possible.
Protiviti used Python within Azure to accomplish the bulk of the data ingestion, data cleansing, filtering and built preliminary models. Once a predictive model had been developed for each shipping lane, the team leveraged Microsoft Auto Machine Learning (ML), which allows for hyperparameter tuning, in which the Auto ML tool reviews algorithms and parameters within those algorithms to identify the best configurations for each model to maximise predictability. This was eye-opening as it enabled rapid automated analysis.
Partnering with Protiviti to analyse the data, the client worked to standardise the nomenclature of its data. During that process, the company realised that data governance could be applied to other downstream processes to better define its shipping lanes while simultaneously improving container and unit definitions. This enabled the forecasting team to inform the downstream teams as to how to improve/cleanse their data for regular consumption and other data science activities.
Introducing machine learning models
For this client, the immediate solution was to focus on its data and to build machine learning models that would look at data points to predict what costs would be going forward. Challenges going into the model building included:
- Not all data was available
- Uncertainty around which data should be considered
- Uncertainty around whether the models would predict any usable information towards reducing costs
- Significant training required to support a new platform and data science methodologies
Supported by Protiviti’s predictive analytics experts, the client team built models around particular shipping lanes (for example, Shanghai to Los Angeles, which accounts for 50% of this company’s shipping). Using their own data plus industry-standard indices, they developed hypotheses on the components that could impact costs. There was much exploration into the data, as it had not been looked at in this way before. Each model was built and then trained to be more accurate with each iteration. The goal: no surprises while improving expense management and visibility.