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We’ll explore a series of questions in this month’s column. But first, an update that will serve to answer the one question I’m most frequently asked: How and when will we come out of the current situation of limited supplies and distribution challenges?
Supply chain snarls are here to stay for some time. Specific challenges may abate at some point, but new ones will arise. Omicron? Just what we needed, right?
We should recognize that the pandemic-driven turmoil may have put supply chains on the public’s radar, but there have been some other major disruptions that were not COVID-related: trade wars, Brexit, the Texas freeze, Hurricane Ida, etc. What about the cargo ships that got stuck in canals? However, the overriding issue still is: will COVID-19 ever transition from a pandemic to something more endemic, similar to the flu?
There also is a sense that supply chain disruptions will continue to happen more frequently and with potentially larger magnitude. For companies, these issues have grown from being a responsibility handled by day-to-day operations teams to a CEO-level priority.
We are not out of the woods yet. So, don’t expect much relief before the second quarter. Even then, it might mean that we reach a better understanding of the state of actual demand and further inventory constraints.
However, as companies continue to navigate their way through the crisis, they are learning much about the vulnerabilities of their own supply chains. Some are investing in and refocusing on supply chain technology and improved processes, investments that are likely to bear fruit whenever “normality” returns — or when inevitable disruptions and unexpected turmoil hits us next.
If COVID-19 has taught us anything, it’s that supply chains need to change. They worked pretty well — until they didn’t. Along came a virus that spread so fast, with such infectious and deadly consequences, it literally shut down the entire world. Clearly, the supply chain was not up to the task. It has also become increasingly clear that the United States needs to produce more goods domestically or closer to home in order to protect its economic security.
In addition, the labor picture is murky. Job postings on Indeed.com for supply chain and logistics specialists have increased more than 37 percent since last April. Does this mean that product flow issues have accelerated a skills gap? Seems so. Jobs in demand-planning have transformed into roles that some say require data scientists instead of traditional buyers and purchasing agents. These positions historically have been mostly transactionally based. Some suggest that supply chain managers now need to be called data architects.
All these corrective actions are not around the corner. As long as demand holds up during the short- to near-term, specific industry seasonal bumps, lingering COVID-19, climate change and more extreme weather may yet batter the supply chain links. There’s an increased chance for labor strikes, transportation cost increases, the ever-present political tensions with China and other adversaries, and internal U.S. policy debates. So expect the disruption to persist for a while.
Here’s another question I’m often asked: As the pandemic ravaged distribution and the supply chains, what was industry’s blind spot?
I don’t think it was so much a matter of blind spots but, more simply, a confluence of low-probability, high-impact, pandemic-related circumstances that quickly became worldwide issues. It was the opposite of what we’ve become accustomed to; for instance, a regional supply anomaly such as a nuclear reactor meltdown, a tsunami or a hurricane. This time, we found ourselves dealing with a once-in-a-lifetime event — although a good question is: Will similar events now be in our future?
Yes, some companies were more flexible and had more mitigation policies in place than others, and that helped them.
However, now that we have borne the experience, we have learned this: whether local, regional or on a global scale, it is time for us to be prepared for similar uncertainty, more constant change and a higher level of volatility. The world seems to have undergone a fundamental change, or it seems that way.
Times of uncertainty, I believe, also present opportunities to innovate and experiment — even though those innovations and experiments present additional changes on their own.
Speaking of blind spots, there is one area that’s become a hot-button issue: just-in-time (JIT) inventory management. Some mainstream media outlets and their journalists have made some good points about the current supply chain crisis, although I sense that few of them know much about supply chain management. I’ve found they rarely get beyond the basics of describing the symptoms.
Regardless, the commentary has been quite electrifying, with calls to move from the JIT approach that saved American manufacturers money over the last few decades but left the country “vulnerable.” With little excess inventory, there was nothing available to “cushion disruptions” such as the COVID-19 pandemic and the Texas freeze.
Some publications said that a “sturdier” supply chain will require a return to the “just-in-case” approach — stockpiling certain goods and parts as a “hedge against disruption.”
That is echoed by some manufacturers and suppliers from various industries who say we need to go back to the old days of “safety stock.” This is based on demand forecasts and lead times — and growing lead times at that! However, it’s not a sustainable model.
To pin our current supply woes on JIT as some singular failure that caused the whole problem is clueless. And it’s resulted in a lot of JIT cherry-picking and finger-pointing (such as blaming the port workers or truck drivers).
Pointing at Wall Street might be closer to it for fostering and incentivizing offshore production — the “financialization” of production — which is good for stock prices but bad for American industry and its supply chain infrastructure.
The essence of the JIT model was the relationship with its suppliers, preferring suppliers within 200 miles of their plants. The model was secure because it was highly localized; any disruption risks were minimal.
However, many U.S. companies took a different approach; they also wanted cheaper labor prices. So, they elongated the supply chain — and the lead times. They pressured their suppliers to assume the risk for them and to develop relationships with the local supporting Asian suppliers. In effect, another burden — risk — was outsourced to supplier sources. Then along comes a devasting storm or global pandemic that exposes the elongated supply chain’s vulnerability.
I think we’ve found that there are many dimensions to supply chain disruption: geography, scope, demand vs. supply equations, the supply chain management and planning experience that exists within a company, the term of the emergency, and human behavior, with its previously unknown impact. Just think about how people have reacted to this crisis. Totally unexpected, in my view — or was I being naïve?
There is something different going on and it is quite strange. The gross domestic product is growing, but we’re also suffering from a dearth of a shocking array of things — almost everything, it seems! And yes, it still involves those paper products.
This “everything shortage” is not the result of one big bottleneck in an Asian factory, a fire in a Midwest factory or the American trucking industry. We are running low on supplies of all kinds due to a “pandemic of bottlenecks” — complex disruptions of all types with seemingly no end in sight.
Shipping, Trucking Issues
Another question I’m asked: When the domestic and international supply chain broke down, what were some of the unique issues?
We need to understand that the coronavirus pandemic snarled global supply chains in several ways. The pandemic checks sent hundreds of billions of dollars to cabin-fevered Americans during a very difficult time for many of our citizens. A lot of cash flowed into the system, and people bought many products imported from or that traveled through East Asia.
And we shouldn’t lose sight of the fact that the region also was dealing with COVID-19 and its subsequent highly infectious variants — Delta and Omicron.
As we’ve all learned, one of the most heavily reported and dramatic expressions of this squeeze is the loaded containers on ships sitting off the California coast near Los Angeles and Long Beach. It’s like too many drivers trying to use too few lanes.
Add to that the shortage of trucks, truck drivers and port workers. Because ships can’t be unloaded promptly, not enough empty containers become available for a return trip to Asia. They end up parked at West Coast ports, uncollected and idle — currently estimated at roughly 350,000 containers. Subsequently, inland U.S. exporters can’t get their hands on them, which is not good for the trade deficit.
We’re also short on ships. Sufficient new capacity isn’t expected to be online until sometime in 2023. These new ships are much larger, too — meaning they have the potential to create infrastructure problems at some ports. Remember the ship that blocked the entire width of the Suez Canal for almost a week, delaying nearly $10 billion/day in cargo?
Yes, JIT focuses on minimal inventory, but it is also a provisioning system providing end-users with what is needed, when it is needed. Yes, JIT starts with a production process, but it ends with the consumer or point of consumption — probably located far from the factory, encompassing the transportation, distribution, and wholesale and retail aspects of the supply chain.
We rely heavily on transportation and logistics networks to provide us with the things we need quickly, both internationally and domestically produced. Ships, trains, and trucks have become “floating warehouses” or “warehouses on wheels” — with long lead times.
What about the truckers? A recent survey indicated that the country has a shortage of about 60,000 drivers due to ongoing recruitment difficulties and early retirements. COVID-19 even canceled driving school classes! Then there is the labor market more generally — and you can look at this factor from a variety of angles.
Labor shortages existed before COVID-19 did. Did unemployment insurance and several rounds of stimulus checks exacerbate the situation — allowing workers to be picky about jobs instead of jumping at the first available paycheck? I think there is more than meets the eye on that one. And, of course, from the perspective of many employers, these programs made a bad situation even worse.
Now find ourselves also relearning the lessons of Economics 101, right? High demand plus limited supply equals spiraling prices.
Yes, this has all sparked deeper questions about whether any industry’s strategies to prioritize efficiency and maintain reasonable inventory will endure in the post-pandemic world. The concentrated approach to having vendors nearby worked — particularly in overseas countries — until it didn’t, due to pandemic lockdowns and restrictions. The same can be said with the domestic supply chain.
So, the question remains: Will supply chain disruption spark a long-term shift? I believe it is dependent on the current COVID-19 pathway and the belief that there will be other similar threats in the future. For some, it may make sense to uproot supply chains.
However, I doubt that the majority of manufacturers and suppliers will nullify all they have done in the past — although it’s often been predicted over the past 35 years. This questioning happens whenever a crisis arises.
Instead, why don’t we look at ways to better allocate production and distribution and diversify the risks? Maybe even dip into profits to invest in rainy-day resilience.
How is this all resolved? Well, it’s been suggested that the best solution is to have a policy to “make more” in the United States. Interesting! For instance, containers, which carry more than 90 percent of the world’s trade, are overwhelmingly made in China. Why don’t we make more? Car parts, semiconductors and many other goods have been offshored, making us reliant on overseas factories. Why can’t we make more?
Why can’t we make more of, well, everything? Why can’t we have an “abundance agenda” in this country? At the very least, we should diversify our supply chains.
In Part 2, we’ll answer some additional questions and suggest some action steps that, in hindsight, could have helped us avoid the issues that we are facing, as well as potentially limit future supply chain hardships.
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