As originally published in Quality Digest on February 2, 2022
Global supply-chain disruptions are rampant. Manufacturers and business owners now routinely deal with triple and quadruple lead times, widespread shortages, escalating prices, and transportation delays. Every link in the supply chain is out of alignment. Think of the imbalance as a sixth-grader on one end of a teeter-totter and a kindergartner on the other—only worse.
The situation at the ports is untenable. Long lines of ships wait at the Los Angeles and Long Beach ports, and other ships have slowed to avoid the congestion. Initiatives have begun for 24/7 port operations, but they require people to run all the port functions; truckers to pick up the correct container at the correct terminal at the correct time with a California-approved truck; someone to coordinate appointment times between terminals; container chassis to be available rather than tied up elsewhere; empty containers to be returned to Asia; and much more. This situation will not resolve itself anytime soon.
The supply chain got out of alignment during the pandemic. China shut down while the United States and Europe continued with robust economies. Then, Europe started to experience Covid-19 and shut down, with the United States close behind. As the shutdowns occurred, demand either tanked or skyrocketed, depending on products and customers, which created further disruption. For example, the demand for toilet paper rose while the demand for business suits fell. In the United States, warehouses filled up with whatever was on container ships before Covid-19 arrived, even though demand fell off as lockdowns continued.
Although the U.S. government considered manufacturers and logistics-providers essential, and allowed them to continue operating, waves of disruptions occurred as supplier shortages increased and Covid-19 spread through the workforce. U.S. manufacturers experienced shortages from U.S.-based suppliers, but disruptions were higher from global suppliers that weren’t operating under the same guidelines and restricted by lockdowns.
Storms in Texas caused further delays and disruptions as production facilities shut down and truckers had to wait for clear weather. In addition, demand surged for certain products, such as piping and tubing, needed for repairs. If that weren’t enough, just as the vaccines were gaining steam and the economy started to rebound, a container ship got stuck in the Suez Canal. Instead of waiting for the ship to move, companies rerouted shipments, creating even greater supply-chain misalignment.
More stormy conditions
The supply chain is in desperate need of realignment. Although pundits predict improvement later in 2022, that is a hope, not a solution. Realignment would require each siloed supply link—created by different companies in different countries with different objectives—to work in concert without further disruptions and chaos. This means no Covid disruptions, no labor union negotiations, companies and countries collaborating with competitors, and data shared across borders despite cybersecurity concerns. The macro environment isn’t going to fix itself; however, it will realign into a next normal.
Customers won’t wait. They’re resilient and creative, and they will buy new products, evaluate new materials, partner with new suppliers, find alternative routes, and test new strategies to supplement their production requirements. They will even collaborate with competitors and completely change their focus and priorities.
Once forced to consider new options, the supply chain will evolve. Consumers might like the new products. Manufacturers might prefer new and more-flexible suppliers. The demand that used to be normal may change dramatically, and supply will adapt to changing conditions.
For example, one company is quietly reshoring or near-shoring 80 percent of its product line within the year to gain control of its supply chain. It will update products, find new suppliers, possibly develop new materials, and create new regional clusters. Yet during this transition, the supply chain will continue according to prior plans, continuing the confusion and disruption.
What should executives do?
Successful executives will create a resilient, forward-thinking, and innovative supply chain by reevaluating their customers, products, supply chains, partners, technologies, and employees.
In fact, uncommon common sense is becoming valuable again. Executives are analyzing customers and products to prioritize production and delivery. Companies are moving production closer to the customer to respond quicker to changing needs. Thus, reshoring and near-shoring are happening at a breakneck pace, and technology is being implemented to automate, gain efficiencies, and most important, customize or personalize service to customers’ needs.
Executives are reevaluating strategic inventory and capacity for greater flexibility and agility. They’re upgrading their planning and scheduling systems to ensure that the right inventory is in the right place at the right time. They’re pooling risk: Instead of setting up distribution regardless of changing customer needs, they’re redistributing and consolidating where it makes sense and where they can deliver to customers within a reasonable time frame. Thus, they’re deploying common-sense, more-reliable transportation strategies (such as “milk runs”) and building new facilities closer to customers, free of jammed ports and scarce transportation. In short, they’re taking control.
Smart executives are rapidly implementing sales, inventory, and operations planning (SIOP) programs suited to their supply chain, using a tailored approach to forecast demand and align with supply to maximize customer service, profitability, and working capital.
One equipment manufacturer created predictability in customer demand and translated that demand into base units by product groupings so managers could plan capacity, decide what to offload or in-source, and place purchase orders for long lead-time materials sooner than ever before. These actions supported 95-percent customer-service levels and on-time-in-full (OTIF) metrics. Those in turn provided opportunities for growth and enabled the company to meet revenue objectives for the year.
Companies that take control and realign their own supply chain, instead of waiting for the global supply chain to resolve itself, will pull away from the pack. Innovative companies that initiate common-sense best practices to create a resilient, collaborative, and robust supply chain will have more growth opportunities than at any time since the Great Depression.
The key issues concern whether your company will be one that takes control, designs its future supply chain, and is willing to invest and take smart risks along the way. Vast opportunities await these companies; others will fade into distant memory. Are you prepared to take advantage of your opportunity?