That’s why supply chains are so disrupted – and not really improving

If you do business, any of these may ring familiar at this point. It is not possible to get large plastic cups for iced drinks. Construction supplies. Pet food. Car parts. Cars. And the Lord knows what else. The supply chain is blue.

GMH Communities, which builds and operates dormitories and hears that 400 units of equipment are needed, can take six to eight months. “It’s a nightmare,” says GMH President Gary Holloway about the shortcomings. “It was everything from appliances to steel.”

“Companies say,‘ My product is down, not because of something critical, but because I’m holding a plastic support structure for a custom box on an automated line, ’” says Ethan Karp, CEO and President of MAGNET. manufacturing advocacy and growth network in northeast Ohio. “I designed my line to work with this piece. It will take time to find another vendor and make the forms. ”

Although things are said to be easing, the improvement lies in the symptoms. Three classes of causes continue to emerge for the next disruptive cause because Covid-19 was the cause, not the absolute cause.

Poorly implemented supply chain management

Many have drawn attention to the reserves in stalled ports, the lack of truck drivers, the shortage of manpower, the Covid-19, and the saying that “it is much easier to go from 60 to 0 miles per hour than from 0 to 60. ra ”. These can all be true.

But the cloud is bigger over supply chains and logistics. Strategies such as lean and just-in-time supply chains have been popular for decades, reducing the amount of inventory and in-transit inventory by making production and distribution more efficient and freeing up money to invest in other areas of the business. .

U.S. President Joe Biden speaks at a meeting with the government’s Supply Chain Disruptions Task Force and private sector CEOs at the White House South Court Auditorium on December 22, 2021 in Washington. Biden spoke about the measures the White House is taking to alleviate the supply chain bottleneck, encourage the use of new truck drivers and expand domestic production. (Drew Angerer / Getty Images)

At the same time, logistics experts have warned that these tools have both good and bad ways. Too many companies use the latter approach.

“The inventory just in time works very well if you believe it [your] Tier-1, Tier-2 suppliers are iron-on, ”says Aaron Alpeter, founder and CEO of Izba Consulting, a supply chain and operations company. To ensure they work properly, businesses need to monitor their supply chain. “You don’t have to wait for something bad to happen. You need to partner with your suppliers, knowing what’s going on in their business. ”

“The reality is that many global supply chains were not prepared for Covid-19 at all,” says Anthony Nuzio, CEO and founder of ICC Logistics. Industry leaders have been warning companies for years to prepare for supply chain disruptions. ”

The company also needs critical information outside the chain, including checking available financial data on suppliers, to make sure they are stable businesses. This includes checking public records, if available, to ensure that they are solvent and have sufficient liquidity. Information on port delays and freight forwarders, including lorries, ships, planes and trains, can alert businesses to slowdowns.

The company should monitor reports of potential disruptions, whether global infection, natural disasters, or geopolitical upheavals, and how they may affect the production of products, parts, or materials that the company must manufacture or sell.

There is an urgent need to develop the ability to anticipate when and where disruptions will occur and to take appropriate steps to keep the business running.

Unfortunately, gathering information and anticipating problems is not exactly what happens. Preparation requires information, and most companies do not see their entire supply chain. The result is a deal to bet that all will be well.

“The inventory policy and the way they are implemented is the first fatal flaw in the system,” Alpeter says. A variety of experts have been telling executives for years that if they have less inventory, the balance sheet seems stronger. They probably said more, but too many companies were stuck with it. “If you optimize to minimize risk, you’re likely to get a different result than if you optimize for a balance sheet.” The choice of balance sheet is fine as long as the supply chain is not, because there has been no monitoring and adjustments to reduce the impact of disruptions, as the pandemic has shown.

Tower cranes, shipping containers and trucks on display at the Port of Los Angeles, San Pedro, November 30, 2021 (Mario Tama / Getty Images)

Excessive concentration in the markets

One strategy is to keep supply chains flexible and able to deal with disruptions in terms of supplier diversity, both in terms of the number of sources of a given product and its geographical location.

The corporate approaches were inconsistent in three ways. One is that in many industries, consolidation between companies reduces the number of potential suppliers. Second, companies are trying to reduce the number of their suppliers to gain importance and better conditions while becoming larger customers for their business partners, and to simplify the management of suppliers.

Third, in some markets, some suppliers may become dominant or at least significant, such as the Japanese plants, which were the main suppliers of resins and cleaning solvents used in the production of semiconductor and printed circuit boards. When the tsunami broke out in 2011, these plants were shut down, leaving the industries they served unable to obtain the required amount of material.

“I think consolidation is a very big part of the thing, especially for larger companies that focus on consolidating and streamlining things,” says Carlos Castelán, CEO of The Navio Group. “They can usually move very quickly and cost-effectively when problems are limited. But when something happens, it fluctuates throughout the supply chain. Sometimes there are options, but it takes more time. We’re talking months when you need to find a new seller. ”Existing alternatives reduce latency.

Partial optimization

The third major factor is sub-optimization, a term that was popular in the 1990s when consultants explained operational deficiencies within companies. Instead of directing every part of the company to a common goal and common standards of success for compensation, closed departments focused on departmental goals, potentially throwing out the entire operation because compensation focused on silo success behavior. not the company as a whole.

It’s like a car where, to ensure the best performance from the brakes, the engineering department designs them to lock them tightly and never release them. The result is a complete cessation of movement. Of course, this undermines the essence of the car.

Trucks will transport shipping containers through the Long Beach International Gateway Bridge at Long Beach Harbor on December 2, 2021 in Long Beach, California. The ports of Los Angeles and Long Beach have postponed for the fourth time a plan to charge shippers for storing containers as port cargo obsolescence has dropped 37 percent since last month. (Mario Tama / Getty Images)

As difficult as it is to manage this within a single organization, it becomes so exponentially more difficult when companies have to work together to create a supply chain. One example is backing up California ports.

“People think it’s a shortage of truck drivers, but it’s not even close to the problem,” says Caitlin Murphy, CEO of the forwarder Global Gateway Logistics. “The congestion in U.S. ports is complex because there are a lot of problems behind it.” One is the lack of gate clocks. “We have a lot of congestion, and drivers are queuing all day to get their cargo. If it’s 6pm and there are still 35 drivers trying to get containers, the harbor says the drivers will be back tomorrow. There aren’t enough people to process the paperwork and deliver the content to the drivers because “the amount of their daily customer service has quadrupled”.

Another problem is the handling of containers. “An empty container would arrive in Los Angeles,” Murphy says of the past. “Many times he went inland by rail.” A company receives it, fills the tank and then returns it, the process takes about a month, at which point a ship comes to take it to another country.

“Now you can see the steamer lines passing each other in different lanes, especially in the Asia Pacific region,” Murphy says. Steam shipping lines deliver empty containers to China immediately and pick up the contents at extremely high prices.

Midwestern companies now have to unload cargo from containers to trucks in ports and ship products to the ports by truck. Overload disrupts scheduling, there is no coherent system to suit trucks and containers. “Unless the steamship line is part of the solution, releasing empty containers to the Midwest will never solve that problem,” he adds.

An international problem

The supply chain can improve if conditions allow, but that only means that problems go into the shadows – until something else puts everything back on track.

Managers can take steps within their own company to implement the changes suggested by experts: using technology and data to track supply chains, look for advanced signs of problems, and then take appropriate action.

This in no way solves all the problems. But it would give companies the opportunity to make smarter decisions, keep their entire operations running as efficiently as possible, and find solutions to problems before entire supply chains get stuck.

Edited by Bryan Wilkes

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