The Supply Chain Matters provides its third update and assessment in a matter of days on the ongoing global-wide disruptions involving industry supply chains, global transportation and logistics networks.
There is little doubt that many global based supply chain management teams have been monitoring industry component supply and ocean container disruptions that continue to transpire.
As Supply Chain Matters has indicated in two prior updates: Shipping Disasters and Incidents Abound, and Global Supply Chain Disruptions Just Keep Coming, the ramifications and the mitigation options are such that this year, rather than last year, could present supply chain management teams with their most significant challenges to-date.
The same actions that helped companies to simultaneously overcome global-wide supply and transportation disruptions, and in some cases, respond quickly to unplanned product demand brought about by the pandemic, are again brought to light.
Global Shipping and Logistics
With the freeing of the mega-container ship Ever Given yesterday, ship traffic traversing both ends of the Suez Canal has begun. However, transportation and logistics experts across the globe are quick to indicate that shipping operations and schedules will be snarled for months before shipping lines can get back to whatever may be deemed normal operations. Ocean container shipping industry leader A.P. Moeller Maersk has already warned that the ripple effect will take weeks if not months to unravel.
The disruption’s implications are not limited to certain regions such as Europe and Asia because the global shipping fleet impacted by the Suez disruption were transporting raw materials for a wide variety of industry products, in addition to finished products.
According to data analyzed by Dun and Bradstreet and E2open, some of the industries impacted by the Suez incident range from chemicals, semiconductor, metals and other raw materials to autos, industrial and commercial machinery, medical equipment and sporting goods. That list alone has likely made its awareness among industry supply network and associated sales and operations teams.
The biggest concerns in the short term, are the many delayed vessels collectively attempting to make destination ports across parts of Europe or Asia at the same time. Third-party logistics and freight forwarder firms have kicked off efforts to marshal or lock-up trucking capacity in order to move landed containers from various ports to intermodal or warehouse locations as speedy as possible.
The possibilities over the next several weeks could well be the images that were seen during the final two weeks in December with Brexit in Europe, or the 2015 U.S. Port crisis. Miles of truck traffic snarled into and out of major port facilities resulting in added days of delay and equipment shortages.
The ongoing global-wide imbalance of ocean shipping containers that was already serious will now exacerbate with the pending logjams of inland logistics, adding to the fundamental problem. Even if your ordered goods are complete and ready to ship from Asian or European nations, there may be no available containers to ship these goods until some balance is restored. While the global shipping industry has made huge strides in ultra-efficiency with more and more mega-ships, flexibility was likely lacking, especially in retrieving or re-positioning ocean containers where they are needed.
There are further challenges as well.
Other transportation options such as air freight reportedly have limited options and what available capacity that might have existed is quickly being contracted for by those that can afford this option, namely large global logistics operators, air freight brokers, online retailers and global based companies that have market clout. Major European, U.S. and other global air hubs are also experiencing added logistics congestion and delays.
Let’s not forget that global supplies of various COVID-19 vaccines continue to rely on contracted air freight capacity for the distribution of raw materials and actual vaccine to respective nations. That priority can not be compromised, not if global economies want to return to pre-pandemic economic levels.
From our lens, this will have significant implications for manufacturers and retailers, and especially small and medium businesses doing business globally. Global transportation costs that have already reached extraordinary levels could conceivably grow higher. That will have implications on product costs and on added price hikes for products.
Industry Specific Disruptions
As noted in our prior commentaries, beyond shipping and logistics are the industry-specific supply network challenges such as the increasing global shortage of semiconductor devices utilized in automotive, smartphones and other electronics focused devices and equipment.
In our prior Supply Chain Matters update we called attention to a recent factory fire that damaged certain clean room facilities of a subsidiary of Renesas Electronics located northeast of Tokyo. Renesas is a major supplier of semiconductors utilized in automobiles and other industries.
This week, CEO of the semiconductor producer indicated in a briefing that the damage to the factory was more expansive than initially reported, noting that 23 pieces of production equipment were damaged, double the original estimate. The latest estimate is that full recovery is now expected to take at least three to four months. The revenue loss is now estimated at upwards of $118 million.
There are likely more of such industry disruptions that will become more visible over the coming weeks and months. Samsung warned this month of chip shortages spreading to other industries and the global transportation disruption will likely add to other industry specific challenges.
Implications and Actions to Consider
Normally when product demand or supply disruptions occur, supply chain teams have the means to initiate response activities, such as securing supply from alternative or backup suppliers, shifting production to other regional sites or promoting other products to make-up for expected revenue or profitability shortfalls.
As Supply Chain Matters has pointed out in our summary and insights of various published monthly production and supply chain activity indices, there has been a tidal wave of global supply response that has occurred since April of last year. All of this accumulated export and import supply was already taxing the capacity levels of global transportation and logistics along with fueling a wave of increased costs and supplier lead times. Now with the ripple effects of the Suez disruption about to lead to further service level or capacity constrained options, the actions noted above may have limited effectiveness without further rigorous scenario analysis.
Indeed, if not conducted in the past few days, now is clearly the time for businesses to rigorously assess their end-to-end product supply networks as well as their logistics and transportation network partners, both international and domestic.
Do not assume business as usual relative to inventory policy, capacity, material or inventory replenishment timing considerations The notions of inherent risk will require candid best-or-worst case assessments derived with simulation analysis of best- and worst-case scenarios. In some cases, action plans may be limited, and senior management teams will need to be briefed on the implications relative to individual product revenue and profitability plans.
Companies that managed to respond more quickly last year, at the depths of the pandemic, understood that alignment among business, product management and various function supply chain teams was essential. These types of analysis are not easily conducted with spreadsheets or legacy applications without a lot of inhuman effort, and even if do so, may not be relevant because in this environment, information is constantly changing each and every day.
Business and general media has already primed the awareness of stockholders and C-Suite executives. The question to be prepared for is- What are our plans to overcome or move beyond the disruption, more so than the competition.
At the same time, be prepared to recommend, how can we do these types of analysis more quickly and with less added effort in the future.
© Copyright 2021, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.