The purpose of this Supply Chain Matters editorial perspective is to clarify the now more visible realities of global based supply chain management, procurement, manufacturing and logistics teams.
The ongoing challenges and cascading disruptive events whether man-made or natural disaster related have become far more visible and sobering across global markets. It is time for supply chain leaders, if they have not done so thus far, to take a step back to assess the bigger picture particularly related to supply network resiliency, product management strategies and the ongoing physical and mental health of work teams.
This Editor and long-time supply chain industry analyst has been coming to these conclusions over the past two weeks as day after day presents headlines of added disruptions, assessments of industry supply chain disruptions and clearer realities.
We call Supply Chain Matters reader attention to at least two specific published opinion reports that best sum-up the bigger picture.
A New York Times report published this week titled: The World Is Still Short of Everything. Get Used to It (Paid subscription or metered view,) coins the phase, The Great Supply Chain Disruption, and describes it as “the central element of the extraordinary uncertainty that continues to frame economic prospects worldwide.” The authors, Peter Goodman and Keith Bradsher do a superb job of painting the perspective that our basic assumptions regarding the performance of global supply chains have fallen apart, while the assumption of cheap and reliable sea transportation, long the foundation of global trade, has been shattered by exploding spot freight rates, added surcharges and record low shipping service levels.
A published report from Bloomberg last week titled: The World Economy’s Supply Chain Problem Keeps Getting Worse (Paid subscription or metered view) presents similar realities. A passage from this report observes: “A supply chain crunch that was meant to be temporary now looks like it will last well into next year as the surging delta variant (COVID-19) upends factory production in Asia and disrupts shipping, posing more shock to the world economy.”
Constant interviews with business and supply chain leaders iterate the ongoing frustrations of overcoming part shortages, transportation bidding wars to secure container slots, and exploding costs that are now visibly impacting product and overall business margins. As the Drewry World Container index and industry media has continually noted, the cost of shipping a container from Asia to the United States has grown sixfold while costs to ship a container from Asia to Europe hovers at 10-fold increase than in mid-2020. On top of exploding transportation rates and added surcharges, vessel reliability rates reportedly have dropped to an average of 35.6 percent in July, down almost 40 percentage points from year ago levels.
Prior business planning and operating assumptions are no longer valid, at least for now. Planning and operational execution are instead a daily war room exercise factored with continuous uncertainties and constantly changing information.
To add to this ongoing litany, Hurricane Ida, a powerful Category Four storm has impacted the areas surrounding New Orleans, broader parts of Louisiana and Mississippi impacting rail, water and trucking transportation across this region. Physical disruption is described as catastrophic with estimates of weeks before reliable electrical power and utility services can be restored.
Time to Address Supply Chain Realities
Our premise here is to remind supply chain and business leaders that there has become a building reality that ongoing disruptions are not going to get better for the remainder of this year, and perhaps parts of next year. With the upcoming holiday fulfillment period looming over the coming weeks, that is a tough message to adsorb. After all, supply chain management teams are often perceived as the miracle workers able to overcome each business challenge and deliver the goods.
This year, that commitment comes at considerable risks.
Front line logistics, transportation, manufacturing and supply chain workers were deemed essential during the pandemic to move critical goods to markets, and they have performed. They have further served as the catalyst for businesses that have now experienced demand for new products and services related to a pandemic economy or a new normal of business that includes new product demands or markets not experienced previously.
Some workers did not have the option from working from home, while others had to constantly balance work and family obligations. All have endured endless hours of solving constant challenges and changing processes to have earned the title of miracle workers
Within the narrative of ongoing worker shortages remains factors of long hours, understaffed teams and constant crisis that is in many cases likely taking a toll on supply chain management workforces. Worker shortages have two dimensions, recruitment and retention.
In some areas of supply chain business processes, high turnover rates and daily staffing remain a practice particularly during high surge periods. Of late, high surge has transcended the traditional late year holiday surge period more to be that of continuous surges.
Added to the term, The Great Supply Chain Disruption, is the expression of the term being adopted by some economists, The Great Resignation. A July report by the BBC describes what this trend is about and why since the pandemic, employees are either leaving the workforce or switching jobs in droves. One of the themes in such trends is that “workers have established new priorities for work-life balance and they do not want to be treated as machines or taken for granted.”
The bigger picture involves assessing the now very visible pitfalls of multiple supply network sourcing points and handoffs, each presenting potential broken links and areas of vulnerabilities in previous just-in-time inventory flows. We now read reports of companies stocking up on whatever critical materials that can be garnered with the result of likely bullwhip order flows among industry segments. Small and medium business as well as suppliers are particularly impacted.
As noted in our summarized 2021 predictions published at the beginning of this year, we continue to implore supply chain management and business leaders to find the time, even in this stressful period, to take a step back and assess new thinking and plausible new directions within existing supply chain business, planning and customer fulfillment processes. Position senior business leaders for what needs to change and why, including specific targeted processes and their likely impact on required business performance.
The notions that supply chains will continue to be driven by lowest cost dimensions in material and labor sourcing belies the existing realities of such actions. The sharing of business successes in lucrative management bonuses, stock options and investor dividend and share buyback programs remains a short-term rewards perspective that hampers the need for needed investments in supply networks and overall capabilities from people, process and technology dimensions.
It is ever more important to factor and weight supply network risks and ways to establish added resiliency and flexibilities for servicing customer demand and services needs.
What occurs in the remaining weeks of 2021 will happen. What should occur in future periods is the notion of vision, new direction and resolve.
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