Tom Gordon, CPIM-F
It will soon be Christmas but, if current reports of supply disruption are credible, then it is not only Tiny Tim’s stocking that will be empty on Christmas morning! If Tiny Tim is expecting a NIKE product in his stocking, he should take heed of Matthew Friend’s statement:
“We are not immune to the global supply chain headwinds that are challenging the manufacturing and movement of product around the world,” chief financial officer Matthew Friend said. [1]
Meanwhile, Costco has re-imposed limits on items like toilet paper!!
It says customers are stockpiling again amid Covid fears, but it is also struggling to ship goods to its shops.
I am sure that everyone has seen empty shelves in the supermarkets and, at the very least, heard frustrating stories of material and logistics difficulties from manufacturing people. Probably the ‘empty shelf’ phenomenon is completely alien to people who have spent their lives in the affluent West, but it is common in most parts of the world, even before COVID. The pre-COVID inchoateness of the supply chain was never a real issue, largely through the redundancy built into the system and the expertise of logistics, expediting, and purchasing professionals. That has all changed. The major epiphany for most people in the Customer satisfaction role is the realization that there never was a ‘chain’, as such, it has always been a matrix of potentially conflicting components; a non-linear multi-variant model just screaming out for a ‘black swan’ like COVID! Niall Ferguson pointed out that the purpose of this fragile matrix was to support the ’debt propelled consumer therapy’ of the Western consumer: even President Biden has reportedly said that the purpose of the supply system is to satisfy the middle class. [2] Most people did not think (or care) about the complex choreography that makes the Western lifestyle possible. Now we all must face it.
To really understand the complexity of the supply matrix a useful ‘thought’ experiment is to picture yourself sitting in Seat 17F on the DELTA flight to Montego Bay from Atlanta. From your initial web search for flight information to order placement and seat assignment, to jet fuel, baggage handling logistics, inflight meal supplies (with napkins and plasticware!), to flight plans and air traffic control, to air tower approvals for your approach and landing – just imagine everything that had to interface to get you there in the manner to which we’ve become accustomed?
We have always lived in a global economy, the Silk Road of the Han Dynasty carried trade from China across Asia to the Mediterranean. The only difference in the 21st Century is that communications have increased significantly faster than the horse drawn caravan – normally! The Silk Road also, in all probability, carried the Black Death, too. Today, certainly there are those who imply international trade may also factor into the carrying of COVID across the globe, an arguable point, of course. In any event, there are both upsides and downsides to international sourcing, with direct and indirect consequences adjacent to the intended ends.
A significant raison d’etre for international sourcing was ‘cost’. Low-cost countries, typically low wages or, more often, exploited indigenous people. Generally, organizations, even mature ones, only saw the low labor costs in many low-cost countries.[3] The Total Cost of Ownership is hidden in Overhead; today freight, logistics, quality, shortages, and staff costs cannot be ‘invisible’. These are very real costs: an example is the tenfold increase in the cost to ship a container to America’s west coast from China. The emphasis should be away from sourcing in low-cost countries towards ‘best cost’ countries. An important starting point to consider are the issues raised by The National Intelligence Council in their report, “Global Tends 2040”.[4]
The current ‘headline’ is the failure of the logistics element in the supply process. This is, of course, the ‘unfashionable’ element and something that everyone took for granted. Not anymore! Apparently, there are (as of Friday 24th September) 65 container ships ‘on the roads’ outside the ports of Los Angeles and Long Beach. Typically, a container ship can carry 15,000 to 21,000 TEUs. [5] That is about 1.17M containers, full of product, sitting idle in the Pacific Ocean. It is a good bet that some of them contain your Christmas presents!! APICS [ASCM] claims that about 10,000 containers go over the side, because of storms and improper loading, every year.[6] What is the likelihood that some of your critical components [with a 3–6-month lead time] are in one of those containers! Who pays for all this?
Even if the manufacturing element is sound, it is of little consequence if the product cannot reach the Customer. [7] A topical example is the shortage of gasoline in the UK. In actual fact, there is no shortage of product simply a disruption in the distribution system – there are not enough ‘tanker truck drivers’ to distribute the product from the refinery. This is an unforeseen consequence of BREXIT and government policies; legislation can impact every node in the system.
Edmund Burke, George Santayana and Winston Churchill all made the same point that if you do not learn from history then you are destined to repeat the mistakes. The Black Death was the funeral bell of European feudalism, will COVID have a similar impact upon trade in the 21st Century? Now is the time for everyone in the Supply profession to learn and prepare for the future. Whether this preparation is China’s ‘Belt and Road Initiative’ or President Biden’s initiative “Build Back Better World” [8] The first lesson to be learned is that however mindful we are of the risks and opportunities in the supply matrix we can never maintain [or even build] an optimal supply matrix; the ‘ripple’ effect is too pernicious. Sun Tzu advised, “keep your friends close but your enemies closer” and this can be applied to the supply matrix. The more compact it is, the easier it is to manage. The place to start is to create and analyze a ‘value stream map’ of your supply system: highlight and identify the many ‘rocks and shoals’ and find a way to mitigate their impacts. The closer you are to your Supplier and Customer the better all can be served. A further vital exercise is to identify your ‘critical’ components. A critical component may be a class A, B, or C – it is critical because without it you cannot ship your product, even if it just a warning label! The moral is, ‘keep your critical component supplier really close’, a 6-month lead time on a critical component is probably crazy. Ollie Wight, in one of his training videos, showed a yard full of Caterpillar products that could not be shipped because of a shortage of warning lights for the top of the cabs!
Missouri CONNEX™ is a powerful tool to help manufacturers source domestically, it aims to bring US Manufacturers together under one comprehensive online platform, and, in consequence, strengthen manufacturers and mitigate the risks inherent in long drawn-out supply systems. Think of it as the ‘Grand Coulee Dam” taming the wild and wasteful stream! You can learn about CONNEX™ on the Missouri Enterprise website at missourienterprise.org/connex. I encourage you to do so.
[1] Reference BBC News, 8/25/2021
[2] “The Economist”, September 11th, 2021.
[3] The United Nations Global Compact emphasized 10 basic principles of ethics and sustainability under the headings: Human Rights, Labor practices, Environment and Anti-corruption.
[4] Global Trends, 2040. Supply Chain issues raised includes Supply Chain fracturing, International Trade disruption, Conflicting visions of the international system and competition for scarce resources.
[5] TEU – Twenty foot Equivalent Units
[6] APICS [ASCM] ‘Risk in the Supply Chain’ program
[7] What is the impact on AP and AR of all that product ‘resting’?
[8] The Economist Leader, 25th September, 2021