Supply chain snafus are impacting an amazing variety of people and businesses throughout the world: A boy longs for a toy lightsaber that has been held up for months due to a lack of computer chips, while a druggist awaits bandages sitting in a port that's overflowing with containers and trucking companies are desperate to find enough drivers to deliver wares to consumers.
Before COVID-19 stalked the globe, most people outside the business world gave little thought to the supply chain. Now, supply chain disruptions are becoming the Grinch that stole Christmas.
"It's really unique—the entire supply chain has been impacted," says Steven A. Melnyk, professor of operations and supply chain management at Michigan State University. The only other time this occurred was during the post-World War II boom, he says. "In a crisis like this, this is where CEOs really earn their pay: How do we position the company beyond this?"
Chris Hale, founder and CEO of Kountable in San Francisco, works with nongovernmental organizations like the United Nations and the Bill & Melinda Gates Foundation to get life-or-death supplies such as food and vaccines delivered around the world.
"Supply chains are like music," Hale says. "The beat and rhythm are very precise, and integration of those are very precise. When it works, it's like a symphony. And when it doesn't, it sounds like bad jazz."
Kinks in the Chain
The pandemic gets the rap for today's supply chain headaches, but other causes had been building for years. The approach businesses take to overcome these problems, including severe worker shortages, will have a resounding impact on the supply chain and the health of the economy for years to come. Contributing factors to the current supply chain woes include the following:
COVID-19. Factories, restaurants and businesses were shuttered during the pandemic. Then demand for goods and services surged as the economy began to reopen. As consumers order an increasing volume of goods online, timely delivery becomes vulnerable to transportation delivery bottlenecks. But the seeds for a global disruption were planted long ago.
Lean supply chains. Starting in the 1990s, "leaning up" supply chains was all the rage. Companies slimmed down the number of suppliers they used and contracted with suppliers in Asia and farther afield. When China was hit first with the pandemic, factories shut down and companies without backup sources found that lean wasn't such a great diet after all.
"Companies took their factories down during the pandemic to reduce their overhead in order to survive, and now they're struggling to ramp back up and find labor and raw materials," says Wes Gibson, founder of Gibson Consulting Group in Chicago, which focuses on supply chain issues.
Transport challenges. Transportation companies were forced to do their own slimming down when the 2008 recession drove demand so low they couldn't afford to carry as much overhead, Gibson says, so they scrapped ships and the containers that transport goods.
The U.S. also is short 100,000 truck cabs, says Alix Miller, president and CEO of the Florida Trucking Association, which represents 400 companies. The supply chain disruption is hitting the vital links in the supply chain itself—279,000 trucks ordered by North American companies are back-ordered, waiting for computer chips and parts made overseas, she says.
Miller calls trucking a "powerful invisible industry no one notices until that thing is not there on the shelf."
The supply chain challenge is particularly acute for food, Hale says. That's because transportation companies collect the highest rates by transporting expensive goods from companies that can pay more for space on ships and whose products tend to be compact. Companies shipping food—which is bulky and of lower value—have a harder time affording the new, higher rates. It's difficult for a shipment of Goldfish crackers to compete for space against a load of iPhones, Hale points out.
Labor squeeze. Worker shortages are a problem for transportation companies, manufacturers, warehouse distribution centers, retailers and a range of other employers. In the U.S., some observers have blamed the shortages on extra unemployment benefit payments provided by the federal government during the pandemic, as some workers received more money to stay home and collect benefits than they would have been paid to work. But the extra benefits have ended, and businesses still are struggling to find talent.
Trucking companies were already short on drivers before the pandemic, and retirements among Baby Boomers are further impacting the tight labor market. Melnyk says wages haven't kept up with costs and driving in the middle of a pandemic wasn't particularly appealing, so many drivers headed for the off-ramp of retirement earlier than planned.
The trucking industry is short 80,000 drivers, according to the American Trucking Associations, and that shortage could double by 2030 due to the aging workforce. Diesel technicians also are in short supply, making it harder to keep scarce trucks on the road, Miller says.
The image some people hold of truck drivers—a rough crowd, largely male and white—needs to go, Miller adds. The industry must recruit women and minorities and start showing off the cutting-edge technology involved in trucking today, she says.
Cost of raw materials. Meanwhile, the cost of raw materials has jumped for a variety of reasons. Prices for wood are up partly because so many people who spent time at home during the lockdown were induced to move to bigger quarters or renovate. Agricultural raw materials are up 10 percent compared with 2020, according to the World Bank. And semiconductor chips are scarce worldwide, which means the growing number of products that need them, such as automobiles and toy lightsabers, can't be delivered.
Attracting Good Workers
Successful companies must change their tactics for keeping supply chains moving, experts say. How they handle the crisis could leave them better off—or in the dust. It's all about finding ways to keep the supply pipeline open so they don't lose long-term market share to savvier companies.
"CEOs have a big issue or a big opportunity," Gibson says.
The labor shortage is a particularly vexing problem that may require employers to rethink their value proposition to prospective workers. For example, people started to realize during the pandemic how vulnerable they were and many now prioritize having a range of employee benefits, Melnyk says. CVS Health capitalized on the moment, he adds, and started advertising more-attractive benefits for full-time workers.
As workers reprioritized their lives, many opted to stop working full time. To attract and retain labor, companies should adopt an employee-centric approach, says Per Hong, a partner in strategic operations at Kearney, a global consulting company.
Trucking companies need to revamp their pitch to drivers by promoting a safety culture and investing in technology like electric vehicles that are attractive to prospective workers, Miller says.
Trucking industry groups also are lobbying to change laws that bar drivers under 21 from crossing state lines. That restriction, Miller says, has made it hard for trucking companies to compete for workers against industries that can snag recent high school graduates and get them hooked into careers before trucking is an option.
Mark Kapczynski, chief marketing officer of Gooten, a New York City-based company that facilitates on-demand manufacturing, sees a realignment of working conditions, pay and the crucial work of unskilled labor. Several companies, including Amazon, are now offering significantly higher pay and bonuses to hourly workers, he points out.
"Big companies so reliant on unskilled labor are realizing that to get a workforce that's committed, they need to compensate them fairly, provide good working conditions and create a positive work environment," Kapczynski says.
Companies like Gooten are disrupting the supply chain with new models of connecting consumers with the items they need.
Gooten serves as an "on-demand manufacturing platform"—an intermediary between 70 manufacturing locations worldwide and stores and consumers. Merchants and individual customers can order stuffed animals, clothes, wall art, pillows and other housewares through Gooten, which has each item made and shipped. Instead of 10,000 T-shirts or teddy bears all being made at once and then stuffed into a container for shipping followed by trucking, each item is made only after it's ordered and then shipped directly through nearby carriers.
"Ultimately, what we're doing is reducing transportation hops, which is killing the supply chain," says Kapczynski, who is based in Santa Monica, Calif.
His company benefited from the boom in online buying and the newfound interest consumers gained in decorating the homes where they spent so many hours during the pandemic.
Fillogic, a New York City-based company, is similarly upending distribution. The company takes underused spaces such as mall truck tunnels and turns them into distribution spaces for multiple retailers, such as mall stores. As warehouses have become more expensive and harder to find, the company fills a gap with multiple smaller distribution sites, says Bill Thayer, co-founder and co-CEO.
Under Fillogic's model, clerks at stores stay on the floor to sell while Fillogic handles curbside pickups. And businesses ranging from small startups to international retailers use the company to distribute orders. Fillogic sorts orders from various retailers geographically so that orders going to the same area can all be shipped together for efficiency.
With the holiday rush underway, leading companies also are rethinking how they communicate with consumers. Williams Sonoma, for instance, is pushing consumers to pick up their online orders in the store, which avoids delivery delays. This strategy also gives the company the chance to drive home its lifestyle brand, and "it's obviously a great way to drive additional sales—stocking stuffers, self-gifting and additional gifting," says Brian Walker, chief strategy officer for Bloomreach, an e-commerce platform based in Mountain View, Calif.
Companies are well-served when they make it easy for buyers to find items available locally and give consumers a realistic idea of when to expect delivery of online orders, he says.
And the consumer experience may change this year as fewer discounts are offered. Walker says years of discounting "created a race to the bottom. The consumer was trained to hold out for these sales. This year may represent a reset that may be healthy for the retail market."
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