After a tumultuous year, Canadians have many things for which we can be thankful. So far, a resilient supply chain has been one of them, but that might be about to end, just in time to spoil the holidays. From labor and equipment shortages to process inefficiencies, the cracks in the global supply chain are showing signs of severe pressure that could make it difficult to meet the demands of holiday shopping.
When the COVID-19 pandemic overtook the world in early 2020, there were dire predictions that the supply chain for critical items like food and medical supplies would collapse. While there were some early disruptions, such as the shortage of personal protective equipment for health care workers and a bizarre rush on bathroom tissue, the global supply chain remained resilient enough to ensure a constant flow of consumer goods to the homes of people in lockdown.
However, after 18 months of unrelenting pressure, the global supply chain is beginning to show how fragile it really is, putting the holiday shopping season in peril. Some retailers report that global delays in manufacturing and shipping result in them receiving about 40 percent of the stock they order, and that orders that usually take a few weeks to arrive are now taking up to three months. The consequences of this could be significant. With fewer options to spend money, many shoppers are likely to avoid shopping altogether, which could have a severe economic impact around the world.
How did we get to this point, especially if we knew this was a possibility when the pandemic started? Here are a few possibilities.
- Manufacturing sites in Asia have either not yet recovered from the initial lockdown or are continuing to suffer intermittent pandemic-related disruption. Nike, for example, lost 10 weeks of production in recent months because of lockdowns in Vietnam. Further, many people in lockdown spent their money on consumer goods instead of social experiences like dining or movies, which exponentially increased consumer demand for manufactured products. When this happens at the same time as manufacturing disruptions, demand quickly outpaces supply.
- Many of the world’s consumer goods travel across the world by ship and then to local distribution centers and retail outlets by truck. Both these methods of transportation are experiencing severe disruption. First, a global shortage of shipping containers means that the cost of shipping a single container of goods from Asia to North America has jumped from $4,500 to $20,000, adding considerable expense for many importers. This is forcing importers to make drastic choices about which items they import, since it makes more financial sense to fill containers with goods that are small and expensive than to fill them with larger, less expensive items. Once the containers have crossed the ocean, a shortage of dock workers to unload them means that many ships remain anchored at sea and unable to dock. In Los Angeles, more than 70 ships remain anchored, and some will take more than six weeks to unload. Nike, for example, has reported that it now takes 80 days to move product from Asia to North America, up drastically from 40 days before the pandemic.
- As noted in a previous article, a worldwide shortage of labor along the supply chain means that critical roles are unfilled. In the UK, for example, a lack of truck drivers has resulted in a fuel shortage throughout the region. With no truck drivers to deliver fuel from depots to fueling stations, many drivers around the country have been unable to fuel their vehicles to drive to work. In the last few days, the government has brought in the military to drive trucks, temporarily easing the situation. However, it remains true that requesting the assistance of active-service military personnel is indicative of a severe system problem. While the government might have found an interim solution for this particular shortage, the possibility of continued long-term disruption of fuel supplies in the UK is very real.
- An over-reliance on just-in-time manufacturing—in which businesses maintain low product stock and only order what they need when they need it—meant that when COVID-19 tore rapidly through the world and disrupted manufacturing capacity, there were few stockpiles to make up the slack. This was most obvious in the shortage of personal protective equipment (PPE) for health care workers early in 2020. Many leaders misunderstood the principles of lean manufacturing by considering low inventory as a cost-cutting exercise that would create efficiency, when the reality is that it is the result of process efficiency. This misunderstanding meant that many businesses had low inventory and poor supply chain resiliency, which was unable to meet the demands of a global crisis.
The COVID-19 pandemic has taught us that the supply chain can never go back to the way it was pre-pandemic. We’ve learned too much about its fragility and lack of flexibility to choose returning to the status quo. Instead, we need to think about new ways of doing things to ensure that goods and services can continue to fulfill their critical functions during the next inevitable crisis. Here are a few things we must consider when building a resilient supply chain.
- Artificial intelligence (AI), automation and robotics can help to create resilient organizations in the face of threats to human health. While technology solutions like these are not within reach of every organization, there are enough critical roles that could be augmented through their use to add considerable resiliency to the global supply chain.
- While technology will be a key component in the new supply chain, people will always have a place in it. Human expertise and situational awareness are critical components of a complex system, and that is unlikely to change any time soon. During the pandemic, everyone from warehouse workers to ship workers has been under unrelenting pressure to keep the supply chain moving, sometimes at considerable cost to their own health and financial well-being. These workers need safe working conditions, reasonable compensation and better job security to make the roles attractive enough for the next generation.
- Supply chains must become shorter and more diverse. There are a number of ways to accomplish this. One is through reshoring. In the United States, efforts are already underway to bring manufacturing capacity for critical industries such as PPE or semiconductor production closer to home, either domestically in the United States or in nearby countries like Mexico and Brazil. This would allow organizations to reduce overall delivery time. Some industries are also looking at diversifying their distribution networks and sourcing. The food industry is exploring models in which they can meet demands for both service and retail industries simultaneously while developing the ability to pivot from one to the other to meet increased demand. Finally, every industry needs to diversify their supply chain to incorporate multiple suppliers for critical components, which will allow organizations to move quickly from one to the other in case of disruption.
- Leadership must stop using lean and just-in-time as talking points and understand them more deeply. Encouraging low inventory without understanding the system complexity and risk assessments that determine how low that inventory should be to meet unforeseen events is an approach that should be relegated to pre-pandemic approaches to supply chain.
Changes of this magnitude will take time, courage and no small amount of money. However, the end result will be a sustainable, resilient global supply chain that supports the global community and adapts quickly in a crisis. We might be too late to ensure a normal holiday season this year, but with the right amount of dedication, we can protect our economy and create new opportunities for the future.