Understanding Your Supply Chain: Why it Matters

posted by Administrator on 05/04/2022 in Blog Posts  | Tagged , , , , , ,

By: Tom Cramer

It was only less than a couple of years ago when almost no one had heard the term “social distancing” in the pre-covid world. Likewise, only a small fraction of owners of SMEs had heard the term Supply Chain other than in a passing reference to other issues. This description of global logistics was reserved for specialists in most cases.

No Longer an Abstract Concept

Professional military planners have long focused on supply and logistics as keys to their success in battle. However, most business people in small to mid-sized businesses in the U.S. have enjoyed the luxury of only thinking of their immediate vendors and inventory levels. That, of course, is no longer the reality we all face.

From empty shelves to delayed shipments to halting production lines for the want of certain components, businesses today are dealing with the ripples – in some cases tsunamis – caused by the breakdown in global supply chains. According to the U.S. Chamber of Commerce, more than 61 percent of all small businesses are grappling with business issues directly related to supply chain disruptions. It is worse for many larger businesses.

According to FTR, a leading commercial truck firm, the U.S. is facing the “worst supply chain/shortage environment since World War II.” They also warn that it will take more than a year to resolve this imbalance, and that is assuming no further interruptions, such as a spreading of the Ukraine tragedy or other major shipping accidents.

Thus, instead of getting a customer order and simply turning to suppliers for materials to fill the order, workers at businesses must now determine when and if, and at what cost, raw materials and components may be available before even accepting many orders.

Understanding the Basic Elements

While almost everyone knows the pandemic shut down factories and stopped shipments of many items, there is a lack of understanding over why things can’t return to normal “overnight.” Additionally, owners and managers must now have a better understanding of their own supply chains, how to plan, and how to proactively solve some of their supply issues.

While the global supply chain infrastructure has grown in complexity over the past few decades, the components are fairly straightforward. Just a few basics include:

  • Foreign factories. While China is the elephant in the room, it is only part of the massive build-up in sourcing from countries around the world. Many of these factories depend themselves on components and materials from other sources.
  • The container shipping model. Few people realize it was the development of the container shipping concept in the mid-1950s that made globalization work. There are now 20 million containers that move more than half of the world’s goods. Unfortunately, many of those containers are sitting empty at the wrong ports or unloaded on ships or at ports. A lack of workers has compounded this issue and has caused the cost of shipping one container to jump as much as 1000 percent.
  • Warehouses, distribution centers, ports, railroads. Partly due to the generous unemployment benefits of the covid period, there are hundreds of thousands of jobs open at most of the key nodes involved in moving goods from the factory to the retail shelf. It is estimated some goods must move through as many as a dozen of these nodes once they leave the manufacturer and journey to the final consumer.
  • Commercial Trucking. More than 80 percent of all shipments by weight are moved within the U.S. by commercial trucks. There is a shortage of nearly 100,000 licensed commercial drivers today and the costs hitting the industry are crippling. Diesel fuel is up more than 125 percent, the cost of a used truck has more than doubled since 2020, and there is a backlog of more than 100,000 new 18-wheelers.

It’s important to take the time to understand this situation is not going to change overnight. The news, however, is not all bad. Proactive businesses can take advantage of this challenge to create competitive advantages and rethink some business assumptions.

It is essential to react to the current supply chain crisis, and we address a few of the more creative ways to do so in our next blog post.