These tips will help your company restart operating systems, processes, and strategies through the new normal.
As we enter year three of the COVID era, companies worldwide are grappling with an all-too-familiar array of supply chain challenges—supply uncertainties, capacity and labor shortages, long transit times, and sky-high transportation rates. Tough times call for fresh strategies. As companies seek to reboot their supply chains for better success in 2022, here are some tips on how to navigate the new normal.
1. Digitize to Manage Uncertainty. Before you develop a supply chain plan, you first need to establish certain parameters—for example, how much lead time a supplier requires to produce a product, and how much demand you expect. Unfortunately, right now, the figures that underlie supply chain plans are anything but solid.
“Supply chain organizations are faced with tremendous disruptions, just trying to respond to the variability that’s occurring,” says Mark Balte, executive vice president, supply chain innovation, at Atlanta-based supply chain solutions provider Logility.
A vendor that used to take two weeks to fill an order might require six weeks today but only four next time you ask. A product that’s flying off the shelves today might languish in another month.
To manage variability, collect as much data as you can about supply and demand and apply machine learning to develop a sophisticated picture of changing conditions over time.
Take demand sensing, for example. “If we put a plan in place four or six months ago, the demand pattern is going to change as we get closer to that demand date,” Balte says. The more data the company collects, the better it can predict actual demand.
“We can begin planning earlier, perhaps make a change,” Balte explains. Maybe a company expects a shipment at the Port of Los Angeles. “I was planning to move it to a distribution center in Colorado,” he says. “Now I may only want to move part of it to Colorado and some to Dallas.”
Opportunities abound to collect data that supports decisions, with new Internet of Things (IoT) devices coming on the market all the time. “But companies should begin the journey now, at least collecting data within their own enterprise, and then extending that outside the enterprise,” Balte says.
Data from publicly available sources, carriers, and IoT devices in company-owned or supplier factories can enhance the knowledge base, producing better forecasts.
2. Rate Sources for Risk. Data analytics can also help you develop more resilient sourcing strategies. For instance, Stanley Black & Decker, based in New Britain, Connecticut, analyzes risks its suppliers face due to COVID infections or various other challenges. Those risks point to potential supply chain disruptions.
“We’re able to quickly narrow down the list of higher-risk suppliers that we can evaluate much more carefully to see if their production rates have been hit,” says Guru Bandekar, chief supply chain officer for the company’s Global Tools and Storage business.
Stanley Black & Decker dual-sources or multi-sources components whenever possible. If supply from one vendor starts to look uncertain, the company can shift more order volume to a different supplier.
When dual- or multi-sourcing isn’t possible, Stanley Black & Decker maintains safety stock, setting the volume based on how long it would take to recover from a disruption. “If it will take us five weeks to re-source that part, because it takes time to get a new supplier up and running, then, to put it simplistically, we want to have five weeks of safety stock,” Bandekar says.
3. Move Your Manufacturing. Supply chain disruptions have dramatically driven up freight rates and lengthened transit times. A container shipment from Asia to the United States that would have cost less than $2,000 a few years ago cost as much as $20,000 in 2021, according to Bloomberg.com. And capacity shortages and port congestion have added weeks to the crossing.
“A shipment from Asia to the United States used to take four weeks by ocean,” says Mustafa Hossaini, business development manager at Westec Plastics Corporation, a contract manufacturer of plastic parts in Livermore, California. “Currently we see transit times of six to eight weeks.”
Since the start of the pandemic, Westec has experienced an uptick in inquiries from U.S. companies that might want to move their production from overseas to the United States.
While labor costs in the United States are relatively high, in some cases, domestic production cuts shipping costs so much that the math works out in favor of reshoring.
Hossaini cites a company whose drug delivery product uses plastic parts made in Europe. “They told us that on the last batch of products they received, the shipping costs were $8,000,” he says. “Our shipping rate to them would literally be $150, because they’re located a half hour away from us.”
Companies might also embrace domestic manufacturing to gain convenience and peace of mind, since they can easily visit a contract manufacturer to oversee quality issues and resolve problems, Hossaini says.
In addition, reshoring might eliminate language barriers. And many U.S. companies want to promote their products as “Made in America.”
Stanley Black & Decker strives to source components and assemble products as close as possible to the markets where they are sold. When local labor rates make this hard, the company controls costs through automation. Although the company has used this strategy since the advent of new tariffs in 2016, localization has grown even more important since the start of the pandemic, Bandekar says.
4. Get Flexible with Carriers. In an era of scarce capacity, shippers that strive to accommodate truckers’ needs have an easier time getting freight on the road. “We advise companies to be as flexible as possible with transit times, hours of operation, and trucks they would accept,” says Dave Menzel, president and chief operating officer at Echo Global Logistics, a third-party logistics (3PL) company based in Chicago.
Say a shipper wants a load picked up at 9 a.m., but the carrier can’t supply a truck until 1 p.m., Menzel says. If the shipper really wants that truck, it might adjust its schedule.
Shippers should also strive to get trucks loaded and unloaded quickly, to minimize downtime for truckers. “If a facility has a reputation for long lines and difficulty getting loaded or unloaded, then that facility is a lot less attractive, and trucks will choose different options,” Menzel says.
Fast loading and unloading are especially hard these days, when a tight labor market and COVID-related absences can leave shippers short-handed. Logistics managers should keep that in mind when they book appointments with truckers.
“They should be realistic about what they can load in a given day,” Menzel advises.
Shippers should also provide leeway when drivers arrive a bit later than planned. “Instead of telling them they need to get a new appointment, and the next available one is in two days, you might say, ‘If you miss your appointment by an hour, we will work you in,'” Menzel says
5. Collaborate. Good relationships with carriers and customers can also help shippers better deal with challenges such as uncertain transit times and shortages of crucial resources.
For instance, Stanley Black & Decker relies on strong partnerships with carriers and logistics providers to gain a steady flow of information about the progress of containers on the water.
“We can use that information to predict when we will get the product and then make commitments to our customers, to the best extent possible,” says Bandekar. “Customers want speed, but if they can’t have speed, they want predictability.”
The company also works with over-the-road providers to manage mutual challenges. “What can they do to get more chassis, or attract more chassis toward our supply needs?” Bandekar asks. “What can they do to attract more drivers?”
Stanley Black & Decker and its carriers hold many more conversations on such topics these days. “We are helping them prioritize, and they’re helping us understand the challenges so we can prioritize based on the changing dynamics,” he says.
Shippers may also overcome obstacles by sharing information with customers. “Don’t be afraid to discuss with customers the problems you’re facing, because they are going to face the same problems,” says Lewis Black, chief executive officer of Almonty Industries, a Toronto-based mining firm that is a major producer of tungsten.
Almonty serves customers in the electronics, medical device, aerospace and other industries. The company’s challenges these days include trouble procuring consumables such as drills, explosives and various grades of oil, as well as slow shipping, tight capacity, and high freight rates.
Sometimes, asking for a favor can help. “We ask our customers to send us a spare container if they have one,” Black says. Or, they might ask a customer that manufactures drill bits to send some half-finished drill bit or ones they are going to recycle. “Send them to us and we’ll use them,” he says.
6. Retain Your Talent. The Great Resignation has hit supply chain organizations hard. Companies, especially those involved in e-commerce, are trying to add front-line workers and new facilities to meet increased demand. “But at the same time, you have constant and accelerating workforce turnover,” says Dan Johnston, co-founder and chief operating executive of WorkStep in San Francisco.
WorkStep addresses the supply chain labor shortage with two technology platforms—Hire, a recruitment tool, and Retain, which employers use to gain insights to reduce employee turnover.
Companies have traditionally treated warehouse associates, drivers, and other supply chain workers as cogs in a machine, easy to replace, Johnston says. But in today’s tight employment market, that mindset has changed.
“If you can keep the talent you have, you have to compete less for this incredibly hard-to-find new talent,” he says. “And you can deliver more goods at a better pace to your end customers.”
WorkStep’s customers use Retain to collect feedback from employees periodically, asking their opinions on factors that affect job satisfaction. Using a mobile phone or similar device, the employee takes a minute or so to answer a survey. Retain aggregates and analyzes the results, spotlights areas of concern, and then, when the company makes corrections, tracks how those changes influence turnover.
Using Retain, a 3PL that runs 350 warehouses learned that managers in some of those buildings weren’t following correct orientation procedures for new employees. “You might see an average satisfaction with orientation of 90% across the organization, but in 10 buildings it was 50%,” Johnston says.
By correcting those and other problems Retain uncovered, the 3PL cut turnover among new hires by 36%.
7. Improvise. Beyond strategies to help navigate the current supply chain environment, companies might also benefit from tactical creativity.
Black recalls a time in the 2000s when Almonty Industries struggled with a shortage of rubber tires, which the mining company’s underground vehicles consume in large quantities. “What we came up with was very rudimentary, almost medieval,” he says. “We started making steel wheels with wooden tires.”
Almonty improvises in a similar way to beat today’s shortage of shipping containers. These are especially hard for Almonty’s European operations to get hold of, since the shipping lines focus so heavily today on their lucrative Asia-to-North America lanes.
“There are no containers around, but there are lots of old shipping containers in scrap yards,” Black says. Almonty retrieves those old containers, welds them back together and installs new, government-approved security latches.
“We have someone driving around who rings us up and says, ‘I saw an old shipping container in pieces in a scrap yard,'” Black says. “We send a truck down there, buy it, and bring it back.”
Unfortunately, once Almonty uses the recycled container to ship tungsten to the United States, someone there grabs it and the company never sees it again.
While pandemic-related disruptions have prompted many changes, companies are not likely to revert to the old ways as the virus finally runs its course. “These capabilities we are building will be the way we operate in the new normal,” says Bandekar. “It’s a long-term shift.”
COVID has thrown a spotlight on issues that have always existed. But when normalcy comes back, other environmental issues, such as global warming and forest fires, will continue to disrupt the flow of goods.
Says Bandekar: “The way we manage our supply chains in the future will be much different from how we managed them in the past.”