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Understanding the Incredible (and Ever-Changing) Supply Chain World

By May 10, 2022 No Comments

Until recently, the supply chain was something most people rarely talked about or thought much about. We just took for granted that what we needed would be on the store shelves – or, at least, something similar. Then the pandemic hit … even some basic items on store shelves or that businesses needed for production were in short supply – or not available for periods of time.

What happened? And what can we do to minimize similar problems for our businesses going forward?

A Connected World

What happened is the “supply chain” has links that crisscross in myriad ways. We live in a connected world and problems in one part of the world can impact others in distant lands. Even a business that is not global is not exempt from the problems that occur halfway around the world.

For instance, a manufacturer of electronic products may use semiconductor chips made in Asia. (Most chips are made in Asia.) Even though the company receives the chips here in the U.S. via truck, they first are moved by ship in a container across the Pacific and then by rail from the port to the warehouse. A backup in any of those areas, such as the ports in the Los Angeles area, will delay the delivery of the chips.

For many companies, due to tight inventories, delivery delays will cause manufacturing delays. This limits the product available to consumers. Due to basic supply and demand principles, this tends to increase the price of the product.

While chips have gotten much press during the pandemic, many other items such as basic chemicals manufactured in other countries or minerals mined can impact companies in the U.S. if the flow of material is restricted. Even something as basic as a simple side mirror for a tractor has caused delays in tractor production.

The Supply Chain

The supply chain is simply the process of securing materials to make products and then distributing those products. There are inbound and outbound components. If any link in the chain is broken, then the chain is … broken. It stretches and may stop. How long depends on the magnitude of the problem to be fixed.

Often one company’s output (e.g., the chip mentioned above) is another company’s input (into a car, for example, or other device). This is where the linkage occurs. If, for instance, the chip manufacturers cannot produce enough chips to meet demand – as has happened recently – then the supply chain is stretched … and sometimes breaks.

Supply (Inbound) is the first part. This is needed to meet production needs. The distribution of finished products (Outbound) is the second part. Transportation is needed on both ends along with other logistics services such as customs documentation for international shipments.

Since most companies have many inbound components, a glitch in just one of them can hinder production and restrict outbound shipments.

Moving Materials

Even if your company does not ship products in containers, many others do. And moving those containers can impact the rail and truck capacity to move your freight. Or the cost to do so if capacity is available.

There is a direct correlation between speed and cost in moving products. Ocean – usually via containers – is the slowest but also the least expensive on a cost per unit basis. Then rail and intermodal are next … faster than the ocean but more expensive. Then comes trucking. Air is the quickest method – and most expensive. The relationship between speed and cost is simple … the faster you want it, the more it will cost.

Working Through the Issues

Prior to the pandemic, there were glitches that occurred in the supply chain but generally, they were limited. They impacted a group of companies or perhaps an industry for a short period of time. Many people worked very hard to keep things moving.

Logistics professionals are still working hard but the challenges have increased since the pandemic hit. Two primary things that changed are consumer demand and labor.

An element of the supply chain is estimating demand so the right amounts of materials can be ordered (inbound), products manufactured and then distributed (outbound). When people stayed home more, their buying habits changed … more of some things, less of others. This meant previous estimates were often wrong and needed to be adjusted.

Labor – or lack of it – also caused problems. Technology and automation have done much but they cannot do it all. Fewer people working translated into less production … and fewer people available to move what was produced. The combination resulted in delayed shipments.

The Egg Example

A simple example is the common egg. Restaurants needed fewer eggs when the pandemic hit because their business decreased. Grocery stores needed more eggs because people stayed home.

It seems simple enough … just send the eggs previously bought by the restaurants to the stores. And sometimes that occurred. But the restaurants bought in greater quantities – the packing was not for a dozen eggs … it was for dozens of eggs. The store shoppers did not want to buy 4 or 5 or 6 dozen eggs at a time.

So, the manufacturers of egg cartons had to change their mix. Some had flexibility; others, less so. Plus, like many businesses, the egg carton companies faced employee shortage issues. Even without a change in process, keeping up with increased demand was a challenge.

People going to the grocery stores bought more eggs than normal while restaurants bought fewer. Manufacturers struggled to keep up with the increased demand for cartons holding a dozen eggs. This is why sometimes your local store had shortages.

Eggs are about as basic as it gets, and we all saw how the pandemic impacted the supply chain around it. And there were no problems with the production of the eggs … the hens handled that well enough. Just the distribution.

Solving Supply Chain Problems

Most production is more complicated than the egg. There are more inbound and outbound components to deal with. Each component is a potential problem.Understanding the problem is the first step. The key, however, is actions you can take to minimize supply chain problems. We will focus on that next week in the Part 2 portion of this blog.

Helpful Links

Below are some links you may find useful: