Worley Blog

TIME TO RETHINK THE ENTIRE SUPPLY CHAIN

Posted on: December 9th, 2021 by Clifford F. Lynch

 

 

Unless you have been residing on Mars for the past couple of years, you are well aware that the U.S. supply chain is in a crisis mode. Fifteen years ago, the term supply chain was not a part of many of our vocabularies. Today, the term is being used by every journalist, TV personality, and news commentator, as well as average Americans that are frustrated with empty shelves, late deliveries, and/or no deliveries at all.

As one might expect, when there is a widespread problem, almost everyone has their own idea of what is causing the difficulties – some informed opinions and some not so much. Reasons cited have been all over the map. Most blame the pandemic which certainly has played a major role in shortages and delays. Many workers were laid off or were unable to perform their regular tasks and manufacturers were forced to shut down in many cases. With the improving economy and increases in consumer spending we have seen during the past year; many firms are still playing catch-up.

One reason meeting the demand has been slow is the continuing shortage of labor. Many workers for whatever reason, have not returned to their jobs, or are leaving the ones they have. This past summer, over 11 million workers quit their job; and according to the Bureau of Labor Statistics, by September, 14 million Americans, aged 20-34 were not considered part of the U.S. work force.

We also are victims of our own cost-cutting policies. Over the past few years, we have emphasized lean manufacturing and logistics, which has included a reduction in inventories. As inventory management technology has improved, we have been able to reduce inventories and turn stocks faster. That works fine domestically, but it is difficult to control inventories originating outside the country. Increased and unreliable transit times, lower visibility, and poor communication can quickly result in an inventory crisis.

But these are just parts of the overall problem. What about the 100 ships waiting for unloading at West Coast ports? This is a little more complicated. There is a shortage of labor at the ports, a shortage of chassis needed to move the containers, a shortage of drivers to haul them, and an inability of the ports to handle the volume and storage. Many attribute this to increased on-line purchasing. Certainly, this has increased dramatically, but the containers must be unloaded whether the contents are being sold on-line or in stores. According to an article in Logistics Management, White House officials have said there has been “an enormous demand for goods through the supply chain transportation system, with e-commerce activity seeing major gains, and subsequently affecting warehousing and importing, and straining logistics and supply chain networks.” While this gives us a blinding glimpse of the obvious, it really does not address the real problem which started some time ago – the shifting of U.S. manufacturing and distribution overseas.

During the past 20 years, global trade has tripled and well over half of the goods consumed and components used for manufacturing are produced outside the U.S. Seeking reduced costs through lower rates in countries such as China, American businesses traded U. S. production and workers for lower priced goods and parts. Ironically, while the supply chain strains, Chinese labor costs are rising, making the Asian advantage less attractive.

Some of our economists think we simply need to lower our expectations, but I do not believe the American people will stand for that. It is time to put our own creativity and resourcefulness back to work and shorten the supply chain. Let’s bring the procurement link closer to home. Let’s reshore as much as we can.

Obviously, we cannot just off all imports and close our foreign facilities, but we can do some nearshoring. We can move sourcing closer to home to countries such as Mexico, as the major automobile manufacturers have done. In Mexico there is a large workforce with lower wages and transportation to and from the U.S. has improved dramatically during the past few years.

Reshoring and nearshoring have several advantages. Transportation costs and transit times, as well as visibility will improve. We can control inventories more tightly. Communications would be better, and response times shortened, to name a few.

This will not be an overnight solution, and until we take some of the pressure off the global supply chain, problems will continue as long as the economy is good. Now is the time to take a look not only at the supply chain but our entire global trade policies.

CFL – WORLEY – 12-8-21