Source: Commercial Integrator
Author: ALAN C. BRAWN
A quick guide to what "supply chain" really means, why we've become vulnerable, and how we can do better in the future.
The hardest decision I have to make as a writer is choosing an appropriate topic and writing the first paragraph. For this month's article, which will be presented in two parts, the topic was chosen for me not by our loyal editors, but rather by a few of our readers and some of my close colleagues. Please allow me to explain.
I had several ongoing conversations about the supply chain and its impact on our industry. One was with the vice president of one of the largest integrators in the country. He lamented supply shortage problems, noting that he had never seen them before.
The following conversations were with some of the biggest distributors in the world who, you guessed it, were complaining about supply and delivery issues. Last but not least, I've heard from several major manufacturers about supply issues. If you think that these were only large integrators, distributors and manufacturers, you are mistaken. This problem concerns large, medium and small companies, not to mention end users. Hence the impetus for the topic, since it obviously affects all of us.
A fellow writer asked me what impact I think supply chain congestion will have on the market. Did I expect economic momentum to outweigh these questions? Good questions! For those who want the Cliff's Notes version, here is my response to him: “The 'congestion' you mentioned is already having a negative impact on the market. Large distributors and a few large integrators across the country are forced to "adjust" their business to the flow of incoming goods and their availability.
In some cases, these adjustments mean considering alternative products or brands due to their availability; in others they signify a change in design. In other cases, they mean postponing until traffic jams become less onerous. The economic momentum (aka demand) is there and growing, but supply will take some time to catch up.” For those who are interested in me and want to dive deeper, stay tuned!
Nick Vyas, Executive Director of the Kendrick Global Supply Chain Institute at the University of Southern California, helps us understand the scale and scope of the problem. He says manufacturers and their customers today are facing a "perfect storm" of supply chain problems. Nicole DeHoratius, professor at the School of Business. Booth at the University of Chicago, says: “We may be able to protect ourselves from one or two types of risk, but the fact is that all these problems arise at the same time. ”
Let's go beyond empty words and give a glimpse of the supply chain, its complexities, and where we are today as an industry.
What is a supply chain?
There are many definitions, but I found one from the Chartered Institute of Purchasing and Supply (CIPS) that provides a brief explanation. In its simplest form, a supply chain includes all the steps an organization needs to deliver goods or services to a consumer.
At the beginning…
The origins of what is known as supply chain management (SCM) can be traced back to the 1980s when corporations sought to reduce manufacturing costs by outsourcing and offshoring production and R&D to low-cost countries in Asia. As one SCM researcher notes, “Over time, practices that required continuous stream processing with low inventory levels, just-in-time (JIT) production, and precise transport scheduling became commonplace.” This happened on the threshold of a growing global economy.
For decades, it has been the norm for manufacturers in the US and other industrialized countries to outsource the production of common, low-cost goods to China and other low-wage countries. However, starting in the early 1980s, companies increasingly outsourced the production of more complex products, often using multiple contractors to manufacture and then assemble components.
Here's how it usually works: A US-based company will design and possibly put the finishing touches on a product, but that company will turn to one or more foreign manufacturers for raw materials and components if doing so will significantly reduce the cost of production. and deliver this product. A prime example is the automotive industry, where last year about half of one manufacturer's most popular trucks came from a US car factory with parts and components sourced outside the US and Canada. Pick just about any industry and it applies.
The Problems Today
In retrospect, we see that in the early 2000s, corporations faced supply problems and researchers began to write books on how to deal with disruptions. In 2019—before the pandemic—the Business Continuity Institute (BCI) estimated that 56% of companies surveyed experienced one or more supply disruptions each year. The BCI also tells us that in the past, the problems were mostly related to IT and telecommunications outages or natural disasters. However, human and political factors also played a role in the second half of the decade.
Gooten, an American supply chain company, is providing us with more information that illustrates one of the causes of the problems we face today. Companies that use production on demand start producing products only after a customer has bought them, rather than a company predicting what the demand for a product might be and producing a certain amount of those products.
Everything we produce is imbued with the same just-in-time manufacturing and inventory model. According to Mark Kapczynski, director of marketing for Gooten, "We need to change our paradigms in light of what we're going through right now." Think about it.
An inherent element of JIT and on-demand production is the risk associated with any element of the supply chain. Each risk, if encountered, can have a domino effect both upstream and downstream.
A great example in the audiovisual industry - both consumer and commercial - is that the absence of a chip can stop the production of electronic devices. The good news is that corporations are already shifting from response tactics focused on reducing the cost of failure to more proactive strategies to increase supply chain resilience.
Gina Raimondo, US Secretary of Commerce, recently hosted an industry summit on the chip shortage. It included executives from companies such as Ford and General Motors, as well as Apple and Samsung.
After that, her office said that one of its goals is to build trust in the supply chain. (Another goal is to explore how the US can become less dependent on foreign suppliers.)
A Bloomberg article reports: “Samsung Electronics Co. decided to build an advanced US chip manufacturing plant in Texas… as it prioritizes supply chain security and increased semiconductor capacity on American soil.” My crystal ball tells me to look for other companies as soon as possible to follow suit and answer questions related to the supply chain.
Above all, it is in their interest and they have no other viable choice. The status quo is not sustainable.