The last 20 months have been a collective nightmare for global supply chains, as companies around the world continue to tackle head-on just about every disruption imaginable. But in times of chaos come lessons in resiliency.
At a macro level, companies face a confluence of port delays, container shortages, record freight costs, COVID-related labor shortages, factory shutdowns, and production delays. At a micro level, sector-specific disruptions include truck and driver shortages in the transportation industry; appliance and building supply shortages in the homebuilding industry; and shortages in various other components, raw materials, and ingredients, further constraining numerous additional industries. And that’s not to mention the ever-present risk of natural disasters or other unpredictable events at a geographical level.
“I think everybody sees this going … deep into calendar [year] 2022,” Bohn Crain, CEO of Radiant Logistics, said in a Nov. 9 earnings call. Many other executives in earnings calls over the last two months have echoed that sentiment.
But it’s not all doom and gloom. Leading companies are adjusting their supply chains in a variety of ways, turning disruption into competitive advantage.
“We’ve learned a lot from this experience,” Hau Thai-Tang, chief product platform and operations officer at Ford Motor Co., said during a Nov. 1 fireside chat with investors. “It has fundamentally changed the way we’re thinking about procurement and design.”
In the auto industry, for example, the last 20 months have highlighted that a “just-in-time” operating model—the practice of ordering products only when needed—is no longer sufficient for systems that are “capital intensive with long lead times” and interdependent on other industries, Thai-Tang said. He cited semiconductors, memory chips, and batteries as examples.
Eversource Energy is another company that “made a conscious decision over a year ago” to not lean on a just-in-time delivery model and, instead, build up its inventory by maintaining poles, transformers, wire, and cable onsite.
“If it’s not in our facility, we have provisions with our suppliers to keep it on their property,” Eversource Energy CEO Joseph Nolan told investors during a recent earnings call.
In this unprecedented environment, building deeper relationships with current suppliers can enhance cost savings. For Ford, changing its approach has meant “getting greater transparency through the value chain, working with those sub-tier suppliers to understand their capacity; where they’ve allocated capital; and then, in many cases, making commitments to those folks on volume commitments,” Thai-Tang said.
“The strength of our supply chains is mainly driven by the flexibility that we can create within those supply chains.”
Andre Schulten, CFO, Procter & Gamble
Additionally, many companies are making the strategic move to diversify their supply chain. At Ford, designing for more interchangeability has meant “going through every chip in the vehicle; looking at each layer of the value chain; and mak[ing] sure we have multiple sources, so that we’re not over-indexed and vulnerable to any single source,” Thai-Tang said.
Clothing company Levi Strauss & Co. has also realized benefits by diversifying its supply base. “Our globally diversified sourcing strategy, combined with our scale, are a source of competitive advantage,” Levi CEO Chip Bergh said on an Oct. 6 earnings call.
Bergh noted the company long ago decided not to source more than 20 percent of its product from any one country and that it currently sources from 24 countries. “We did this to avoid concentrations—to be less exposed to bottlenecks and production capacity,” he said.
Levi further cross-sources key products. “For example, more than 50 percent of our current bottoms volume is approved for production with suppliers in at least two different source countries,” Bergh said. “Our supply chain network, including the cross-sourcing, allows us to quickly shift production.”
Citing a recent example, Bergh added, “As backups at West Coast ports began to intensify, we quickly redirected the vast majority of our goods to come in through East Coast ports.”
Consumer company Procter & Gamble (P&G) has similarly benefited from its global footprint.
“The strength of our supply chains is mainly driven by the flexibility that we can create within those supply chains,” said P&G CFO Andre Schulten. “Strong supplier partnerships around the globe allow us to shift sourcing, if we need to, from one supplier to another. It also allows us to optimize cost to a degree. We’ve been doing that over the past few months, and we’ll continue to do so.”
P&G is also able to reformulate some of its products, giving it “flexibility to adjust, again, to material availability or cost,” Schulten added. As an organization, P&G can anticipate potential bottlenecks and then choose to build or withdraw inventories on a global basis, as necessary, he said.
To sidestep port congestion, some companies are making moves they wouldn’t have made in normal times. “Extreme times often call for extreme measures,” said Edward Ryan, CEO of Descartes Systems Group, a Canada-based logistics and supply chain management software company.
In the retail industry, especially, extreme measures have meant taking the helm literally and figuratively on the ocean, as many companies scramble to prepare for the holiday season.
“Our supply chain teams recently leveraged our scale and flexibility to arrange for several container vessels for exclusive use—yet another way our teams found a creative solution to better serve our customers in this dynamic environment,” The Home Depot President and Chief Operating Officer Ted Decker told investors in an earnings call this summer.
Walmart, Target, Costco, Coca-Cola, and IKEA also said they were chartering their own container ships to get more shipment capacity. IKEA said it additionally purchased shipping containers to expedite shipments.
Companies that can afford to do so are diverting their product transport from ocean to airfreight for the delivery of certain goods, even though the costs are astronomically higher. According to Freightos, an online freight marketplace, a $195 ocean shipment can cost $1,000 by air. Nonetheless, that has not stopped companies like Lululemon, Peloton, Nike, and Home Depot from turning to airfreight.
Amazon took things a step further, announcing its intent to add 11 Boeing 767-300 aircraft to its transportation fleet in 2022. “Having a mix of both leased and owned aircraft in our growing fleet allows us to better manage our operations, which in turn helps us to keep pace in meeting our customer promises,” said Amazon Global Air Vice President Sarah Rhoads.
“Rail has become more competitive as well,” Ryan said. “As trucks see additional regulations on the horizon—including state-by-state regulations relating to fuel use, drivers, hours of service, and the move to electronic trucks—rail may become more and more a viable alternative for cross-state moves that were traditionally exclusively serviced by trucks.”
Truly mature companies are increasingly using data analytics to proactively, rather than reactively, manage supply chain disruptions. “Often, extreme conditions can be a catalyst for larger investments in technology to help meet those challenges,” Ryan said.
“Existing customers are using our solutions more than ever to examine alternatives and manage shipments they can secure,” while new customers are realizing they need to be able to compete and survive now, rather than in the future, Ryan added.
Some companies have shared how they’ve benefitting from using advanced analytics.
“Through data analytics, we now have visibility into every container on and off the water, and we utilize this visibility to prioritize and expedite the most critical items, often with premium freight,” said Stanley Black & Decker CEO James Loree.
In another earnings call, Honeywell said it has “created tiger teams using advanced digital tools to track shortages and deploy a number of actions to liberate supply in the market.”
Moving forward, data sharing will be another important part of alleviating disruptions in the global supply chain. Target, for example, said in a blog post it is “contributing to collaborative efforts that help improve efficiency at the ports, like joining the White House Supply Chain Disruptions Task Force.”
Next year, U.S. Secretary of State Antony Blinken and Secretary of Commerce Gina Raimondo will hold a multistakeholder summit with their foreign counterparts, an initiative that ultimately will seek collaboration from the private sector. “The summit will be a follow-on dialogue to establish next steps among these parties to build greater global supply chain resilience,” the White House said.
- advanced data analytics
- Descartes Systems Group
- EverSource Energy
- factory shutdowns
- Ford Motor
- Home Depot
- Internal Controls
- labor shortage
- Levi Strauss
- port delay
- Procter & Gamble
- production delays
- Radiant Logistics
- Risk Management
- Stanley Black & Decker
- Supply Chain
- Surveys & Benchmarking
- Third Party Risk
- United States
- White House Supply Chain Disruptions Task Force