Written by: Abhi Ghatak, Director of Manufacturing Industry
After the global pandemic, it’s the biggest story in the world: the global supply chain crisis. In some ways, it’s the same story — as the worldwide Covid shutdowns of 2020 (some of which are still in effect) fueled the crisis.
Note the word is “fueled” and not “caused.” Because many of the issues in the global supply chain —aging shipping fleets, mismanaged inventory, lack of accurate data — have been widely known for years, decades, even.
But Covid was the match that fueled the fire, and now just about everyone everywhere in any business or in any walk of life is feeling the burn. Prices are up, supplies are low, deliveries are delayed… it’s a crisis all over the place.
The media is also a bit all over the place. The Wall Street Journal says, Supply-Chain Problems Show Signs of Easing,” while CNN Business says, “The global supply chain nightmare is about to get worse,” and Bloomberg tries to land somewhere in the middle, saying “The kinks in the U.S. may be getting worked out, but it’s a worldwide crisis.”
Who to believe? Where to turn? What’s the real story and, more importantly, how can we help ensure the story has a happy ending?
At ArganoArbela, we have been in the supply chain management space for nearly 20 years. And while we’ve never seen anything quite like the current global supply chain crisis (let’s call it our macro crisis) we have seen similar, if more isolated, challenges for countless companies across most every industry (let’s call these micro crises), and there is a fix. But before, that, let’s try to figure out…
What happened in the global supply chain in 2021?
First, it wasn’t just Covid. Part of the problem is that real-world supply chain workflows “went global” before the platforms and tools (let alone the fleets and facilities) used to manage said workflows were sufficiently up to speed. Our supply chains were designed for the lowest cost and efficiency, not resiliency.
E.g., suppose a few years back an industrial manufacturing company moved half of its factories overseas, changed how and when it was sourcing raw materials, hired and dispatched new staff (something that happened with regularity over the past 30 or so years). And suppose it was still attempting to manage its supply chain with spreadsheets and emails. All it takes is a slight hiccup in any process (a drop in demand or a few ports to briefly shut down) to cause a major disruption.
For the most part, however, the crisis was driven by so many of the goods the world needs being manufactured in one specific part of the world, a part that was hit hard, fast, and early by the pandemic: Asia, and more specifically, China.
Factories and even entire cities went on lockdown, meaning a shut down to production. The shipping companies saw this and responded in kind, slowing down operations, shutting down certain routes, waiting for production to begin again.
And that was a HUGE mistake. Because the market didn’t stop demanding to be supplied—it simply shifted its demands elsewhere.
Office goods were replaced by home goods… lumber that may have been used for new buildings was instead now being used for new home additions… plastics, metals, and materials used for servers and printers was now required for blenders and bread machines.
In fact, global DEMAND is up 20% over where it was in 2019, while global SUPPLY is down 15%. Enter the supply chain crisis, brought to you by Economics 101: Supply & Demand.
Where the supply chain is right now, and where it goes next
The economics driving the crisis are in plain sight. But if you were to look where most people think to look when they think “supply chain” — warehouses, ports, and the like — you’d find that many warehouses are indeed full… but with the wrong products. You’d find that ports are not empty, but are filled with shipping containers… unfortunately, containers that often stay in port for weeks instead of days.
Additionally, the costs to get those containers into those ports have skyrocketed. Prior to the pandemic, the cost of shipping a full container from China to the U.S. was roughly $2,000. In later 2021, that cost could be as high as $25,000 (see Economics 101 once again, and why rising prices are part of the crisis).
But with worldwide shutdowns being lifted and factories coming back online, costs should eventually decline, but other parts of the crisis may be exacerbated: more products coming into more ports, packing more warehouses, collecting more dust.
The answer appears to be simple, right? MORE DELIVERIES! Let’s get some more trucks and move that inventory, post haste. And then we find we lack the materials needed to make said trucks (although we can now easily equip most every truck with the latest bread machine).
Some supply chain companies are fortunate in that they have older trucks and equipment available in case of emergencies exactly like this one. But older trucks require more maintenance and are more prone to fail. Then, instead of, say, perishable goods sitting in a cold warehouse, they’re on the side of a hot road.
How do we fix it?
If there was one solution for the whole macro problem, we’d have heard of it by now. At AganoArbela, we are the first to say, “We don’t have THE solution… but we have A solution.” And our solution focuses mostly on inventory management, workflow optimization, and data collection and dissemination. We take your supply chain data and turn it into actionable insights. The operational and technological components of supply chain management which can, in some cases, make the difference entirely.
We’re currently helping our clients in supply chain management better manage inventory, improve fleet management, and optimize workflows by implementing solutions that leverage Dynamics 365 Supply Chain Management, Field Service, and Finance as foundational platforms.
We’re also helping equip these clients with IoT solutions (to enable real-time data collection from equipment and facilities in the field), Power Apps to help automate and optimize workflows and enable remote (and Covid-safe) field service, and Power BI and our own ADI data warehousing solution to further actionable insights.
These foundational tools are really just a start. We’re also creating “digital twins” for supply chain management, which can help a business anticipate global challenges and have a proactive solution in place (look for a future article on this soon) and employing AI to deliver predictive data (also a future article) which also can help a company have a solution in place before a problem arises.
As we hope we’ve made clear, the causes for the global supply chain crisis are many, but they’re also rather clear. Which means now that we “know our enemy” we can more effectively fight. Please contact us to discuss.