For decades, the global supply chain has been a wonder. The Economist observes, “Supply chains encompass some of the most sophisticated forms of human endeavor.”[1] Mark van Rijmenam (@VanRijmenam), founder of Datafloq, takes that thought a step further. He writes, “In today’s complex world, it is short of a miracle how we have been able to create global supply chains that move products across the globe at breakneck speed.”[2] Yet, as a result of current supply chain snarls, many pundits believe the global supply chain is completely broken. Ralf Seifert, as Professor of Operations Management at the Institute for Management Development (IMD), and Richard Markoff, a supply chain researcher, consultant, coach and lecturer, believe that assessment is too harsh. They write, “Mainstream news reports are full of claims that supply chains are broken, citing widespread product shortages, overflowing ports and spiking freight costs. But perhaps there is another way to understand what is happening: supply chains are hyper-efficient and are adapting.”[3]
Supply and Demand are Out of Whack
In a call with financial analysts, Ed Ryan, CEO of Descartes Systems Group, stated, “The current state of affairs is variously described as a crisis, chaos, a snarl, a mess, or a challenge. No matter what words you used to describe things, there are real issues out there right now. They’re impacting every participant of the business community and they have everyone’s attention.”[4] He went on to explain:
“At its heart, production in the Asia-Pacific region was severely curtailed for a period of time for issues ranging from the COVID impact on worksites to energy shortages, to port capacity limits. So, there was supply chain disruption. The U.S. is the principal destination for many of these goods. And there was no corresponding demand disruption. In fact, there was more demand than ever from the U.S. for goods, especially in light of the economic stimulus impacting consumers. So, there was a supply disruption and an increase in demand hitting the market at the same time. … If you want to find the potential weak points in a system, then just put that system under some stress or pressure, and that’s what we’ve seen over the past months with logistics and supply chains.”
Seifert and Markoff agree supply and demand are out of whack, but they don’t believe that imbalance entirely explains the current supply chain crisis. They write, “When supply chain issues first surfaced earlier this year, the initial culprit was a lack of inventory. The argument was that for years supply chain managers had put too much emphasis on working capital, implementing just-in-time inventory management, and relentlessly pushing inventory levels to absurdly low levels. And when hiccups in physical chains emerged, there wasn’t enough safety stock in the chain to absorb the bumps. This explanation seemed a bit too facile and never passed the smell test.” They argue that inadequate infrastructure and labor woes have also contributed to the current situation. Nevertheless, like Ryan, they point to demand as principal cause of today’s supply chain woes. They explain:
“A closer look reveals that the real story is one of demand. Demand for goods is higher than it has ever been, and it is exposing the supply chain as hyper-efficient, and we are looking at a process of adaptation. The pandemic has shifted some spending in the US from services (excluding restaurants and travel) to products. Spending far more time at home, consumers have looked to electronics for entertainment and productivity, home renovation and furniture to improve their surroundings and appliances to improve domestic experiences. This shift was fueled in part by extensive public spending to provide support during the pandemic. The result has been a demand for physical goods that is unprecedented, accompanied by an imbalance of trade with Asia.”
Senthil Veeraraghavan (@senthil_veer), the Panasonic Professor of Manufacturing and Logistics Wharton, agrees that shifting consumer purchasing habits played a significant role in the current crisis. He explains, “All these things you’re seeing — too many containers waiting at the port, commodities like paper running out of stock, chips running a shortage, groceries having a shortage, gas price going up — all these inventory decisions are made several months ahead of time. If you have an item come in in November, that order was placed last winter. And last winter, there was a ton of pandemic restructuring happening where companies didn’t see demand, they backed down, ordered less, and anticipated [the pandemic] lasting a while.”[5]
Correcting the Imbalance
Joe Bannister and Alex Snell, attorneys with the law firm Hogan Lovells, insist supply chain management has never been more important. They write, “It is vital that businesses, irrespective of their jurisdictions or type, understand the dynamics of their supply chains and any weaknesses inherent in them if they are to plan effectively for the opportunities and challenges of a post COVID world.”[6] Ryan agrees that supply chain management is critical; however, he also believes the challenges are so complex they must be addressed using the latest technologies. He explains, “These supply chain and logistics challenges are complicated multiparty international issues involving a myriad of people, businesses, technology systems and assets. These challenges are too complicated to be met without the use of technology.”
Technologies that use various artificial intelligence (AI) techniques are critical to understanding the complexities to which Ryan refers. Cognitive solutions, like Enterra Global Insights and Decision Superiority System™, can help companies monitor and understand real-world situations so that the best possible decisions can be made. Bannister and Snell conclude, “Businesses that have good visibility of their supply chains and have viable contingency plans for the pre-emptive management of disruption are far more likely to emerge stronger from the present transitionary period and costs challenges. While they may at first blush seem simple or obvious, the basic options and considerations for the effective management of supply chain risk remain as valid today as they did when COVID was just a twinkle in the minds of the makers of science fiction movies.”
The better an organization’s understanding of real-world events, the more likely they are to improve demand planning. Seifert and Markoff conclude, “The current supply chains’ issues are due to a lack of anticipation of profound shifts in demand profiles. These shifts go far beyond what a general manager should expect of his demand planning process. The failure to anticipate them show how demand planning is more than a supply chain process, it is a business planning process, one that is a fundamental strategic role in the enterprise.” Lora Cecere (@lcecere), founder of Supply Chain Insights, has long insisted, “The supply chain IS Business, not a department within a business.”[7] Current events have proved her correct.
Concluding Thoughts
In addition to understanding their own supply chains, today’s supply chain managers must maintain a broader world view. Ryan explains, “We’ve seen logistics port infrastructure stressed past its limits … and container yards stacked high with the containers under emergency orders. We’ve seen extreme vessel capacity constraints with customers choosing to charter their own vessels or moving goods that they would historically move by ocean by the more expensive air mode. And we’ve seen vessel carriers turning away less profitable business, resulting in the elimination of some ports of call (and a lower willingness to move) less profitable commodities. All these challenges really show how interconnected and interdependent the supply chain and logistics world really is. They also show how critical the sourcing and movement of goods are to businesses and economies as a whole. Supply chain and logistics is not a niche market. These are headline issues.”
Although supply chain managers have long been the overlooked heroes of the global economy, the recent attention they’ve received has been unwanted. Technology can help them address some of the challenges they currently face and, hopefully, provide them with kind of attention and tributes they deserve.
Footnotes
[1] Staff, “Global supply chains are still a source of strength, not weakness,” The Economist, 3 April 2021.
[2] Mark van Rijmenam, “The Supply Chain of Tomorrow Will Be Flexible, Efficient and Resilient,” Datafloq, 20 September 2020.
[3] Ralf Seifert and Richard Markoff, “Supply chains aren’t broken, it’s more a question of demand,” I by IMD, 17 November 2021.
[4] Steve Banker, “The Best Explanation For The Supply Chain Crisis Yet,” Forbes, 2 December 2021.
[5] Brandon Baker, “How a perfect storm of factors led to ‘the mother of all supply chain disruptions’,” Penn Today, 9 December 2021.
[6] Joe Bannister and Alex Snell, “Black Swan or new dawn: Why supply chain management is more important than ever,” Lexology, 23 September 2021.
[7] Lora Cecere, “Sage advice? Only for turkeys.” eft, 1 February 2013.
