A refrain from a Richard Rodgers and Lorenz Hart song from the Broadway musical “Pal Joey,” could be a tune sung nightly by today’s supply chain managers. It goes:
Couldn’t sleep
And wouldn’t sleep
Until I could sleep where I shouldn’t sleep
Bewitched, bothered, and bewildered am I
The reason supply chain managers are having difficulty sleeping and finding themselves bewitched, bothered, and bewildered is that supply chain operations were supposed to normalize following the release of coronavirus vaccines — and that hasn’t happened. As journalist Tom Ryan explains, “The supply chain turbulence that arrived last fall was predicted by many to be a temporary event, but it’s now expected to delay upcoming holiday shipments and may linger into next year.”[1] To bolster his assessment, Ryan cites a statement by Jonathan Gold, Vice President for supply chain and customs policy at the National Retail Federation. He stated, “Strong consumer demand has outpaced supply chain operations since late last year and could remain a challenge as the holidays approach. The continuing lack of labor, equipment and capacity has highlighted systemic issues and the need to create a truly 21st century supply chain to ensure resiliency against the next major disruption.”
Causes of Supply Chain Disruption
Supply chain managers are used to confronting the occasional supply chain disruption; however, a systemic disruption is something new. Ryan explains, “Shipment delays were initially blamed on the global supply chain’s struggles to catch up to the resurgence in demand for consumer goods after production initially shut down with the pandemic’s emergence. In the U.S., resultant bottlenecks have led to recent costly delays of up to five days for ships waiting to unload at critical West Coast ports, stranding thousands of containers. The congestion has exhausted warehouse space and affected the trade-offs to trains and trucks. Shortages of longshoreman, truck drivers and warehouse workers have also slowed the flow of goods. Other recent factors exacerbating the delays include the Suez Canal blockage, COVID-19 outbreaks at shipping hubs in Southern China as well as factories in Vietnam and Bangladesh, and floods in Western Europe and China’s Henan province.”
Interestingly, Patrick Burnson, Executive Editor of Supply Chain Management Review, reports that the majority of supply chain disruptions experienced this year can’t be blamed on the pandemic. He cites data released by Resilinc, which shows, “Human Health disruptions, which include COVID-19 related events, [only] ranked 19th in terms of the number of event alerts in the first half of the year.”[2] Even so, Burnson notes, “Resilinc has continued to designate the event as ‘severe.’ It’s the first time in the company’s history ranking an event at that level of impact.” What other events have caused disruptions? According to data released by Resilinc, “human-caused supply chain disruptions are rising overall.” For example, Resilinc reports factory fires are up 150% (when comparing the first half of 2021 to the first half of 2020). Burnson notes, “This year is on track to have the most factory fires ever reported. The uptick is due mostly to gaps in regulatory and process execution as well as a shortage of skilled labor in warehouses.”
Burnson also notes that the data confirms what headlines have been telling us, shortages of products are affecting supply chain operations. He points to semiconductor chips, plastics, cardboard as examples of shortages and notes such shortages “were up 638% in the first half of 2021.” He adds, “Resilinc sent out 251 Supply Shortage alerts; this type of disruption ranked 6th in terms of most reported events. … Supply Shortages are driving consolidations, mergers, and business sales as companies look to give a quick cash boost to the core business or optimize the supply chain to best serve the customer base.”
Eric Masotti, Vice President of logistics with Trailer Bridge, agrees that shortages are playing a significant role in today’s disruptive supply chain landscape. He also believes that a clear idea of what lies ahead is adversely affecting recovery efforts. He explains, “Typically, when manufacturers see demand increases, they increase capacity to make more things. But this isn’t a typical year. Manufacturers are hesitant to invest in capacity increases in response to a demand that could be primarily COVID-19-related. Many are also anxiously buying more materials than they need to maintain stocks, further impacting global supply.”[3]
What Lies Ahead?
If these are dark times for supply chain managers, Bloomberg analysts say they should learn to adapt to the dark. They explain, “A supply chain crunch that was meant to be temporary now looks like it will last well into next year as the surging delta variant upends factory production in Asia and disrupts shipping, posing more shocks to the world economy. Manufacturers reeling from shortages of key components and higher raw material and energy costs are being forced into bidding wars to get space on vessels, pushing freight rates to records and prompting some exporters to raise prices or simply cancel shipments altogether.”[4]
Despite the availability of vaccines, the coronavirus, especially the Delta variant, is still having a negative impact on the global economy and global supply chains. As Wall Street Journal reporters observe, “Repercussions from the Delta variant of Covid-19 are starting to ripple across companies, raising staffing costs in senior housing, disrupting production of potato chips and leading some companies to rein in profit projections. Still unclear: whether the highly contagious strain of the virus will be a momentary stumble in an improving global economy — one that businesses and consumers are now better equipped to handle — or something more serious.”[5] Deborah Elms, Executive Director of the Singapore-based Asian Trade Center, adds, “Delta is likely to significantly disrupt trade in Asia. Most of the markets have been fortunate in managing Covid well so far. But as Covid continues to spread, this lucky streak is likely to end for many locations.”[6]
Misfortune in Asia means misfortune around the world. It has been said that when China sneezes, the world catches a cold. Today, when China gets Covid-19, the world shuts down. As Bloomberg analysts note, “China’s determination to stamp out Covid has meant even a small number of cases can cause major disruptions to trade. [In August,] the government temporarily closed part of the world’s third-busiest container port at Ningbo for two weeks after a single dockworker was found to have the delta variant. Earlier this year, wharves in Shenzhen were idled after the discovery of a handful of coronavirus cases.” Everybody needs to be alert about unfolding events in China.
Concluding Thoughts
Jens Munch Lund-Nielsen (@JensLundNielsen), Head of Global Trade & Supply Chains at the IOTA Foundation, asserts, “We have clearly witnessed that companies have little control of the supply chains.”[7] He believes the lesson companies should have learned from pandemic disruptions is that they need better visibility into their supply chains. “Understanding where the risks lie so that companies can protect themselves may require a lot of digging,” he writes. “It entails going far beyond the first and second tiers and mapping full supply chains, including distribution facilities and transportation hubs. This is time-consuming and expensive, which explains why most major firms have focused their attention only on strategic direct suppliers that account for large amounts of their expenditures. But a surprise disruption that brings a business to a halt can be much more costly than a deep look into a supply chain.” Better supply chain visibility can certainly help prevent supply chain managers from being bewitched and bewildered; however, they are likely to remain bothered by supply chain disruptions because the ways supply chains can be disrupted are myriad.
Footnotes
[1] Tom Ryan, “Some think supply chain disruptions are here to stay until 2022,” RetailWire, 12 August 2021.
[2] Patrick Burnson, “Record-Breaking Supply Chain Disruptions and Supply Shortages,” Supply Chain Management Review, 12 August 2021.
[3] Eric Masotti, “Shortages, Bottlenecks and Price Spikes: Planning for the Rest of 2021,” SupplyChainBrain, 26 August 2021.
[4] Bloomberg, “The World Economy’s Supply Chain Problem Keeps Getting Worse,” SupplyChainBrain, 26 August 2021.
[5] Theo Francis, Gwynn Guilford and Inti Pacheco, “The Delta Variant Is Already Leaving Its Mark on Business,” The Wall Street Journal, 15 August 2021.
[6] Enda Curran and Michelle Jamrisko, “Global Supply Chains Are Being Battered by Fresh Covid Surges,” Bloomberg, 14 August 2021.
[7] Jens Munch Lund-Nielsen, “COVID-19 revealed the fragility of supply chains,” TechCrunch, 29 December 2020.
