We want to address what’s going on with supply chains, what are the issues in the supply chains, and how we can help you fix these supply chain issues. As many know, the great pandemic of COVID disrupted the way we work. It disrupted most supply chains and how we understood their mechanics.
Major Supply Issues Manufacturers and Distributors are Facing Today
- Major Backlog Growth
- Lack of Physical Workers
- Cost of Transportation
- Backlog-driven Cash Flow Issues
Just-in-time Inventory Supply Chain Approach & the COVID Pandemic
Most US-based manufacturers and US-based distributors offshore a portion of their supply chain and use just-in-time inventory, which keeps inventories low. During the 1990s and early 2000s, just-in-time inventory practices were heavily adopted.
A pitfall of the just-in-time inventory approach is that production stops when there are interruptions in the supply chain. While some companies might have some buffer inventory stocks, companies still have a portion of their supply chain offshored. When COVID hit there was a seriously detrimental effect to supply chains around the world.
Major Issues in the Supply Chain for Manufacturers and Distributors
The ramifications of global supply chain issues can be seen in everyday life. The overall cost of consumer goods went up. For example, products at the grocery store have increased and fuel prices for diesel or gasoline increased. But for manufacturers and distributors, the complications presented were more complex and detrimental.
Major Backlog Growth & Lack of Physical Workers
After COVID hit global supply chains, businesses were still able to receive some of the parts or components or the finished goods that they needed but were unable to continue to grow the business. At Work Excellence, we saw that many of our clients saw their backlogs grow to record numbers very quickly. The great resignation in the US and the inability to have workers show up to work in a safe environment during COVID further exacerbated the growing backlog issue.
As workers were able to get back to work in a safer environment, there was an incredible increase in labor costs. In addition, many manufacturing workers did not want to go back to a physical work environment. This is a big problem because manufacturing and supply chain-focused businesses are very physical. Naturally, the physical nature of this work requires a certain amount of workers to be physically present to manufacture products efficiently.
Cost of Transportation Supply Chain Issue
A 40-foot high cube container from Asia to the US typically should cost around $6,000, but after COVID disrupted supply chains this increased to $25,000 – $30,000. If you were producing or distributing a lower-priced product, this increased cost of transportation is devastating.
At Work Excellence, we had many clients who would use air freight transportation. They chose air freight transportation because of its speed and similar pricing to non-air freight transportation; however, this only worked for lower weight smaller freight items. The recent fuel cost increases and increase in air freight have made this option less attractive.
Backlog-driven Cash Flow Issues
Companies experience cash flow issues when they have a big backlog. The increased costs of doing business and these cash flow issues make them unable to deliver goods and services. The lack of workers increased costs in many ways – whether that be labor costs or transportation costs.
How Do We Solve These Supply Chain Problems?
The inability to get parts, the inability to get workers, all these different problems that are happening – how do we solve these supply chain problems? We need to focus on what we can change. Let’s discuss some ideas on what you can change to alleviate the negative impact of global supply chain disturbances.
Choose which products to sell
Certain products are not going to sell. You need to classify your products and understand what is selling the best, especially what you’re making the most profit margin on. If you’re able to do that and you have a method of doing that, you will be able to best navigate the pressures of a challenging supply chain.
For the products that aren’t selling – you need to contact your customers to explain that you can’t service that particular product for them, but make sure that they understand that you still value their business. There could be a time in the future when you can bring some of those lower profit margin products back, but not during a global supply chain crisis.
Build up your inventory
We are seeing a lot of organizations shifting their focus to building inventory. So instead of going from a make-to-order mentality, they’re going to make the stock mentality. Many companies are identifying certain components they need for production, and they’re stocking up on those specific components. In the same way, you look at the finished goods that you’re shipping to the customer, you need to look at those individual components and think, can we replace any of these? Can we bring them back a different piece or do we just need to stock up on certain components so that we can continue to deliver our products to our customers?
Look for other ways to deliver products
Look for innovative ways to change the way you deliver products. Change the way you sell and set clear expectations for customers.
The Best Firm for Supply Chain Challenges
If your company has been negatively impacted by the global supply chain crisis caused by COVID, we can help you come up with a customized strategy to mitigate the damage. Just give us a call – we’re here, we’re willing to help, and we’re willing to share ideas of how we’ve helped other organizations. We truly believe that using the Work Excellence Method will help you solve these supply chain issues.