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Summer 2021 Update: The Latest Big Challenges in The Supply Chain

Back in February, I published an article about the biggest challenges in the supply chain at that moment in time. We were hoping that 2021 would present a year of “smoother sailing” compared to 2020—and in a few ways, it has. However, we’ve also seen new challenges arise.

Several of our recent meetings provided time for the SCLA Executive Think Tank’s ongoing roundtable discussion sharing info and perspectives on the current state of the supply chain. Members noted some significant disruptions in the actual movement of goods, as well as major labor market challenges, and we talked about some of the responses to these issues.

Current Challenges

As usual, especially in recent times, supply chains have been facing a number of substantial challenges this summer.

1.Transport Troubles

My colleague Ron Marotta, EVP at NYK Logistics, reported on some serious obstacles to the flow of goods on both sides of the Pacific. In southern China, potentially inaccurate Covid numbers belie the rapid spread of the virus causing lockdowns near port areas. The shortage in capacity is causing containers to be built and atypical ships converted to container duty: “Every effort is being made to deploy every single thing that floats to move freight to the U.S.”

The problems continue on arrival in North America, where there seem to be no good port options. Carriers don’t like the congestion at Oakland, so they switch to L.A. But the backlog at L.A. and Long Beach was up to 20 vessels at anchor. These California port issues were exacerbated by the situation in Chicago and the embargo on the UP rail line.

Gregg Zody, General Director of Consumer Products at BNSF Railway, noted they were taking tracks out of production at Chicago just to stack freight along the tracks in addition to overfilled interim lots.

So goods can’t get out of Asia or—once they do—into North America at the speed they’re being ordered. Retailers can’t have seasonal goods arrive late, so they are looking at canceling orders and air freighting what they can.

2.Worker Scarcity Abroad and At Home

A primary driver of these transport woes and other problems is the labor shortage. Obviously, the pandemic itself continues to limit worker availability internationally. India, for instance, may be underreporting Covid deaths. As elsewhere, the virus is hurting productivity there as workers stay home, including many who simply cannot do their jobs from home.

Even where that is a less direct obstacle, workers just are not jumping at the abundant opportunities—across the economy in the U.S., job creation is high, and workers are being picky. We’ve all seen the evidence in restaurants and similar places that are reducing hours or services because they can’t find people to hire.

Other anecdotal reports suggest retirement is spiking—including in key supply chain industries like trucking and airlines—because the strong market makes retirement funds an appealing alternative to coming back to work during the current mess.

All of this means that even when goods come in by air, distribution is held up. Amanda Martin, Senior Vice President Supply Chain at Neiman Marcus Group, shared the example of the Dallas-Fort Worth market, where their products have landed but aren’t moving to their internal warehouses because of labor shortages.

As several members noted, we are seeing a distinction between products and services. People feel financially stable enough to buy “stuff,” but they aren’t yet buying services or experiences (or running back to work, which in some cases is why they aren’t buying services–workers aren’t available to provide them). So demand for goods that must be moved through the supply chain is very high just at the moment when the pool of workers to operate the chain is shallow.

How are Companies Responding to These Challenges?

With obstacles to moving goods internationally, some entities are looking to “near-sourcing” or “nearshoring”—production in North America, close to the ultimate market destination. (You may recall that I previously touched on near sourcing as a way of mitigating risk in the supply chain.)

We have seen this in many industries, including medical supplies, home goods, and others. But as we discussed, transport even within the U.S. is a problem. Do we have the workers and infrastructure to move goods to market even if they are produced locally?

As for the workers part of that equation, companies are naturally looking at automation. While there is excitement about automation, several destructive incidents at automated warehouses have generated hesitancy. There is uncertainty about the level of automation.

One perspective sees full, no-humans-involved automation as the only safe solution for workers but fears the huge downsides of incidents that occur without human oversight. Another take looks at the considerable activity in the space in between, where “cobotization” appears to be the way forward.

Like everything else, however, automation is being held up at the moment, in this case by manufacturing delays. Some companies who need to build now and cannot wait out the long lead times for automation are finding ways to build in the ability to add automation in the future.

When it comes to finding actual human workers, the supply chain sector is, like so many others, looking to the gig economy. Members mentioned the on-demand staffing platform Wonolo and noted there are other similar options.

How Long Will It Go On?

The effectiveness of these responses is something we will continue to discuss and continue to see play out in practice. The consensus of our members is that strong demand will continue at least through the fall and the end of the year, and current trends and trouble spots are likely to be in place through the middle of 2022. The conversation is by all means ongoing!

If you want to be a part of the discussion, get in touch with us at SCLA or with me individually. We continue to have fruitful conversations about how we are all responding to current supply chain disruptions.


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Wednesday, 01 December 2021

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