The Supply Chain Is Still Not In Order And The Media Awakes!
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Unless you spent last year living on a Space Station, you know that basic products were really hard to find during the early days of the COVID pandemic. Demand patterns went whacky, and for a variety of reasons, the retail supply chain (both domestic and imports) just couldn’t adapt quickly enough.
Let’s start with the domestic supply chain.
Of course, the great toilet paper (and other paper product) shortage started early in the pandemic, and a multitude of reasons were given for the long-term shortage. This is an over-used, yet important example of an overarching problem, so I’m going to go through it again. Why? Because lo and behold, the mass media has discovered something that we started opining about quite early: the bullwhip effect, or its corollary “fear of overstocks.”
Wikipedia uses the early days of COVID-19 as an example of the bullwhip effect:
The impact of the bullwhip effect has been especially acute at the beginning stages of the COVID-19 pandemic, when sudden spikes in demand for everything from medical supplies such as masks or ventilators to consumer items such as toilet paper or eggs created feedback loops of panic buying, hoarding, and rationing.
Frequent readers of our work will know that I think “panic buying and hoarding” was a red herring. I also don’t think the theory that “offices were closed, so manufacturers were unprepared for the surge in residential demand and were unable to retool quickly” is accurate either. I’m not denying that consumers stocked up on things they didn’t think they’d be able to get easily, but just like pre-snowstorm or hurricane, these stockouts rarely last long. This time these stockouts lasted for several months.
No, I believe it was assumed this would be a short-term event, and manufacturers feared the bullwhip effect, which might leave them with tonnage of toilet paper stuck in their distribution centers… taking up space more valuable than the items themselves.
Obviously, at some point it became apparent that this thing was going to keep on for a while, and slowly but surely (with Walmart taking the lead), paper products came back into stock.
And now, one year on, the Wall Street Journal (paywall) has discovered the bullwhip effect and published a long article explaining to everyman what exactly went wrong across the entire supply chain.
What’s most interesting about the article is that “factories still can’t catch up.” Seriously?
But this brings me to the second part of my story, and that is the import supply chain.
The WSJ alluded to shipping containers being hard to get, and ports in the U.S. starting to get a bit crowded to manage unloading cargo ships. The WSJ highlighted separately how the container “shortage” was driving up commodity prices up (and frankly, shipping company profits up right along with them).
However, not to be outdone, the New York Times published what was, for me at least, an interesting article about the state of containers.
It Iurns out there’s no shortage at all. Containers just aren’t where they are supposed to be. A lot of empties are piled up (according to the Times) In Australia and New Zealand, unavailable for rice exporters in Thailand, Vietnam and Cambodia. And then there are the full containers waiting to arrive in over-burdened U.S. ports. The Times article begins:
“Off the coast of Los Angeles, more than two dozen container ships filled with exercise bikes, electronics and other highly sought imports have been idling for as long as two weeks.”
I was waiting for a couple of those highly sought sporting goods for quite a while. Bicycle wheels, kayak bodies…none were available from August through November, at minimum. Apparently, many containers are still stuck… somewhere.
There’s some irony here. The Times quotes Lars Mikael Jensen head of Global Ocean Network at A.P. Moller-Maersk, the world’s largest shipping company, as saying “I’ve never seen anything like this. All the links in the supply chain are stretched….” He might sound distressed, but truth be told Maersk is raking in record profits. So, while it’s painful for consumers, and a surprising experience for Mr. Jensen, it’s also a windfall for the company.
One U.S. shoe importer, headquartered in my old hometown, Dedham Massachusetts, says it is paying more than five times its usual price for shipping. So, I’m not shedding tears for Maersk, though I am shedding tears for small retailers, who end up absorbing these price increases, and who are barely clinging to life by their fingernails.
Now, I have many questions: one of which is “Why are all the imports going through Los Angeles when billions were spent to double the size of the Panama Canal and Southeast ports of entry, including here in Miami, Savannah and others.?” We are so bloody hidebound in the way we do things across the industry. And honestly, if I was Maersk, raking in all that money for ultimately less work, I wouldn’t be complaining.
So who should be complaining? Retailers and their suppliers, of course. They are the ones whose revenue is being deferred or otherwise missed because there are so many out of stocks. They are the ones who are suffering sales and profit shortfalls.
We have written some spectacular recent benchmarks on the use of AI in the supply chain. “Managing Through Disruptive Times With Data-Driven Speed And Adaptability,” is our most recent, and prior, “What Can AI Analytics Really Accomplish for Retailers?” We also published great research in June, “The Case For An AI-Enabled Retail Supply Chain.”
The long and short of it is there’s a lot of technology out there to help retailers and their suppliers decide where the best place to land their goods is. Heck, we have several years of research on Location Intelligence, the most recent written right in the height of the pandemic: “Business Continuity And Recovery In The Age Of COVID-19: The Role Of Location Intelligence.”
I see the Port of Miami every time I go for a drive. There aren’t a lot of container ships or containers unloading there. It seems it’s just easier to “do it the way we’ve always done it.” Yes, the Times talks how the containers are stacked on cargo ships and shippers are concerned “…containers are stacked on ships in configurations set by their destinations. A sudden change in plans means moving the stacks around like a Jenga game.”
Not to be a jerk, but so what? I think we can safely say the shippers can afford it. Retailers and their suppliers should demand it.
The problem is expected to persist into the summer. This puts retailers’ holiday season at risk, as that’s when the majority of holiday goods arrive.
This is the long way round saying it’s time for retailers and their suppliers to push. The supply chain is still broken. Shippers complain, even as they bring their money home in buckets. Meanwhile, instead of being loaded with farm products and other American-made exports, containers are dead-headed back to China so they can get more imports on them. This is terrible for the U.S. economy, so it’s time for farmers to push as well.
As Cher said many, many years ago in Moonstruck, “Snap out of it.” These guys work for YOU, not the other way around. Actually, it turns out I said these same words back on April 7, 2020. And the industry still really hasn’t done that. The supply chain is STILL failing us.
It’s not a technology problem. It’s not a customer problem. It’s not even really a pandemic problem. It’s lack of willingness to change. We have the technology to be more efficient and get containers where they need to be, and product where it needs to be. Let’s use it and encourage our suppliers to do the same. Don’t let the tail wag the dog. Seriously.