2021 brought historic levels of strain to the highly interconnected global supply chain. As a result, global economies have experienced massive disruptions, commodities shortages, rising consumer prices, and scarcity in critical items like medical equipment and electronic components. There have also been major disruptions in the production of consumer products, leading to shortages in everything from cars to personal computers, household products and even food.
While the coronavirus pandemic has contributed to the supply chain crisis, it isn’t the only cause. The pandemic revealed the fragile and highly dependent nature of our supply chain processes. It also revealed how vulnerable many systems of supply chain management are to even the slightest disruption.
In a recent webinar, two seasoned leaders of MorganFranklin’s supply chain solutions division examined the impact of recent supply chain disruptions and provided key insights on the ways advanced technology can help companies become more agile in the face of an unpredictable future.
The webinar was co-hosted by Dan Luttner, Plantensive managing partner, and Todd McCourtie, Plantensive managing director.
Below are the key discussion points and revelations provided by Luttner and McCourtie during their presentation. Download the full webinar to see the presentation in its entirety.
Skyrocketing container shipping rates
Virtually everyone, whether a business owner, distributor, retailer, or consumer, is familiar with the images of a giant container ship blocking the Suez Canal in March 2021. At the time, it was estimated that the container ship was preventing approximately $400 million in trade per hour.
Everyone also saw the photos and aerial footage of dozens of container ships anchored outside ports in Los Angeles and New York, unable to dock.
These images are just a small reflection of an increasingly splintered global supply chain and a crushing rise in manufacturer and consumer demand. They also provide a glimpse into one of the more quantifiable effects of the supply chain crisis: the growing challenges and costs of shipping.
During the webinar, McCourtie detailed the shocking increase in the cost to ship just a single container.
In Q3 of 2021, the average cost to ship just one 40-foot container from Asia to the United States hit $10,000—an increase of over 500% year-over-year. Annual contract rates for 2022 saw prices remain astronomically high, averaging 122% higher than 2020.
These increased costs have contributed to rising consumer prices and put pressure on businesses and their customers. Port congestion surcharges, peak season fees, and warehouse storage are compounding the cost-related worries facing businesses, affecting retailers, distributors, and manufacturers.
During the webinar, attendees were asked if supply chain issues were driving up costs that were being passed on to their customers: 75% said yes.
The impact of COVID-19
When discussing the current supply chain environment, the impact of a global pandemic can’t be ignored. McCourtie and Luttner outlined just a few specific ways the coronavirus has contributed to current supply chain woes:
- Lack of drivers to support the delivery of goods from port to destination
- Labor shortages at ports and distribution points
- Diversification of raw material suppliers, impacting packaging
- Shutdowns of production plants during outbreaks
- Impacts on customer trust in brands and retail outlets
- Demand swings for product availability, creating difficulty in maintaining accurate forecasting
It is the unpredictable swing in demand and corresponding bullwhip effect that has created some of the biggest challenges for businesses. The inability to accurately forecast demand can have huge repercussions, especially when the costs for shipping have risen so steeply.
For many companies, these costs are inescapable. They are a fixed point in the price of doing business. In normal (read: non-pandemic) circumstances, companies can react to fluctuations in supply and demand using regression-based forecasting. The level and speed of the disruptions caused by COVID-19, however, have made many forecasting models irrelevant and, worse, counterproductive.
The trajectory of the pandemic and its effects on global markets, supply chains, and workers is unpredictable. It’s this unpredictability that necessitates a more responsive and agile approach to supply chain planning.
Luttner posed a few questions that companies should ask themselves when examining their response to the current supply chain disruptions:
“How agile is your organization? Do you have a lot of silos built into the process that are dependent upon meetings that might take a number of days to schedule, and communication that can draw out that process? Are you building an organization that can actually be nimble and responsive to some of these wild changes?”
When answering these questions, Luttner says, organizations should start by aligning their processes with the right technology.
Better forecasting with demand-integrated planning
McCourtie emphasized the need for companies to be more prescriptive and less reactive when adjusting their demand planning and forecasting. The key to that, he says, is for businesses to integrate their suppliers and manufacturers with their planning and, perhaps most importantly, to utilize advanced technology like artificial intelligence (AI) and machine learning when building better processes.
Demand planning that incorporates AI and machine learning can increase visibility, improve data quality, and reduce costs. It also allows companies to be more agile in the face of unexpected disruptions.
Luttner and McCourtie outlined the specifics of a demand-integrated planning process:
- During procurement with suppliers, have a plan for substitutions and alternate suppliers available
- Leverage AI/machine learning to manage forecast demand for future consumption
- Use control tower technology to know where all inventory is located at all times
Another key reason to integrate suppliers and manufacturers in the planning process is greater visibility into where the demand is ebbing and flowing: online, in-store, or in micro-fulfillment.
Micro-fulfilment is especially relevant in the current environment, where consumers are often weary of entering a brick-and-mortar location to shop. Luttner has seen this massive shift to newer fulfillment models firsthand.
“Speaking from the perspective of a supply chain management consultant, the rate of adoption and the rate of change in the last two years has been faster than I think anyone has ever seen before,” Luttner said.
“We’ve helped many clients change their fulfillment strategies entirely in the last 18 months. For instance, taking a traditional brick-and-mortar retailer and changing the network to a multi-tier, in-market distribution model to enable more e-commerce, to be closer to the consumer, to shorten those delivery times.”
“From the consumer side of the business, more and more retailers are taking a part of their building and making them micro-fulfillment centers. I think the more you can work with your suppliers to really understand your sales impact on curbside, and figure out where you need that inventory, that critical inventory, it will help fulfill a lot of orders, and it will also help create customer satisfaction in the long run,” he said.
At the end of the webinar, Luttner and McCourtie summarized their key points for navigating the current supply chain chaos and building resilient, proactive systems for the future.
“If you can enable better planning, joint planning with your suppliers, new strategies and micro-fulfillment that allow you to control more of the flow of goods, or actually have more authority over what happens to your product, the more control and visibility that you’ll have,” Luttner said.
McCourtie supported this notion too.
“Work with your suppliers on cost models. There has to be ways that you can look at alternate SKUs together and meet those out-of-stock demands without having to take higher costs, at least in some cases. Leverage investment in solutions—predictive solutions that are demand-based—and understand AI and machine learning, not just ‘what does artificial intelligence mean’ but also the types of data you need and which processes need to change for you to get there.”
Watch the full webinar by downloading today.
Supply Chain and Retail Planning with MorganFranklin Consulting
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