By Michael Lev for MxD
Once there was an industry struck by existential crisis. Companies scrambled to react and innovate. Employees, shocked by the changes, were eager for the crisis to abate and business to return to normal. But a wise manager warned them to embrace change as a constant because competitors, having honed new skills, would not fall back asleep. Everyone would need to keep innovating to survive. “Get comfortable with feeling uncomfortable,” the manager advised.
That example comes from my experience in the print newspaper business, which was rocked by the internet, but it sticks in my mind as a parable for the supply chain upended by COVID-19. Not that the global supply chain was sleepy or lacked innovation. What exploded overnight in response to COVID was the pace of change in manufacturing, logistics, and distribution. My point: Don’t wait for an end to pandemic-related supply chain upheaval. Now that demands for improved efficiency have taken hold, they will not slow.
There are many lessons from the supply chain crisis, but here are three takeaways. Each is an emergency response to the strains and snarls caused by the pandemic. Each will likely become permanent. Because once an industry faces down a cataclysmic challenge, participants keep pushing or risk being left behind.
Shorten the tail: A global supply chain, stretching to China and beyond, may still make sense for some low-cost industries, But the previous era of outsourcing-or-bust is over, done in by COVID, trade tension with Beijing, and Russia’s invasion of Ukraine. COVID especially has forced businesses to assert more control over their suppliers or risk disaster when shipments are held up by factory shutdowns abroad or cargo delays at sea.
The smart response is to diversify manufacturing and, for global companies, adopt a regional approach that puts assembly lines closer to customers. Often this means bringing back some manufacturing to the U.S or Mexico. Chris Snyder, an industry analyst at UBS, told Bloomberg that companies are abandoning the China model and looking at manufacturing in ways that “have never been done before.” A UBS survey of C-suite executives found that 90% were either in the process of moving production out of China or had plans to do so, and 80% were looking at coming back to America. Dodge Construction Network reports that manufacturing construction starts in the U.S. ballooned a record 161% in the past year.
Rethink delivery: Last year there were as many as 100 cargo ships stalled off the coast of Los Angeles, trapped for days or weeks as the two local ports struggled to process a deluge of backed-up arrivals. They don’t do it that way anymore. Amid its crisis, the shipping industry abandoned its 100-year-old system of assigning ships to berth when they arrived at Los Angeles/Long Beach. Now, they schedule each docking as a ship departs its last port. Vessels then steam slowly across the Pacific and wait further offshore in a shorter queue before arriving to unload, according to the Marine Exchange of Southern California. This innovative new system improves safety and efficiency while reducing emissions. On July 9, there were 25 vessels queuing well offshore to unload in L.A., 84 fewer than the record 109 stacked up within sight of the ports on Jan. 9.
This type of radical change is taking place throughout the supply chain, as companies look for new ports to use, shift to air freight, and expand fleets. Executives at craft retailer Joann and apparel chain Abercrombie & Fitch both spoke on recent earnings calls about expanding ocean freight carrier relationships to improve flexibility. The goal, said Abercrombie’s CFO, “is to have optionality and flexibility and hopefully that will result in lower rates.” Smart, and likely overdue.
Embrace technology: Seattle-based Flexe – a digital supply chain company you may not know – has a valuation of more than $1 billion after raising $119 million in funding. Flexe does something complex with technology that’s simple in concept: It locates short-term warehouse space for online retailers so they can avoid the expense of leasing their own real estate, GeekWire explained. Think of Flexe as a travel agent for stuff. Digital disruption in the supply chain is getting a major push from the pandemic as companies engage in frantic efforts to circumvent logjams and move goods as efficiently as possible: warehouse robotics, delivery drones, and self-driving trucks are rolling out everywhere. West Coast dock workers and ports are engaged in a contentious contract negotiation over the question of automation. The ports want software-assisted cranes and autonomous vehicles; dock workers fear for their jobs. This conflict has been ongoing for years. “We’ve been living for decades with a supply chain that was just waiting for a black swan event to show its weaknesses and the cracks in the overall process,” Stephanie Loomis of freight forwarder CargoTrans told Bloomberg.
COVID is that once-in-a-lifetime event that will change the supply chain permanently.
Read the complete Issue 15 of ChainMail here.
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