Supply Chain Chaos

With supply chains in current chaos, large organisations are reviewing their supply chains for crucial goods, with a focus on security of supply as well as cost. Many businesses have rationalised their product lines, restructured their operations, and changed suppliers, and I guess we would expect to see supply chains in some sectors shorten as a response to Covid, either via reshoring, or as companies try to diversify their sources of supply.

When former U.S. president, Donald Trump became obsessed with trade deficits which led him to impose punitive tariffs on China, the ongoing trade war?of economic conflict between the People's Republic of?China?and the United States of?America led three Chinese friends into a decision to immigrate to the U.S.

To make it easier for Chu, Bu, and Fu to get their visas, they decided to take on American names.

Chu became Chuck, Bu became Buck, and Fu….well he decided to stay in China.

Let’s face it - all the supply chain problems are much more persistent than most policymakers expected, although companies are less surprised – but are all in one way or another tangled up in the surge of post-pandemic consumer demand, but taken together they threaten what leading economists call a “stagflationery wind” that could blow the global economy off course.

Air freight warehouses at

Shanghai Pudong Airport are log-jammed

as a result of strict Covid testing protocols imposed on China’s biggest city following a local outbreak. But I’m sure Fu can deal with that. At the city’s port, Shanghai-Ningbo, more than 120 container vessels are stuck on hold. In Shenzhen, a major manufacturing hub in the country’s south, trucking costs have increased 300% due to a backlog of orders and a shortage of drivers following the introduction of similar Covid restrictions. Major ports the world over, which used to operate like clockwork, are now experiencing delay after delay.

Container ships are queuing for days in some of the worst congestion ever recorded.

More than a million containers due to travel to Europe from China by train - on a route that travels through Russia - must now make their journey by sea as sanctions take a hold. Russia’s invasion of Ukraine has also severed key supply lines for nickel, aluminium, wheat, and sunflower oil, causing commodity prices to skyrocket. Countries in the Middle East and Africa that rely on produce from Ukraine are likely to experience?significant food shortages in the coming weeks and months. With some European automotive production lines having been cut their output due to a shortage of wiring normally sourced from factories in Ukraine. If the pandemic, which triggered a surge in purchasing of goods, caused the global supply chain to buckle, Russia’s invasion of Ukraine and China’s continuing zero-Covid policy risk breaking it completely.

The supply chain is too complex, interconnected, and fragile to be made completely immune to shocks, especially ones as seismic as a global pandemic or a major war. But a new reality is forcing companies to adopt new strategies to keep goods moving. In this reality, backlogs and breakdowns are the new normal, which makes getting ahead of disruptions as early as possible more important than ever.

With the war in Ukraine, delaying or cutting off supplies of materials and products needed by companies that make cables, seat covers, and other automotive parts in nearby countries, including Moldova and Belarus. A November 2021 study published by McKinsey found that nearly 95% of companies surveyed have plans to make their supply of materials and products more resilient and agile, with many looking to diversify by “on-shoring” or “multi-shoring” production. In simple terms, this means using several supplies distributed geographically and across the supply chain to spread the risk of disruption. A car manufacturer, for example, might understand the risks facing the companies that supply it with components, but be unaware of the challenges facing the companies that manufacture the electronic chips used in those products. That’s a problem when new issues are likely to pop up in the weeks and months ahead, as more contagious strains of Covid test China’s zero-tolerance policy and the crisis in Ukraine continues.

As a result, one of our client-base is now driving a supply chain objective of creating an environment capable of consistently and cost effectively delivering 2 to 6 weeks product availability with 95+% Manufactured Required Date (MRD), within a given capacity, to achieve a true build to order environment. Their original best product availability was 12 weeks – so quite a challenge.

However, to more effectively capture logistics costs and allow for non-conformance, the

Total Cost of Ownership (TCO) methodology

is to be utilised. This takes into account all of the costs involved in the value chain such as structural cost, cost of variability, and cost of non-conformity (helping plot inventory and working capital). From a baseline, various scenarios can be assessed with respect to Current State TCO, base cost, packaging, transportation, handling, 3PL Services, inventory carrying costs, SMI Services, scrap (returns), rework, expedited freight, cost of MPOU (Engineering Changes/Customisation), warranty, obsolescence, scenario # TCO.

The purchase price is

only the tip of the iceberg.

Achieving this requires great levels of collaboration and synchronisation between customers and suppliers, as well as all internal functions, such as Purchasing and Programme Management. Collaboration which requires strong alignment at leadership level, great understanding of roles and responsibilities, performance sharing at all levels, shared focus on cost reductions, quality levels and delivering performance, and a well-disciplined S&OP.

Anyone can get a lower price.?The object of great sustainable business is to attain the lowest TCO.?

To understand the scope of this challenge: there are c500 suppliers to one plant (of which 100 suppliers represent 90% of the purchased value, although 30 of these suppliers are intercompany). Key metrics are parts missing at point of use (MPOU) and Supplier Performance measures of on-time deliveries (OTD) and quality rejects/concessions (8D Analysis). Purchasing would utilise the Total Cost of Ownership methodology and Quality Planning are including a focused and disciplined commitment to APQP/PPAP, process control and problem resolution methodologies.?

With a significant lead time reduction

of 12 weeks to 3 weeks required,

a continuous lead-time reduction can be achieved through superior flow management and relentless hunting down of waste across each step of the supply chain, from order intake to delivery. Strategically Managed Inventory (SMI), etc.), with suppliers respecting the lead-times and other elements of the Plan for Every Part (PfEP), including the logistics flow of information and material from supplier to point of use. The main purpose of PfEP being to rationalise, simplify and synchronise material flow paths, leading to optimal integration (minimum waste) with machining and assembly flow. Thus, PfEP is a key contributor to delivery and productivity. ?

From a wider supply chain perspective, many of the global economic ripple effects of Russia’s invasion of Ukraine won’t be felt for weeks or even months. Russia is, for instance, one of the world’s largest exporters of fertilizer, accounting for nearly 15% of the global supply. Fertilizer prices as an example, which were already trending upward, are now 40% up from where they were prior to the Ukraine invasion, and will likely rise further as the global supply chain struggles to adjust to yet more disruption - which in turn will place further pressure on global food production.

Companies may try to make their supply lines more resilient, and companies that promise even greater visibility into their supply chains will unsurprisingly gain some attention; with cameras and thermal imaging to monitor activity at warehouses and logistics centres. Other companies will undoubtedly try to track the movement of goods using tiny sensors.

When a piece of the supply chain puzzle is suddenly not available for whatever reason, everything sort of grinds to a halt.

It’s a bit like typing on a dance mat!

If you would like an assessment of your supply chain, require support with your supply chain challenges, or want to know more about how TCO could work for your company,

get in touch at [email protected] or visit www.tmlgrp.com