Supply chain.
A year ago, it was a phrase reserved for technical discussions around order fulfillment and product availability for the hottest of hot items. Today, it’s part of every business conversation and blamed for everything from turkey and Christmas tree shortages to new cars sitting idle because of a lack of computer chips.
In an effort to get a handle on how technology was being impacted, the Canadian Channel Chief Council invited Mike Crosby, NPD Group’s director, B2B Technology Industry Analyst, to share his insights from his recent analysis of available data.
Crosby outlined three distinct angles to frame the discussion:
- What occurred prior to – and during the pandemic – that has led to the current state of the supply chain.
- What are the continuing challenges, and how are they exasperated in the current situation.
- What are the strategies manufacturers and channel partners are using to leverage these challenges and drive a catalyst for quicker change.
How the weakness of the supply chain was exposed
Crosby detailed factors including:
- a weakened state pre-pandemic due to escalating trade tensions
- massive immediate cuts to the workforce in the early stages of the pandemic
- large fiscal stimulus accelerating supply v. demand imbalance
- a manufacturing cold restart with little to no capacity
Crosby said there was no one factor, but rather “a cascading effect of challenges–some things out of our control, some were overreactions–where we were not able to pivot back very effectively, as there was no agility in this model at all.”
As economies begin to return to forward momentum, he said there is an increase in demand and supply, but the supply chain remains the weak link.
Describing continuing challenges, Crosby detailed the following contributing factors:
- Soaring container pricing (which are likely to continue to rise)
- Shipping costs skyrocketing
- Ports struggling to meet demand
- Reduced railroad capacity
- The challenge of balancing manpower with demand
- Capacity and costs that make air freight impossible as an alternative
As a silver lining, digital transformation evolved in a very significant way as companies had no choice but to adapt and grow. What will be the impact of the digital transformation push on supply chains?
Crosbie suggested:
- supply chains will need to evolve to look for accelerated adoption of IoT and AI technologies
- a cost center mindset will no longer be viable
- Companies must define and leverage alternative strategies
Are shipping companies motivated to fix the problem?
After detailing the problems, Crosby posed the rhetorical question: question: Are shipping really companies motivated to fix this? He served up the following fact:
- The top 10 container lines represent 80 per cent of global capacity – an estimated $100B in operating profit in 2021.
- Container lines are pushing to lock in long-term contracts while leveraging exists.
- There are concerns increasing over profiteering, as more freight lines are foreign-owned and may draw visibility.
- Finally, there is pressure increasing from the Federal government regarding potential anti-trust and favourable taxation status.
So when will it get better?
Barring any additional turns, if the industry stay on the current trajectory, Crosby advised it will still be mid to late next year before there will be an improvement, and that will require collective action, with shipping companies as the critical link.
How are C4 members being impacted?
Following Crosby’s presentation, C4 President Corinne Sharp, asked attending member to share their stories of how the supply chain crisis was impacting them
- One member said their experience reflected Crosby’s presentation as they had experienced increasing container charges and freight delays impancting the delivery time of CPU’s. The member said the ebbs and flows of the past 18 months, impeded any kind of forward progress, and ultimately it would begin to affect pricing.
- Another member said their organization was selling what they have on hand and in stock. They noted that some of their partners have been selling above MSRP because they can, and it is in turn affecting the pricing of their products. “As a marketing and sales organization, we are tied very closely together, so pricing impacts our marketing, and we have to be really dynamic with that as well based on supply change.”
Sharp asked if forecasting, policy, or procedures were changing to accommodate the current state of the supply chain
- One member replied: “One of the things that is very important to us is transparency with our customers. We have to be open and honest with what’s happening and what we’re seeing as far as our inventory levels and our line of visibility into that.”
- Another said the situation has made forecasting become more critical than it ever has been before. The forecasting needs to be done early and accurately.