The Supply Chain’s People Problem: What It Means for Your Business

Supply Chain’s People Problem

In a recent report, CBS News noted that at the Port of Los Angeles, incoming cargo is straining warehouse capacity.  The number of containers waiting to be shipped inland has jumped from 9,000 to 35,000, and incoming cargo ships may soon be backed up in the harbor. The cause of this disruption is not wildfires, storms, geopolitical forces, or trade barriers, but rather a lack of railroad workers to haul containers out of the port. That’s just one problem in a single location, but it illustrates the fact that labor shortages have become a major source of continuing supply chain disruptions.

Supply chain labor shortages have made headlines throughout the COVID pandemic, and they were already in evidence long before the term “the Great Resignation” was coined. While COVID clearly made labor shortages worse, it’s not the only factor driving the problem. Waves of retiring baby boomers, a lack of critical technical talent, and the new expectations of younger workers have all made it difficult to recruit and retain the right people. And the problem is not going away soon.

Gaining More Resiliency While Reducing Vulnerability

The question is what can be done about it. Much of the problem is, of course, outside of any one company’s control. Manufacturers, for example, cannot solve their suppliers’ labor problems for them. But they can work to increase visibility into their partners’ operations to identify problems early on; keep the channels of communication with partners open; expand their supplier base to reduce reliance on a limited number of partners; and build robust risk management capabilities to make supply chains more resilient and less vulnerable to the labor shortages their partners might face.

There are also internal actions companies can take. Typically, much of the supply chain is in-house and performed by a company’s employees—and that reality should prompt companies to revisit their talent strategies. A recent study from the Pew Research Center, which looked at why people quit their jobs last year, offers some insights that can inform those efforts.

Pew found that less than one-third of the people who quit their jobs last year did so for COVID-related reasons. Instead, many pointed to low pay as a top reason, cited by about two-thirds of respondents. But workers also pointed to a range of other reasons, some of which could be addressed by targeted changes to company policies. For example, child-care issues were cited by nearly half of employees with young children, which suggests that daycare programs could be an advantage in the labor market. And more than 4 out of 10 respondents cited a lack of flexibility in work hours; here, companies might consider strategies such as flex time, job-sharing, and the use of digital technology to support more remote work.

“Soft” issues are also critical. About two-thirds of respondents said they quit because “they felt disrespected at work.”  Executives should take that to heart because they set the tone for a respectful company culture. They can back that up with training and clear career paths that demonstrate respect.

Overall, addressing the supply chain labor shortage is not just about higher pay, but also about how the company relates to employees and their lifestyles. There is no silver bullet solution available. Instead, companies will need to consider “all of the above” to create a clear employee value proposition that will enable companies to attract and retain the employees they need to keep their supply chains moving.  It’s a puzzle±but those companies that crack it will be in a better position to keep their supply chains running smoothly and efficiently.

In the Face of Inflation, is “Just-in-Time” Simply Out of Time?

in-the-face-of-inflation

Given global supply chain disruptions, labor shortages, and other factors driving inflation, some companies are now actively questioning the just-in-time (JIT) inventory practices that have been dominant for the past several decades. In their place, these businesses are adopting a just-in-case (JIC) approach, which involves holding more inventory and working to develop flexibility in the supply chain.

The purpose of just-in-time manufacturing had always been to reduce inventories and save costs in the supply chain. But in this climate, JIT’s reliance on suppliers, who have been unreliable since the COVID-19 pandemic began, seems counter-productive. Incidents early in the pandemic, such as large shifts in demand for items such as protective gear and panic-demand purchases of products like toilet paper and cleaning supplies, quickly underscored just how fragile the world’s supply chains are. And the situation has only deteriorated since then, fueled by factors such as China’s production-slowing COVID policy and an upending of so many supply chains due to the war in Ukraine.

And few expect things to get better any time soon. In its recent PwC Pulse Survey, for example, the firm found that two-thirds of manufacturers predict that inflation will remain elevated throughout 2022, with nearly three-quarters expecting to increase prices during that time and less than half expecting supply chain disruptions to ease.

The surge in demand, coupled with ongoing shortages of people and products, has made it inevitable that manufacturers and businesses would pass along rising costs by sharply increasing prices and driving inflation. This has set the stage for a migration from JIT to a JIC strategy, through which businesses, by stockpiling goods, are able to hedge their bets against increasing prices. As a recent PwC article noted, “Pricing that perfectly aligns with cost of goods or just-in-time inventory management approaches seem like quaint and distant memories.”

Manufacturing expert Willy Shih of the Harvard Business School agrees, writing in Forbes that “having more material on hand can make a lot of sense, especially if it comes off a long supply line from China.”

It is, of course, possible that, in the near term, the shift to a JIC inventory approach could drive up costs and actually contribute to inflation. However, the end result, many financial reporters say, is likely to be more reliable and more local supplies, as well as improvements to the ways in which inventory is designed, manufactured, and sold.

In fact, according to the Financial Times, “Some businesses are increasing the inventory they keep on hand and entering into longer-term contracts with key suppliers. Others are diversifying their manufacturing to create regional hubs with local suppliers and investing in technology to give them greater advance warning of potential bottlenecks.”

The message, say PwC’s business analysts, is that manufacturers must be both resilient and agile in the current business environment if they are to contain the impact of rising price inflation and succeed in addressing supply chain snarls and shrinking margins. The analysts suggest that as prices of energy and materials rise, manufacturers can mitigate the impact on cost of goods sold through actions such as “being more aggressive in finding alternate suppliers that offer more attractive pricing or suppliers that are closer to your operations in order to trim delivery costs.”

What’s critical to consider, regardless of which inventory approach you use, is taking charge of your supply chain from the beginning and making sure your actions are most appropriate to your situation.

Ask yourself:

• In light of current crises and with inflation in mind, are you thinking about whether JIT or JIC is the right approach to these issues and risks?
• Are you not only anticipating risks but also mitigating them as they develop, whether they’re internally or externally generated?
• At the same time, are you paying attention to each product’s lifecycle, with a clear focus on potential end-of-life issues, ensuring that they won’t cost you time, money, or customers?

These are complicated times. But the solutions don’t have to be complicated. Learn more about Dynamic’s Supply Chain Management Solutions and get a copy of the company’s proprietary Supply Chain Risk ScoringSM process.