Are We There Yet? The Long Supply Chain Reset

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By Patrick Bower, Sr Director of Supply Chain at Aceto

 

 

Patrick Bower, Supply Chain Management, S&OP, Inventory, Specialty Chemicals, Sales and Operations Planning

 

 

Patrick is a recognized demand planning and S&OP expert and a self-professed “S&OP geek.” He has served in a variety of supply chain roles at VP and Senior Director level. He was recognized four times by Supply and Demand Chain Executive magazine as a “Pro to Know". He is also published as an expert in several supply chain journals.

 

Pat joined Aceto in January 2021 as Senior Director of Supply Chain. We’re leveraging Pat’s expertise to bring our customers more value not only through thought leadership, but also in the top service they enjoy from Aceto.

 

“Black swan event” and “perfect storm” are just two of the descriptors heard in conversations about the impact of COVID on global supply chains.

They are, however, certainly appropriate. Supply chains – globally, and across industries – are still struggling to recover two years on. Here are just a few recent datapoints:

 

  • Days waiting to unload at the top two U.S. seaports (handling 40% of all U.S.-bound containers) has remained stretched – from one day pre-COVID to three weeks.
  • We have a container shortage, with about 3 million containers stranded in the U.S.
  • The U.S. is 80,000 truckers short, according to one estimate. This is a result of increased cargo capacity on ships – which doesn’t match trucking capacity.
  • In an Aceto LinkedIn poll, 40% of businesses reported having too much of the wrong inventory on hand. An additional 40% reported too little of the right inventory – meaning a whopping 80% of companies surveyed suffer from unbalanced inventory.

                                                                           

So when will our current supply chain reset end?

When can we get back to normal? It’s a common question…and it’s also a tough one to answer. In his recent article The Great (Long) Reset, Aceto’s Patrick Bower, Senior Director, Supply Chain, discussed the world’s pending return to normalcy and cautioned against over-optimism:

“The reset that everyone expected in April, and then July, has now morphed into a consensus of “Sometime in Q1 ’22. Unfortunately, as I look at pervasive backlogs throughout the global supply chain, all I can say with certainty is that the COVID reset does not seem close at hand, and I have very real doubts about prognosticating a Q1 ’22 reset. I believe that timing is extremely optimistic.”

One challenge that many prognosticators of fast recovery have largely ignored is that this isn’t simply a matter of getting more throughput at Port of Los Angeles, for example.

Patrick shared that it is difficult to foresee the Port of Los Angeles untangling itself from its many issues for at least five or six more months. But even if they were to miraculously solve their backlog, that might just end up transferring the bottleneck to the carrier network.

With all of the other current lag factors and backlogs in the supply chain, combined with pent-up demand, COVID surges, and driver shortages, our current supply chain issues are quite complex.

A more considered consensus is now emerging that Q1 2023 should see us past the bulk of our supply chain problems, with improvement and a return to normal reaching some sectors faster than others. There are a whole bunch of “buts” attached, however – from COVID’s current and emerging variants to geopolitical and trade uncertainties, to weather-related interruptions.    

 

What are Best in Class Suppliers Doing?

Last November, Patrick was featured as a panel member on a Live From ASCM Connect podcast on the great supply chain disruption (listen to the podcast here).

The panel explored what best-in-class supply chain teams are doing to manage through the COVID disruption. Patrick discussed the experience at Aceto, where the goal isn’t just to manage the current disruption, but rather to do everything possible to come out of this better. He explained that Aceto is not sitting back awaiting a return to normal but is changing who we are and how we do business, collaborating both internally and with customers to improve performance.

He referenced some of the specific steps we’ve taken, including:

 

  • Improving workflows
  • Consolidating distribution networks
  • Acquiring 6 manufacturing facilities during COVID in strategic global locations.
  • Hiring new personnel
  • Completing extensive training in CLDT (Certified in Logistics, Transportation and Distribution)

 

In his thoughts in The Great (Long) Reset article, Patrick shares that he still sees,

“an extraordinarily constrained supply chain that remains under-inventoried and bedeviled by uncertain mix issues at this time. I also see a roaring economy that will push consumer demand further upward along with significant unresolved backlogs at important pinch points in the supply chain.”

 

Metrics to Watch

Ultimately, estimating the end of the reset comes down to assessing the right mix of metrics. Here are some of the key metrics and indicators that can be reviewed to gain insight into when the industry’s COVID-impacted supply chain challenges may end. Aceto is actively examining these metrics to provide insight internally and externally.

 

North American Supply Chain and Marketplace Metrics

  • Retail Inventory to Sales
  • Container Pricing
  • Port Backlogs
  • E-Commerce as A Percentage of Retail Sales

 

Economic Indicators

  • GDP
  • Unemployment

 

Industry/Company/Consumer Indicators

  • Trade Inventory
  • Forecast Accuracy at the Mix Level
  • Consumer Inventory Bleed Down
  • Resumption of Consumption

 

Aceto Closely Monitoring Supply Chain Conditions

As a global chemical supplier, Aceto constantly monitors what is happening in the global supply chain. The parameters and metrics discussed above (as well as others) help us guide our customers and partners as they seek to secure supply. Such guidance ranges from carriers, to lead times, to country of origin, if such options are available.

 

Adapting to the New Supply Chain Normal

We tend to speak of the supply chain as a singular entity – a behemoth – but in reality, supply chains can be unique to a specific industry (or business) circumstance. 

The metrics above can help broadly inform our understanding of what’s happening, but it is important for you to test your own metrics, poll your own customers, and dig up data on your own consumer cohorts to help define what normal means for your business, and when you might expect it to return to normal.

Instead of trying to identify a quarter sometime in the future in which global supply chains will once again be ‘normal,’ it may be worthwhile to ponder what ‘normal’ might look like going forward.

A good summation of the supply chain situation in which we find ourselves comes from the ASCM podcast discussed above:

 

“Managing uncertainty and risk has always been part of the job for supply chain managers, but now we are at an inflection point. The climbing severity and frequency of supply chain disruptions is simply unprecedented.”

 

We’ve seen the fragility of our supply chains up close.

A future pandemic? Few would deny the possibility, and most people understand it’s certainly likely to happen at some point.

Worsening climate impacts? They’re already dialing up.

Increasing barriers to trade? Check.

Bottom line: ‘normal’ is undergoing a change. 

 

Companies are increasingly realizing that supply chains need to be reimagined and reconfigured to better adapt to uncertainty. We’ve reached a point where efficiency can no longer be the sole aim. ‘Lean’ and ‘JIT’ have long been effective drivers of profitability, but the companies who are successful at conquering supply chain uncertainty and gaining the long-term competitive edge will be those who adopt a more balanced, risk management approach.

What are some of the measures manufacturers are taking to steady their supply chains? In our next post, we’ll discuss dual sourcing – a key measure to improve supply chain agility and flexibility while minimizing risk. It’s a key part of decentralizing manufacturing and shortening supply chains, bringing the entirety of the product lifecycle closer to specific target markets, such as the U.S., Asia or E.U. 

You can read Patrick Bower’s article The Great (Long) Reset, or check out the ASCM supply chain disruption podcast here

How can Aceto’s global reach can help you secure your supply chains? Contact us to learn more.