The last two years of operating in a pandemic offered many lessons. One of the most important was recognizing the vulnerabilities of the global supply chain. A model designed to minimize costs by maximizing efficiencies around lean inventories and international labor gave way to materials delays, total stockouts, and uncontrollable threats.
Life moving past the pandemic has many in the supply chain breathing a sigh of relief as things get “back to normal.” But recent events show us “normal” might not have been working all that well. Plus, the next big challenge is likely right around the corner. McKinsey research indicates companies can expect supply chain disruptions lasting more than a month every 3.7 years.
Managing today’s supply chain is a balancing act—or rather a rebalancing act—as companies rethink strategies for mitigating risk as part of a “new normal.”
A single-source supply approach streamlined materials management, aided price negotiations, and improved quality historically. Now relying on a single source for critical components or raw materials represents one of the biggest supply chain threats. Even companies using multiple suppliers often fall victim to concentrating them within a country. This opens the door to major disruptions like financial crises, geopolitics, natural disasters, and health emergencies.
In response, roughly 80% of surveyed shippers report they are rebalancing production locations. For many companies, this includes reshoring to the United States with regional and domestic manufacturing networks. Others are better pairing local and global sourcing to gain the advantages of international pricing while improving closeness to the customer. Nearshoring also is becoming increasingly popular as companies maintain a global footprint but bring their supply chain closer to home.
Reducing supply chain vulnerabilities also requires increasing redundancies. Having back-up suppliers in diverse locations pre-vetted for production and distribution is critical. Some companies are even working with their suppliers to find them alternative sources of materials. Creating redundancies throughout the supply chain used to be perceived as “too expensive.” Now the strategy is too costly to operate without.
In Penske’s 2021 25th Annual Third-Party Logistics Study, 42% of shippers agreed that supply chains had become too lean. One year later, the number jumped to 62%. The evidence supports the findings from electronics factory shutdowns, automotive assembly line parts delays, and empty store shelves.
The instinctual reaction for solving the problem is increasing inventories, which have been operating at record lows. Restoring stocks to pre-pandemic levels will help. But overcorrecting is a capital-intensive strategy. The move often fails anyway because consumer preferences are changing faster than ever.
The key is maintaining leanness without compromising resilience.
Companies can rebalance their approach to inventory by better leveraging transportation options—from using alternative ports, to improving pallet and container density, and strategically varying modes based on time-sensitivity.
That inventory speed comes in many forms. As with production, companies are rebalancing inventory locations toward a more regional and domestic footprint within the global supply chain. Another approach is focusing on hyper-localization using micro-fulfillment centers to keep stock as close to the customer as possible. Analyzing SKUs to find what is in demand and when also allows companies to proactively position inventory into the right markets at the right time using flexible warehouse capacity.
Rebalancing inventory does not necessarily mean more units on hand. The strategy requires using a multi-faceted approach not judged primarily on how lean it is, but by how effectively it operates given ever-evolving challenges.
Rebalancing the supply chain also requires reassessing priorities. Solely designing around low cost now comes with higher risk. Yet there are still ways to maximize efficiencies and effectiveness on a budget.
Investing in technology enhances visibility into the supply chain. Companies cannot manage what they cannot see.
Introducing automation into production and distribution facilities improves productivity and creates better responsiveness when problems occur. The capital investment often reduces costs over time.
Allocating time to run scenarios in advance also allows companies to develop alternative plans. Remember, the data shows major disruptions are no longer an if, but rather a when.
But companies often find the best investment for managing the rebalancing act is partnering with a 3PL like Langham Logistics.
Langham conducts 360-degree assessments of client supply chains looking for risk reductions, cost improvements, and service enhancements. Our proprietary business intelligence technology and transportation management system improves supply chain visibility allowing companies to spot opportunities and make better decisions. Langham’s strategically located warehouses integrate seamlessly with global and domestic distribution networks needing to reoptimize.
The last two years have left many companies feeling unsteady. Langham Logistics brings strategy, strength, and stability to even the most complex supply chains. Contact us to experience our work in action.