SUPPLY CHAIN CRUNCH: RESILIENCY STRATEGIES OF TOP-PERFORMING COMPANIES

SUPPLY CHAIN CRUNCH: RESILIENCY STRATEGIES OF TOP-PERFORMING COMPANIES

While U.S. port congestion and worker shortages have persisted for years, the continued ripple effect of the pandemic’s global supply chain disruption, coupled with the ecommerce boom and lack of retail inventory, has exacerbated the supply chain crunch to crisis levels. Throw in skyrocketing freight costs, container shortages, and the impending International Longshoremen Workers Union contract renewal and the outlook for short-term relief is well out of reach. Indeed, results from a recent benchmark survey from Descartes Datamyne indicate the supply chain crisis will continue well into 2022—tough news for those organizations without solid mitigation strategies in place.

MAJOR CONTRIBUTOR: The stuff economy

Multiple factors are contributing to the global supply chain challenges, but increased consumer demand for “stuff” is a major trigger. The pandemic has changed the economic fundamentals of consumer buying behavior, with Americans shifting away from experience-based spending (e.g., travel, events) towards stuff-based purchases focused on durable (e.g., furniture, exercise equipment) and nondurable (e.g., clothing, groceries) goods—and this buying trend shows no signs of slowing down.

According to U.S. import data, container import volume in November 2021 continued to pummel the supply chain: 34% higher volume than November 2019 and 12% greater than November 2020. In fact, only one other month in the prior two years (October 2020) had a higher container import volume. Transportation industry operators are operating at full capacity and are not expecting a decline in shipping demand from their customers well into 2022.

With TEU volume hovering between 2.4M and 2.6M TEUs monthly for the remainder of 2021 and likely continuing through 2022, capacity will be unable to keep pace with demand. The operational consequences of the global supply chain crisis—containers stacked in Asia, high container “rolling” rates, and unprecedented wait times for vessels at U.S. West Coast ports—are not going away any time soon.

STORE SHELVES ARE LIGHT

For many retailers, stock levels are precariously low as supply chain woes continue. While manufacturing and distribution capacity declined, particularly in the Asia-Pacific region, consumer demand in the U.S. grew and retailers have been unable to replenish their shrinking inventory of finished goods. In fact, the inventory to sales ratio decreased by more than 30% since 2019, according to the U.S. Census Bureau.

Going forward, many retailers are deciding to hold more inventory as a hedge against greater supply chain uncertainty. As a result, retailers will be buying more than what they need in the short-term to build their stocks to larger acceptable levels. This strategy will continue to put more pressure on supply chains and logistics operations, even after the peak holiday season ends this year.

Like retailers, manufacturers are facing similar inventory challenges, from semiconductor chips for auto manufacturing to lithium-ion batteries for electric vehicles. In a recent fireside chat with investors, Hau Thai-Tang, the Chief Operations & Product Platform Officer at Ford Motor Co., noted that “what’s different about today versus prior years is that there’s no float or buffer in the inventory.” The pandemic-driven supply chain issues have “fundamentally changed the way we’re thinking about procurement and design,” shining a light on the shortcomings of the just-in-time inventory model for capital-intensive systems with long lead times and interdependencies on other industries, Thai-Tang said.

supply chain RESILIENCY: technology & data lead the way

Forward-thinking companies have recognized that the global supply chain crisis is more than a short-term problem, with the majority believing that bottlenecks could get worse over the next few years. So how are businesses coping with the supply chain crunch? Descartes’ benchmark survey examined the supply chain resiliency strategies of carriers, logistics providers, importers, and shippers from around the world to uncover how organizations are responding to the supply chain challenges.

The survey revealed that top-performing companies—logistics providers and importers alike—have pinpointed ways to navigate the chaos. Investment in technology is their primary strategy to keep the business moving forward in the face of ongoing and severe supply chain disruptions. Specifically, top performers favored global trade intelligence solutions to help them rapidly identify new suppliers, markets, customers, and trade lanes to optimize their existing supply chains.

The survey found that high-performing companies were investing in HTS and HS classification and landed cost calculation software to analyze the financial viability of new trade networks. It also found these companies were relying on denied party screening solutions to vet new trade chain partners, from suppliers and customers to logistics companies.

Investment in global trade data solutions enables international businesses to re-evaluate their supply chains rapidly and constantly, a process critical to minimizing delays and boosting resilience. In the current supply chain crisis, organizations that fail to adopt this strategy as best practice risk losing market share to more agile competitors.

looking ahead

The forward outlook is a good news/bad news story of economic and employment growth driving increased pressure on global supply chains. While the most recent employment numbers were shy of the Federal Reserve’s robust autumn predictions, the continued opening up of business will drive job growth and consumer spending, which will continue to exert pressure on global supply chains.

With the latest forecasts pointing to current supply chain bottlenecks persisting through 2022, companies involved in international trade must find ways to build supply chain resilience. One of the most effective strategies for retailers and other importers is to leverage global trade intelligence solutions. By expediting trade data analysis to determine the most expedient and cost-effective routes and modes of transport, global trade data solutions can help companies optimize global supply chains to build market differentiation, bolster customer satisfaction, and come out the other side of this crisis in good shape.

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