The search for a lean supply chain continues
• The price of containers is a drag on supply chain logistics.
• Some manufacturers have been unable to meet increased demand from distributors because their suppliers cannot source the necessary raw materials.
• Some distributors believe supply chain issues will start to be resolved next year, while others say it will take longer, according to responses to MDM’s 2022 Trends survey.
There have been two dominant trends for distributors in 2021; supply chain constraints and labor shortages. While labor shortages have intensified since the start of the pandemic, there were labor shortages in some areas, such as truck drivers, even before COVID-19.
Supply chain issues have been at the forefront this year, highlighted by a lateral container ship in the Suez Canal. To find out what’s on the minds of distributors for the remainder of this year and next, MDM’s 2022 Trends online survey took the pulse of more than 100 distributors, manufacturers and service providers. The prospects for improving supply chains in the short term are bleak at best.
“I don’t think they’ll really start to recover until probably the end of the first quarter, maybe the start of the second quarter of 2022, and that’s if things work out in the world with COVID,” said Andy Mitchell, Vice President of Mallory. sourcing and supplier relations. “Between spikes in product demand, shipping issues, then COVID shutdowns in the factory world, this has just caused a colossal disaster in the supply chain. I’ve probably spent 50% of my time trying to solve supply chain issues that a year and a half ago I didn’t. “
Mike Marks, managing partner of Indian River Consulting Group, cites research he has seen that indicates supply chain issues will start to be resolved in late 2022 or early 2023. Aside from the shipping container prices, Marks says supply chain issues can be traced. back to secondary and third-party suppliers who have difficulty sourcing raw materials to send to manufacturers, who in turn have difficulty meeting demand from their distributor customers.
Marks says a number of manufacturers and suppliers have declared a “force majeure event,” which, at its most basic level, means unforeseeable circumstances prevent manufacturers and suppliers from fulfilling their contracts.
“I’ve never seen so many force majeure events,” Marks says. “We have suppliers who cannot deliver because their suppliers have declared a force majeure event. I am on the board of directors of a manufacturing company and our income is limited because we cannot get the chemicals to make the foam for refrigeration. Our supplier declared a case of force majeure. We just had discussions with him [the manufacturer] because we are a big customer. He said, “Look, my suppliers have declared force majeure to me. I’m not going to let go of mine (force majeure) until they let go of mine, and it’s far. People cannot get the basic materials they need to make things.
Alternative coping strategies
Penn Hoyt, vice president of operations and marketing at LMT Imports, said his company, which primarily makes rustic pine furniture for customers in the Southwest, saw some of its manufacturers shut down last year due to COVID-19 restrictions. On top of that, large Chinese companies bought the South American lumber that Mexican furniture makers relied on in the past. According to Hoyt, sellers take money from anyone who respects their prices.
“We still have orders in addition to back orders,” Hoyt said. “We were there [in Mexico] a few months ago in one of our factories. We walked through the area where they usually store the raw materials. It was only a third full, where in the past this place was always full.
“It’s a full-time job just to try and salvage wood. We are reading things that are supposed to get a little better and the prices will go down. We hope, but we will see.
Hoyt says some of the bigger furniture companies, such as Ashley HomeStore, which normally make their furniture in China and Vietnam, have bought factories in Mexico, so they don’t have to face the uncertainty. and the high cost of using shipping containers.
“A couple went over there with wads of cash and started buying factories and saying, ‘OK, you’re not going to do this for someone else anymore,’ Hoyt says.
With raw material shortages, Michael Butera, director of digital marketing for Steiner Electric, says it’s crucial for distributors to provide their best estimates for lead times and come up with possible substitutes for their end customers. “It’s also important for us to say: ‘Here are your replacements and here is what you can do today compared to what you would have to expect tomorrow or next week,” says Butera. “In some cases it may take a few months for certain products to become available.”
The riddle of the container
While the mantra for real estate is “location, location, location”, for supply chains it can just as easily be “containers, containers, containers”. While the cost of a container from a country like China was previously $ 4,000 to $ 5,000 per container, it now easily doubles those amounts.
“It all went off and every container is in the wrong place,” Marks says.
As an example of a supply chain disruption, Marks says nails are typically used to fill the bottom two feet of a container because an entire container of nails would be too heavy and too expensive to ship. “It used to be economical to ship nails from China this way,” says Marks. “Right now, the price of a container is between $ 11.00 and $ 20,000, depending on the intensity of your desire. And there is not enough gross margin in the whole container to cover the difference of the shipping cost. Thus, all the nails made are in containers, which are not used by anyone else. I could give you 20 more examples.
Several large international distributors have solved the container problem by purchasing them directly or leasing them exclusively for long periods, but other distributors need to be more creative.
“We are experiencing supply chain issues with our domestic suppliers and also with our own direct global supply of over 20 containers per month,” said Mitchell of Mallory. “There really isn’t any technology to help us do better. It’s knowledge of the supply chain, knowing who to call and the angles you can use to move goods better and faster.
Mitchell speaks with contacts here and abroad to find bottlenecks and potential solutions. For example, he recently had a 40ft container of disposable clothing from Wuhan, China, to San Francisco.
“My international freight broker calculated a cost of $ 20,000,” he says. “Before COVID, it was a $ 2,000 to $ 2,500 route. I told them it won’t work. I shared my concerns with the owner of the plant in Wuhan, and they found out that they could have a container come to Los Angeles for $ 9,000 and then I’ll add another $ 2,100 to truck it to San Francisco. Every day we look at things and make those kinds of decisions. “
Relief in sight?
There is hope on the horizon for improvements in retailer supply chains. With the increase in demand in 2021, there has been a lot of growth – and money gravitates around growth, according to Marks. If there is a recession, supply chains could catch up as the pendulum swings towards lower costs.
“What happens is if the demand for containers drops and supply chains can catch up,” says Marks. “Everyone just needs a bit of a break to get things back together. In the short term, everything collapses. What ends up happening is that the containers will be moved and the price of shipping and containers will eventually return to where they are supposed to be.
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