Commentary: 5 supply chain myths show the complexity of the problem
By Rob Handfield / Special for the Washington Post
The shelves are empty. Online orders take much longer to arrive. The media warn of a Christmas without gifts. The supply chain has probably affected you in one way or another, with the shock of expensive or missing products likely shaking your world and causing a slight panic. But there are several important myths circulating about the supply crisis and its causes.
Myth # 1: Autonomous trucks would solve the driver shortage.
Autonomous trucks “would improve supply chain efficiency by increasing the speed and reliability of deliveries and alleviating the shortage of truck drivers, which contributes to delays at ports and throughout the supply chain “, argued a Barrons essay last month. “Driverless trucks can’t get there soon enough,” Axios proclaimed in November.
But we are a long way from automation to solve our problems. The technology just doesn’t meet safety standards, especially in cities where roads, wind, and speed limits change, and pedestrians don’t always obey traffic signs and crosswalks. Drivers must navigate the landscape and react quickly, with instinctive decisions based on broad observations. The machines aren’t there yet, as Duke engineering professor Missy Cummings recently told me, hired last month as a special advisor to the National Highway Traffic Safety Administration.
A more realistic approach to the driver shortage is to improve the efficiency with which we deploy the trucks. The queues are deadly, as evidenced by the Port of Los Angeles, where footage of towed trucks looks like a Black Friday frenzy outside a store with a guy working at the cash register. Between waiting to enter the port, waiting in line to pick up the container and waiting to leave, the ordeal can take up to eight hours for each driver; that’s why most trucking companies avoid ports. Self-employed drivers receive a fixed fee per pickup, so they lose money sitting in those lines.
Myth # 2: Moving supply chains to the United States from China is easy.
A recent Associated Press article reported that manufacturers wanted to be able to bring their supply chains from China to the United States. “I’m willing to make smaller margins if that means less anxiety,” said one game maker. A February report from the Heartland Forward think tank said 70% of U.S. companies believe they are likely to relocate manufacturing in the coming years.
But that would be much more difficult than it seems. “Low-cost country sourcing” is when a company sends most of its manufacturing to countries such as China, India, and other Southeast Asian countries. This has been a common practice for the past 40 years; and now we see the consequence. Once you contract out a certain part or product, it’s difficult to bring it back to the United States.
The semiconductor industry illustrates this reality. It was one of four supply chains studied in President Biden’s 100-day risk and policy review, released as part of an executive order in February. In response to the findings, Biden approved the strategic commitment; for example, in addition to the CHIPS for America Act, it has secured $ 75 billion in direct private sector investment and has pledged to work with other countries to facilitate the flow of information between all parties. Both efforts are a promising start. But as with any structural change in policy, the results will not show up for a few years.
Myth # 3: Supply chain shortages are temporary and will disappear in 2022.
At the Federal Reserve’s annual meeting in Jackson Hole, Wyo, in August, Chairman Jerome Powell noted that he and the central bank’s Federal Open Market Committee believed the recent spike in inflation was temporary and linked to what he called “supply bottlenecks”. Commerce Secretary Gina Raimondo also said this month that the problems were ‘temporary’, although she acknowledged that it would take ‘a little while’ to resolve them.
But there are few signs that supply chain issues will go away anytime soon. Companies working in everything from tech (Hewlett-Packard) to cars (Ford) to clothing (Under Armor) to consumer goods (Clorox) told stock analysts this month that they expected shortages persist until at least the third quarter of 2022. The pandemic has only exacerbated the problem of persistent supply chain shortages. The factories in China are now overflowing with orders and some are in arrears of several months. Closures in less vaccinated countries like Vietnam could also hamper the flow of clothing and other products from companies like Nike that rely on assembly lines there. There has been an exodus of factory workers who have returned to their home villages from the southern industrial belt of Vietnam, the epicenter of the country’s worst coronavirus outbreak. Millions more are set to follow, as month-long mobility restrictions that confined workers to cramped housing recently eased. And delivery delays are not expected to return to pre-pandemic levels for two years; even after the current Christmas rush is over.
Myth # 4: 24/7 port operations or switching to east coast ports is key.
President Biden said last month that the 24-hour operation of West Coast ports has “the potential to be a game-changer” in solving the supply chain problem. Florida Gov. Ron DeSantis (right) also suggested last month that he would just “cut the red tape” so that cargo ships that cannot enter California ports can come to his state. square.
But our largest ports have already expanded to 24/7 operations. (Which raises further questions about driver compensation, another key driver of the shortage.) Some shippers moved their cargo to the east coast early on, with mixed success. But then the secret was revealed and the ports in the east are now experiencing the same traffic jams as those on the west coast.
Additionally, shipping to the east coast is expensive as it adds weeks to transit times from Asia. Unlike the ports of Los Angeles and Long Beach, the smaller ports on the East Coast do not have the warehouse space to handle large volume jumps, nor do they have a constant supply of dockworkers and truckers to facilitate the process.
Myth # 5: Just-in-time delivery is the problem.
The Guardian says the current backlog shows it is “time to move on” just-in-time supply chains. The New York Times reported over the summer that “Just In Time is late”.
But the concept of just-in-time delivery is still very strong. Developed by Taiichi Ohno, an engineer at Toyota in the 1950s, the philosophy asks suppliers to deliver components to the production line just when they are needed; the idea is to reduce the amount of inventory in the supply chain and put working capital into production rather than building up surpluses. In order for this to work, however, it was necessary to use suppliers located near the automotive manufacturing sites. Japanese innovators in just-in-time (or “lean”) manufacturing such as Toyota and Honda often use suppliers within five miles of their facilities, with deliveries made several times a day to the line. production. In today’s global supply chains, lead times for getting parts or products from suppliers are typically six to eight weeks at best. It stretches for months and months with bottlenecks at ports and shortages of drivers to pick up the goods.
Much of today’s mess has been caused by the use of extremely fragile – and extremely long – supply lines. In many industries, before the pandemic, there was no regular communication with suppliers, deliveries were perhaps once a month, inventory levels in warehouses were huge, and cargo damage caused by rush deliveries often resulted in products being returned to suppliers. Ohno would have shuddered at the thought that his ideas were being applied in this way.
Rob Handfield is Bank of America University Distinguished Professor of Supply Chain Management at North Carolina State University and Director of the Supply Chain Resource Cooperative.