Try buying a toilet bowl at your local store and don’t be surprised if they tell you that it’s a three month lead time – and no, that’s not a misprint. As we have been observing in this blog, the alarm bells are going off at most of our clients. All you must do is look at the headlines but be cautious and don’t be fooled by them. These are not some temporary blips caused by sudden wind shifts in Egypt – The fault, dear Brutus lies not in our stars but ourselves. The problems are all Predictable and Inevitable and they are of our own making. JIT gone too far is now coming back to bite us. Too much focus on lowest cost has resulted in structural weaknesses that will only go away if we are willing to educate our Stakeholders that we need to rethink our Supply Chain/Category Management strategies and build resiliency and responsiveness back into them and yes, it will mean higher costs and yes, customers are willing to pay for that (because they are in the same boat). If not, then we should be ready to live with constant shortages and fighting fires for at least the immediate future if not longer. Here are some current factoids.
The auto industry faces shortages of rubber because of snarled shipping lines; global supply already running short following stockpiling by China and a devastating leaf disease; rubber prices are on the rise and some U.S. auto suppliers are rushing to secure shipments before the market gets squeezed further. If that were not enough, chip shortages have shut down many auto plants in the U.S. costing BILLIONS (61 by one projection) in lost revenues. Michelin is using air freight shipments directly from Asia to keep their production going. Forget JIT says the CPO at Carlstar Group: “I’ve got everybody alerted that I’ll take materials as fast as they can get it to me”. China stockpiled rubber when prices were low and now has a competitive advantage – JIT kept us from doing that. Copper is projected to be short by 10 MILLION tons in less than 10 years.
But back to the chip shortage for a minute. It’s not just the auto industry but just about every other industry that you can think of – TVs, phones, computers, game consoles – you name, it’s got a chip in it these days. Apple with a $58bn purchase power in chips had to delay the iPhone 12 by months. Sony and Microsoft have reduced their sales targets substantially. Samsung is delaying its new smartphone launch (ironically, it’s also the second largest chip producer). Pursuing traditional supply chain/category management strategies, the auto industry cut its orders substantially when demand fell last year and are now struggling to get shipments from their suppliers.
Global politics now encompasses supply chain disruptions as part of the geopolitical power struggles. Shipping delays caused by a stretched logistical system, shortages of containers, the Suez debacle etc. all are adding fuel to the fire. Supply chains that were designed to be lean cannot absorb these types of challenges. Given the economic recovery that countries are looking for and the money they are pouring into their economies will only lead to more demand pressures with very little supply relief. Just ask builders and remodelers who are lining up at hardware stores for the trucks to arrive so that can grab stuff off of them as soon as they pull into the parking lot at 4 a.m. (factual story).
This will require a fundamental rethinking of our mental models of supply chain designs and developing totally brand-new Category Management strategies. Educating our Stakeholders is the key initial step and hopefully you have made sure that your people have the Strategic Competencies necessary to fulfill that role. And my wife chose this time to remodel our bathroom – still waiting on the toilet bowl before the Scheisse hits the fan 😊!!!