By now most people have heard about the global supply chain issues that are seeing shortages of many consumer goods and the skyrocketing of prices in many sectors.
What is unseen to the vast majority is the practical impacts and stresses these supply issues are causing business owners. So what exactly has happened to cause these issues?
Put simply, at the start of the COVID-19 pandemic 3 major events occurred, all of which have had compounding impacts today.
- The illness saw the shut down of major factories in countries such as China, Vietnam, Korea and Germany. This saw shortage of manufactured supply.
- Many factories also scaled back production of goods in anticipation of a global drop in demand (when in fact the opposite occurred).
- Most of the bulk container shipping and freight left Asian countries and became “stranded” at countries with very low export levels thereby creating a shortage of available transport. This was compounded by global shipping companies cutting their schedules.
As we now know global demand for a majority of goods skyrocketed which has now placed unprecedented pressure on the manufacturing and supply system in various areas.
- There is still a global shortage of many components that go into manufacture of other goods.
- The transport system has become clogged due to the lack of available shipping containers (refer above).
- Shipping containers are stuck in port unable to move due to lack of loading and unloading space in global ports. The average wait time has been nearly 2 weeks (there are stories when ships have been anchored offshore for 10 weeks or more waiting to unload).
- Ongoing COVID issues have led to staff shortages.
So what have been some of the outcomes, particularly for business.
- Huge supply shortages. Lead times for inventory has massively increased leading to delays and out of stock items. As an example, if you are a transport company wanting a new truck you can expect a 12 month or longer wait time. Out of stocks also mean loss of potential sales for retailers. You can’t sell what you don’t have.
- Some freight prices have increased over 500%. In Australia most importers have seen freight increases around 50%. In some cases this can be passed on in pricing but in other cases this increase in cost has to be absorbed leading to erosion of margin and profitability.
- For exporters, just getting goods out of Australia is problematic. Despite having made sales getting good shipped has been a major issue. This leads to missed deadlines and cancellation of orders and loss of cashflow. This can be compounded in sectors such as agriculture where timeliness of shipping helps ensure quality.
If you are in business how can you manage some of these issues.
- Detailed planning. Whilst many would argue planning in the current environment is a futile exercise, the exact opposite is the truth. Business owners have to have detailed plans to counter these issues as best as possible including.
- Detailed risk analysis of supply chain issues and establish a risk management plan.
- Detailed inventory forecasts based on different scenarios.
- Profit and loss and cash flow budgets based on margin and cost changes plus scenarios around delivery or dispatch delays.
- Staffing and workforce flexibility around “lumpy” supply.
- Storage and infrastructure planning to handle additional stock holdings.
- If you are an importer look to build up inventory items where possible.
- Diversify your supply options where possible.
- Look to secure effective storage for stock holdings.
- Protect your cash reserves.
- Secure funding sources. In times of uncertain supply, it is critical that you understand your cash flow impacts and secure the necessary funding sources as early as possible.
- Communicate communicate communicate. This is with customers, suppliers, banks and every other key stakeholder in the process.