Friday

December 3rd, 2021

Life In These United States

Five myths about the supply chain

Rob Handfield

By Rob Handfield The Washington Post

Published November 25, 2021

Five myths about the supply chain
Shelves are empty. Online orders take much longer to arrive. The media are warning of a Christmas devoid of presents. The supply chain has probably affected you firsthand in some way, the shock of expensive or absent products likely throwing your world out of whack and bringing mild panic. But there are several prominent myths circulating about the supply crunch and its causes.

Myth No. 1: Self-driving trucks would solve the driver shortage. Autonomous trucks "would improve supply-chain efficiency by increasing the speed and reliability of deliveries and by mitigating the shortage of truck drivers, which contributes to delays at ports and throughout the supply chain," a Barrons essay argued last month. "Driverless trucks can't arrive soon enough," Axios proclaimed in November.

But we're a very long way off from automation fixing our problems. The technology simply doesn't meet safety standards, especially in cities where roads, wind and speed limits change, and pedestrians don't always adhere to walk signs and crosswalks. Drivers must survey the landscape and react on a dime, with instinctive decisions based on broad observations. Machines aren't there yet, as Duke engineering professor Missy Cummings, hired last month as a special adviser to the National Highway Traffic Safety Administration, told me recently.

A more realistic approach to the driver shortage is to improve the efficiency with which we deploy trucks. The lines are killer, as evidenced by the Los Angeles port, where the images of backed up trucks resemble a Black Friday frenzy outside a store with one guy working the register. Between the wait to get in the port, the line to pick up the container and a wait to leave, the ordeal can take each driver up to eight hours - which is why most trucking companies are steering clear of ports. Independent drivers are paid a fixed fee per pickup, so they lose money sitting in these lines.

Myth No. 2: Moving supply chains to the U.S. from China is easy. A recent Associated Press story reported on manufacturers wishing they could bring their supply chains back from China to the United States. "I'm willing to make smaller margins if it means less anxiety," one game-maker said. A February report from the think tank Heartland Forward said 70 percent of U.S. firms think they'll likely reshore manufacturing in coming years.

But this would be much harder than it sounds. "Low-cost country sourcing" is when a corporation sends most of its manufacturing to places such as China, India and other countries in southeast Asia. This has been a common practice over the past 40 years - and now we're seeing the consequence. Once you've outsourced a certain part or product, it's difficult to bring it back to the United States.

The semiconductor industry illustrates this reality. That was one of the four supply chains studied in President JoeBiden's 100-day risk and policy review, issued as part of an executive order in February. In response to the findings, Biden endorsed strategic engagement - for example, in addition to the CHIPS for America Act, he secured $75 billion in direct investments from the private sector and pledged to work with other countries in facilitating a flow of information between all parties. Both endeavors are a promising start. But as with any structural shift in policy, the results won't manifest for a few years.

Myth No. 3: Supply chain shortages are temporary and will disappear in 2022. At the annual meeting of the Federal Reserve in Jackson Hole in August, Chair Jerome Powell noted that he and the central bank's Federal Open Market Committee believed the recent spike in inflation is temporary and tied to what he called "supply bottlenecks." Commerce Secretary Gina Raimondo also said this month that the problems are "temporary" though she acknowledged it would take "a little bit of time" to resolve.

But there's little sign that supply chain glitches will go away soon. Companies working in everything from tech (Hewlett-Packard) to cars (Ford) to clothing (Under Armour) to consumer goods (Clorox) have told stock market analysts this month that they expect shortages to persist until at least the third quarter of 2022. The pandemic just exacerbated the problem of ongoing supply chain shortages. Factories in China are now flush with orders, and some have backlogs of several months. Shutdowns in less widely vaccinated countries such as Vietnam could also hinder the flow of apparel and other products from companies such as Nike that rely on assembly lines there.

There has been an exodus of factory employees who have gone back to their home villages from Vietnam's southern industrial belt, the epicenter of the nation's worst coronavirus outbreak. Millions more are poised to follow, as months-long mobility restrictions that confined workers to cramped housing recently eased. And shipping delays aren't forecast to return to pre-pandemic levels for up to two years - even once the current Christmas rush is over.

Myth No. 4: Operating ports 24/7 or shifting to East Coast ports is the key.

President Biden said last month that running West Coast ports around-the-clock had "the potential to be a game changer" in resolving the supply chain crunch. Florida Gov. Ron DeSantis (R) also suggested last month that he'd just "cut the red tape" so cargo ships that can't get into California ports could come to his state, instead.

But our biggest ports have already expanded to 24/7 operations. (Which raises further questions on driver pay, another key contributor to the shortage.) Some shippers did shift cargo to the East Coast in the early days, to mild success. But then the secret got out, and eastern ports are now seeing the same logjams as West Coast ones.

What's more, shipping to the East Coast is costly, as it adds weeks to transit times from Asia. Unlike Los Angeles and Long Beach ports, smaller ports on the East Coast don't have the warehouse space to handle big jumps in volume, nor do they have a steady supply of dock workers and truckers to facilitate the process.

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Myth No. 5: 'Just-in-time' delivery is the problem. The Guardian says the current backlogs show it's "time to move on" from just-in-time supply chains. The New York Times reported over the summer that "Just In Time is running late."

But the concept of just-in-time delivery is still very sound. Developed by Taiichi Ohno, an engineer at Toyota in the 1950s, the philosophy calls for suppliers to deliver components to the production line just as they're needed - the idea is to reduce the amount of inventory sitting in the supply chain and put working capital into production rather than building up surpluses.

Making it work, though, required using suppliers located near automotive manufacturing sites. Japanese innovators in just-in-time (or "lean") manufacturing such as Toyota and Honda often use suppliers located within five miles of their facilities, with deliveries made several times each day to the production line. In global supply chains today, lead times to get parts or products from suppliers is typically six to eight weeks at the best of times. That's stretched out to months and months with bottlenecks at ports and shortages of drivers to pick up cargo.

Much of today's mess was caused by relying on extremely fragile - and extremely long - supply lines. In many industries, before the pandemic, there was no regular communication with suppliers, deliveries occurred maybe once a month, inventory levels in warehouses were massive and damage in freight caused by rush deliveries often resulted in having to ship products back to suppliers.

Ohno would have shuddered at the thought that his ideas were being applied in this manner.

(COMMENT, BELOW)

Rob Handfield is the Bank of America university distinguished professor of supply chain management at North Carolina State University and director of the Supply Chain Resource Cooperative.

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