2021 A closer look at the factors creating today’s global supply chain challenges.

There are so many aspects of this issue to address that I hardly know where to start. Not only has the virus affected workers in the U.S., but elsewhere around the world in Vietnam, the United Kingdom, and China – to name a few countries – worker populations have experienced the devasting impact of this dreaded disease. The pandemic reduced demand and the markets responded; now that the demand is coming back, the supply chain is running hard to catch up. However, there are additional problems. For various reasons, the materials that were available before simply are not there now. Materials that manufacturers took for granted would be there are suddenly in short supply. To make matters worse, many employees have re-evaluated their work lives and quit their jobs. To make matters even worse, a high percentage were long-tenured employees, which means they took intellectual capital with them. When companies don’t have the raw materials and they don’t have the people to make the products and serve their customers, they have big problems – if they can stay in business at all. Many, particularly those that have taken their employees for granted – will not survive.

Backed Up Ports

As we go to press with this Herman Trend Alert, ports around the world are reducing their back-ups. The move to encourage ports to work 24/7 was a very good one and some ports are catching up. However, they had a long way to go. One short week ago, the ports of Los Angeles and Long Beach, California, were backlogged by more than two weeks, while the port of Savannah was dealing with a delay of a modest seven days. Like many blue-collar professions, the ranks of the longshoremen have been decimated by the COVID-19 Pandemic, and the workers who were not affected by the virus are exhausted from working longer hours.

The Why: Off-shoring and More

It started years ago when many companies decided they could drive more profit by manufacturing offshore. (In some cases, these companies had the audacity to bring the new supervisors and plant managers to U.S. to be trained by the U.S. folks they were replacing!) What many companies discovered was that they may have been saving some money, but they ended up with major headaches in the form of language barriers, different definitions of quality and significantly increased costs of transportation. When the pandemic hit, the U.S. discovered just how fragile its supply chain really is. It was a rude awakening. And now, making matters much worse, many workers simply do not want to take the jobs that employers are offering.

My Forecast: More Homeshoring and Lakeshoring

The COVID-19 pandemic highlighted the need for the U.S. to manufacture medical supplies, pharmaceuticals, ventilators and more domestically. My forecast is that we will see more manufacturers bringing their production back to the U.S. (homeshoring), looking specifically for markets with higher unemployment and a lower cost-of-living (lakeshoring). Not only will the U.S. economy benefit from this return, but the companies will discover there is less stress and more profit when they eliminate language issues and other challenges.

Shortages of Some Major Items and More

From Chicken Tenders to Medical Equipment to Glass Bottles for liquor, the supply chain in the US is struggling to keep up. Here's a brief discussion of each category.

One of the US' Favorite Foods: Chicken Tenders. US consumers love chicken tenders---especially when they're battered and fried. Not only has the price per pound risen by nine percent, but fast-food chains are discovering they can't get them at all. A&W, the root beer chain, canceled a chicken tender marketing campaign this year because its supplier could not deliver the additional poultry to its restaurants. For restaurants, the costs for delivery, plastic, and packaging have all gone up. One positive effect of the Pandemic is that Tyson, one of the largest chicken producers in the world, has raised wages and is launching new childcare and medical facilities onsite for its workers. Tyson also intends to automate its less attractive and more dangerous jobs for which it has struggled to find employees.

Spirits-Not So Bright: Beer, wine, and liquor. Don't expect the same selection of alcohol at this year's holiday parties. Some beer makers are hunting the world for carbon dioxide, generally used to carbonate brews. Brew masters are also searching for metal parts for machinery, aluminum for cans, and even for malt and hops. Some have even taken to hoarding raw materials they know they will need. With glass bottles in short supply, liquor and wine producers are also struggling to replenish their supplies of receptacles. Glass manufacturers in Italy and France ran into Covid-related export issues. Roman Roth, winemaker at Wölffer Estate Vineyard on Long Island, New York, said he has to order bottles 10 months in advance to be assured of having what he needs when he need it.

Medical Supplies and Equipment---A Major Challenge. From crutches to wheelchairs to walkers, and even C-pap machines, medical supply stores are struggling to get the equipment they need. The rubber for the tires for wheelchairs comes from Vietnam, particularly hard hit by low vaccination rates. Due to the high demand for coronavirus patients, oxygen tanks are still in short supply. To help with these shortages, hospitals in some states are asking former patients to donate their slightly used wheelchairs and crutches. And there are also scarcities of IVs, suction canisters, and even bedpans. My husband has been waiting for a call from a medical supply store about a C-pap machines for months. Making matters worse are the increasing costs of shipping. Medical distributors report that the costs for moving cargo containers have skyrocketed and, in some cases, the shippers are holding the containers hostage until the distributors agree to pay exorbitant fees.

And I haven't touched upon computer chips or gasoline or toys.

Who is Hit the Worst?

It's not the Walmarts or the Targets that are hit badly by these supply chain issues. The Big-Box retailers can afford to pay the increased costs. It is the small retailers, the mom-and-pop stores cannot absorb the additional shipping costs. At the same time, they cannot have bare shelves at holiday time; they will not be able to stay in business; they need that revenue.

The Situation is Slowly Improving

The situation is already improving. Biden's Supply Chain Disruptions Task Force is helping free up the backlogs. Walmart's inventories are up by 11 percent over last year. The imposition of a fee for containers that stayed onsite in the ports of Los Angeles and Long Beach for more than 9 days helped a lot. Additionally, the administration instituted paid apprenticeship programs for truckdrivers. My best guess is that most of these current issues will be resolved by the end of the first quarter of 2022---not including computer chips. However, there are longer-term problems to address to create greater capacity in the goods-movement chain and those will take more time. Some solutions include training more truckdrivers and using alternate distribution channels including rail.

What's Needed: Innovation

In the words of my colleague Marshall Goldsmith: "What got us her won't get us there." We need new ideas, new solutions; and the best sources for those answers are the front-line employees. Typically, the staff doing the work know more about how the business works and where creativity and innovation can make a difference than the top executives.