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Here’s Why Supply Chains Are So Broken—And Aren’t Really Getting Better

Forbes: If you’re in business, any of these may sound familiar at this point. You can’t get large plastic cups for iced drinks. Building supplies. Pet food. Car parts. Cars. And lord knows what else. The supply chain blues.

GMH Communities, which builds and operates student housing and hears that if it needs appliances for 400 units, that could take six to eight months. “It’s a nightmare,” GMH president Gary Holloway says of the shortages. “It was everything from appliances to steel to more.”

“Companies are saying, ‘My product is being stopped, not because of some critical thing, but because of a plastic holding device for a custom box on an automated line I have,’” says Ethan Karp, CEO and president of MAGNET, a manufacturing advocacy and growth network in northeast Ohio. “I designed my line to work with this piece. It will take time to find another vendor, to get the molds made.”

Even as things supposedly are easing up, the improvement is in the symptoms. Three classes of causes remain to rise up at the next disruptive trigger, because Covid-19 was a trigger, not an absolute cause.

Poorly executed supply chain management

Many have pointed to back-ups at jammed ports, a lack of truck drivers, labor shortages, Covid-19, and the saying that “it’s a lot easier to go from 60 to 0 miles per hour than from 0 to 60.” All of which may be true.

But there’s a bigger cloud over supply chains and logistics. For decades, such strategies as lean and just-in-time supply chains have been popular, reducing the amount of on-hand and in-transit inventory through greater efficiency in production and distribution, freeing up money to invest in other areas of a business.

At the same time, experts in logistics have warned that there are good and bad ways of using these tools. Too many corporations take the latter approach.

“Just in time inventory works really, really well if you believe [your] Tier-1, Tier-2 suppliers are ironclad,” says Aaron Alpeter, founder and principal of supply chain and operations firm Izba Consulting. To ensure that they are working as they should, a business needs to monitor their supply chain. “You don’t have to wait until something bad happens. You should be partnering with your suppliers, knowing what’s going on in their business.”

“The reality is that many global supply chains were totally unprepared for Covid-19,” says Anthony Nuzio, CEO and founder of ICC Logistics.” For years now, industry leaders have been warning companies to be prepared for supply chain disruptions.”

A corporation also needs critical information from outside the chain, including checking available financial data on suppliers to ensure they are stable enterprises. That involves but checking public records if available to see whether they are solvent and have sufficient liquidity. Information on port delays and freight carriers—including trucks, ships, planes, and trains—can alert a business to slowdowns.

A company should also monitor reports of potential disruptions, whether global contagion, natural disasters, or geopolitical upheaval, and how they might affect production of products, components, or materials that a company needs to manufacturer or to sell.

The urgent point is to develop the ability to anticipate when and where disruptions will happen and take appropriate steps to keep a business running.

Unfortunately, gathering information and keeping ahead of problems is exactly not what happens. Preparation requires information, and most companies don’t have visibility into their full supply chains. The result is doing business on a bet that everything will be fine.

“The inventory policy and how they’re implemented—that’s the first fatal flaw in the system,” Alpeter says. For years, experts of all sorts told executives that if they held less inventory, it made the balance sheet look stronger. They likely said more, but at too many companies, that’s all that stuck. “If you’re optimizing to minimize risk, you likely get a different outcome than if you’re optimizing for a balance sheet.” The balance sheet choice is fine until the supply chain isn’t because there hasn’t been the monitoring and adjustments to reduce the impact of a disruption, as the pandemic has shown >>>