Deal with Today, Grow for Tomorrow
13 June 2022
Global logistics is tricky. Several pieces must navigate an intricate system to ship goods around the globe. Every day, we rely on fleets of transport, logistic real estate companies, service providers, and vendors to work seamlessly. Small complications lead to big delays. And nowadays, this already challenging task is even further hampered by the residual fallout of a once-in-a-generation pandemic, an unprecedented components shortage, and massive lead times. So, how can we deal with these problems today while reaping the benefits of our decisions tomorrow?
COVID not only highlighted the vulnerability of the global logistics system, it exacerbated it with stricter regulations, manpower shortages, and huge disruptions in manufacturing. Almost overnight, companies needed huge amounts of parts and hardware. This led to sharp upticks in demand that heightened expectations, which in turn had a knock-on effect all along the supply chain. Though this created a components shortage and, subsequently, longer lead times that affect industries across the board, it’s particularly impacting electronics supplies. This stemmed from chip factory closures and the incapacity of original equipment manufacturers (OEMs) to produce due to COVID. Moreover, when they were producing, they were forced to prioritize parts for the healthcare industry. On top of that, port congestion and transport bottlenecks have drastically set things back. The result of this perfect storm is a components shortage with no end in sight and lead times that are at an astounding 28 to 52 weeks. Among the many tech industries heavily affected by this shortage is telecom communications, which is unable to expand 4-G networks due to shortages of crucial equipment such as routers and base stations. But they are far from the only ones suffering.
Sounds pretty grim, right? Yes and no. It’s true that these challenges are here for the foreseeable future. And it’s true that there’s nothing we can do to stop them from happening. But we can take steps to mitigate risks, ameliorate high costs, and ensure that we take care of our clients.
First, think proactively. Navigating the clash of supply chains and the upgraded need for technological hardware requires an accurate inventory forecast. More and more, customers are leaning towards entering into a vendor managed inventory (VMI) relationship with their supplier. This relationship entails the vendors taking control of their sellers’ inventory management. So essentially the vendor is completely responsible for the inventory. The benefits of this are many. In the first place, this cooperation leads to an improved alignment of inventory and customer demand. As the vendor is in charge of replenishment, they can far better adjust and coordinate inventory needs. Moreover, your decisions and management are based on much more accurate and up-to-date data. This is not only more efficient for managing client inventory, it leads to superior readiness and delivery capabilities. Perhaps most importantly, since VMI is a cooperation-based relationship, this leads to a better vendor-client relationship.
Second, think broadly. Our client companies have demands and those demands need to be met. And getting that done is more likely if they partner with a company that not only has expertise in global supply chain, but that invests in a broader source network. For our clients, multiple suppliers around the world means mitigating risks stemming from suppliers concentrated to one region. For us, being vendor agnostic means exploiting a broader selection of modes, trade lanes, and inland strategies to come at delivery from different points of attack. It means using all and every viable option to fulfill our customers’ needs. Having a variety of options means getting products to the right place at the right time. Think outside the box. For example, taking advantage of less than container (LCL) shipments can help you find space for limited product while saving costs. Companies want to cooperate with a partner who has a plethora of solutions to any supply chain quandary that comes along. By having relationships with a range of vendors, manufacturers, and product sources then you become that partner. If you don’t, then you won’t.
Third, think locally. Having local partners can provide rapid access and help you navigate local challenges such as finding the fastest routes and avoiding the most congested times. They simplify processes with regards to customs clearance, taxes, and postal regulations. It’s this sort of partner that can provide far easier access across borders. Moreover, local warehousing, forward stocking, and investing in rapid stock are an efficient system to fulfill your clients’ needs no matter their location. Buying stock before you need it and storing it for when you need it provides better chances of fulfilling client demand. Store parts and products at small warehouses strategically close to clients, whether they are in hubs or more remote locales. That way it’s not only ready for when a client needs it, but also nearby. This silver bullet addresses supply needs, slashes your lead times, and can often mean next or even same day delivery. Further, including localized warehousing reduces dependence on a more centralized system. This potentially strengthens your business’ partnerships while cutting costs and transportation times.
Though predictions suggested we’d be out of the shortage crisis by the second half of 2022, this is likely not coming to fruition. And with China under lockdown and Ukraine at war it will probably only get worse. As recently as March (2022), China reported a 5.1% reduction in IC production. On the other hand, Ukraine is a massive producer of semiconductor-grade neon, an essential in the process of making chips. In other words, the shortages and lead time issues plaguing OEMs and the IT industry are not going away. Dealing with these challenges will take rethinking old systems, thinking ahead to new ways of doing things, and reworking our position within a system that has many moving parts. However, we might see this as an opportunity to better our business practices with regards to global logistics. We have the potential to forecast more accurately, develop better and more varied partnerships, and be far better prepared to provide for customers. In the end, we have the opportunity to not only deal with these challenges, but to grow with them.