Supply Chain: Disruption as Usual
Times are urgent, disruptions are unpredictable, but waiting isn’t the answer. We are now in a new normal, so how do supply chain leaders combat short-term and long-term supply chain crises?
First, let us say: the crisis isn’t going anywhere. You’ll see as you read below there is absolute consensus among experts and analysts that supply chain disruptions will continue. There is no maybe, and inaction is not an option.
The latest advice from both McKinsey and Gartner provide clear directives that leaders in supply chain management should listen to. Read on to learn what those are, and how to chart a path that clears the way out of chaos and into stability and strength.
Need an expert eye on your situation right away? Don’t wait to solve a problem, because another one could be right around the corner. This is true of many of our clients, and why Trax is currently offering FREE Rapid Assessments.
Our highly qualified supply chain experts will provide a quickfire session that illuminates your biggest areas of need, and creates some quick tactics for course correction, damage control, and future growth.
McKinsey on Supply Chain Disruption
McKinsey & Company is a leading entity in analysis in numerous sectors. In mid-March 2022, a team of researchers at McKinsey published an article on “Navigating the current disruption in containerized logistics.” It speaks broadly to current issues within the supply chain, and provides informed predictions for the future.
Here are the highlights:
- Average container schedule delays have increased 2x globally, and 6x in the far east and North America.
- Demand waned in North America through early 2020 but recovered in 2020 and even saw a 20% increase in year on year productivity between 2019 and 2021. Comparatively, global import volumes grew 3%.
- Chinese exports diminished significantly in early 2020, and while demand has rebounded, supply recovery has been sporadic, typified by limited container units, which has driven up rates.
- Vessel capacity in the far east and North America saw a 31% increase between January ‘20 and December ‘21, illustrating equipment capacity and vessels being diverted to that region for trade.
- Even with growth in some regions, a research effort between eeSea, McKinsey, and DeepBlue shows as many as 20% of ocean carriers with transpacific capacity were idle between January ‘20 and December ‘21.
Some of the more relevant dynamics causing delays included congestion in the U.S. West Coast, with slowdowns at the ports in Los Angeles and Long Beach responsible for widespread impacts. The March 2021 Suez Canal blockage, May 2021 Yantian closure, the March 2022 Yantian closure, and August 2021 Ningbo closure escalated an already challenged situation.
Gartner just released a webinar about how the Russian invasion of the Ukraine is impacting the supply chain. Gridlock in that region is just another form of major disruption with worldwide consequences.
This is not just historical disruption: it has happened and continues to happen, and leaders are being urged to take immediate action.
In December 2021, as much as 16% of global container ship sailing capacity was non-existent, and ocean freight rates climbed high worldwide in all major trade lanes. This meant that shippers were, and many still are, paying premium rates for capacity, especially for the shipment of high value goods.
The question for everyone is: when will this situation normalize? Despite concerted efforts to return to “business as usual,” disruption remains.
McKinsey analysts have identified two drivers which could hold the key to renewed strength in supply chain:
- Container demand drivers — Demand surges are connected to consumer spend, which is part of the reason North America’s supply chain has continued to register gains. As the economy recovers from the COVID-19 pandemic, this trend may continue and spur even more spend and demand, at least in developed western countries.
- Containerized logistics capacity drivers — Capacity is affected by labor, equipment, and ocean capacity. The spike in rates most shippers are experiencing is based on a lack of effective capacity. As hinterland logistics capacity and ports recover, congestion may diminish, and the 2020 Q3 surge normalizes. Better transportation management across trucking, railways, equipment, and even labor could be a key to resiliency and recovery.
Ideally, the supply chain imbalance, if not resolved, is at least remediated. Even so, dynamics like chronic congestion, demand variabilities, external shocks, and capacity and rate fluctuations may persist. This is what we at Trax are calling “supply chain disruption as usual.” The new normal may not look like the old normal, and it’s essential that leaders in the supply chain are armed with the right tools to endure these ongoing disruptions.
Gartner on Supply Chain Disruption
A second body of work that is providing insights into supply chain disruption is Gartner’s latest eBook on the 4 Priorities of the Future Supply Chain. The book provides “4 innovations to build a disruption-tough supply chain.”
Authors explain that “[T]here will always be disruptions, whether from natural disasters, resource shortages, global trade conflicts or other inevitable yet unpredictable events. All signs point to a widespread embrace by CSCOs of the need for foundational reinvention to achieve a critical level of agility and resilience.”
1,000 leaders took part in a 2021 Gartner Future of Supply Chain Survey, and experts there have identified these four organizational priorities to safeguard against the impacts of disruption:
- Commercial growth from the supply chain — The survey records that 42% of CSCOs are pressured to maintain current profitability and margins as well as achieving new targets for speed, innovation, and sustainability. In a future state, customer-centricity will be prioritized in the supply chain, with meeting (and exceeding) customer expectations and maximal timeliness as a high priority. This is expected to optimize cost, improve service metrics, and support revenue growth.
- Authentic fulfillment of ESG commitments — Environmental sustainability in the supply chain, as well as social sustainability, have become KPIs that 67% of supply chain leaders are accountable for. In its future state, the supply chain will see environmental and social sustainability efforts that apply to the entire product lifecycle.
- Real-time supply chain execution — 43% of supply chain leaders state as their highest priority continuous digitization and technology integration. Ongoing adaptation will be needed, and future supply chain organizations will have mature data capabilities that include real time data flows.
This is so important: The only way to create real time execution is through the connected visibility of physical movement of goods and the financial impact of those movements to enable real time decision making about cost versus performance tradeoffs (total cost to serve).
- Flexible work experiences — Promoting “equity and engagement” is the last improvement point for future-minded supply chain companies. This encompasses a variety of tasks, including the integration of more automated technologies to alleviate burden on employees, and providing flexibility in when, where, and how employees work.
Embracing change is essential to spurring innovation that will protect against volatility and ongoing disruption.
Trax: Gaining Visibility and Control During Supply Chain Disruption
There is no way to insulate against every market dynamic, especially on a global scale. There is, however, a way to gain enhanced visibility to inform strategic decision making. If supply chain disruption is now to be expected — and both McKinsey and Gartner analysts say it will be through 2024 — it’s essential to be armed with good data and exercise control over what you can.
That’s where Trax comes in. Our Transportation Spend Management tools equip leaders in the supply chain to see more so they can do better. The products and services we provide infuse awareness, streamline operations, maximize efficiencies, and even preserve revenues. Do you know your total cost to serve and what factors most influence that number? You should; and with Trax TSM, you can.
Will you be upended by disruption, or will you adapt? Our team is ready to talk. In this season of supply chain disruption, we are offering a free 15 minute session with a supply chain expert from the Trax team. Contact us to schedule yours.
Trax is the global leader in Transportation Spend Management solutions. We partner with the most global and complex brands to drive meaningful optimizations and savings through industry-leading technology solutions and world-class advisory services. With the largest global footprint spanning North America, Latin America, Asia, and Europe, we enable our clients to have greater control over their transportation performance and spend. Our focus is on your success.