Stuck in the middle of a canal

One of the biggest supply chain stories of the past week has been the saga of the Ever Given, the ginormous container ship blocking the Suez Canal. Bloomberg has a nice podcast interviewing the head of a global shipping line about the crisis (Baystate Business: Laurence Odfjell, Mar 30).

There are two interesting part to this. First, he gets into some of the physics that likely contributed to how the ship got stuck. Second, he talks about the challenges his firm faced — particularly with ships on the way to the canal and whether those should be sent to a different route.

The Wall Street Journal also has had some interesting reporting — emphasizing the knock on effects of the delays (Suez Canal Traffic Resumes Slowly as Some Ships Weigh Anchor, Others Wait, Mar 30):

Logistics experts were forecasting port congestion in Asia and Europe as some of these diverted vessels arrive at ports around the same time as the delayed vessels now making their way slowly through the canal. That is on top of regularly scheduled traffic.

“This backup risks leading to a concentration of volume,” said Luigi Bruzzone, an analyst for the port of Genoa, one of Italy’s busiest. “What we were expecting to come throughout April will now be concentrated in the last two weeks of the month.”

In short, while the grounding of the Ever Given has been a very visible event, its impact is going to be last for months and likely much less visible to those not in the industry.

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What’s a Control Tower (in 2min) in digital operations and supply chains (in 3min)

Happy new year to all! I have just published a 3min video that explains what digital operations is, how to implement it, and what the benefits are. This video then directly connects to my next video on digital Control Towers for your operational network and supply chain. Please add any suggestions or questions in the comment section on YouTube.

Thanks for watching & subscribing to help the channel get to Youtube Partner status (> 1000 subscribers and > 4000 hrs watched).

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What’s next for just-in-time?

The Financial Times has an interesting set of articles on how the ongoing pandemic impacts supply chains (Trade Secrets: Supply Chain Disruption). These hit on things like toilet paper, firms pivoting to new markets or switching from a business-to-business focus to serving retail customers. The one I want to highlight deals with how any fragility exposed by the pandemic will impact supply chain strategy going forward (Be wary of scapegoating ‘just-in-time’ supply chains, May 27) that links to a post that Gady wrote a few weeks ago.

Here is the gist of the article:

A lot of intellectual momentum is building behind the idea that the Covid-19 pandemic has revealed the foolishness of corporate executives in extending their supply chains without properly assessing the risks. Companies have been thinking of “just-in-time” when they need to be thinking about “just-in-case”. …

The reality is complex, and — a crucial point — differs with each industry. Some, like the car industry, have such sophisticated supply chains involving thousands of different components, some manufactured to extremely low tolerance, that diversifying into different suppliers is totally impractical through effort and cost. Sure, you will have a more resilient supply chain, but you’ll also go bust before the next pandemic arrives.

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Shipping from stores in a pandemic

We have had a number of posts over the years on retailers filling ecommerce from brick-and-mortar stores (see, for example, here and here). From the perspective of inventory management, treating what’s in the stores and whatever is in a fulfillment center as one giant pool of inventory makes a lot of sense. In theory, there is no reason to turn down a web order just because the fulfillment center is stocked out if the needed item is sitting at some mall. The reality, of course, is more complex since picking and packing at a store is going to be more costly than doing the same work at a dedicated facility. Additionally, there is the question of how taking items to fulfill online orders impacts in-store customer behavior.

Now add to those concerns how shipping items from random locations impacts the logistics provider who has to collect and schlepp those packages. Apparently, FedEx has had enough and is working to rein in retailers shipping from stores (FedEx, Strained by Coronavirus, Caps How Much Retailers Can Ship From Stores, Wall Street Journal, May 14).

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Where is the [fill in the blank]?

The supply disruptions affecting some seemingly basic products have been fairly sustained. While it is now easier than it was at the start of the lockdown to fine, say, toilet paper and tissues. Other items continue to be hard to come by. Articles are regularly appearing offering one explanation or another for why [fill in the blank] still isn’t on the shelf.

Take, for example, disinfectant wipes. These are basically on every list of how to be safe during the pandemic. That led to a burst of buying in February and March and the likes of Clorox and Lysol are still trying to catch up. One consideration here is that in contrast to items like toilet paper wipes were not in every pantry before the crisis hit and they also aren’t that easy to make (Why Clorox Wipes Are Still So Hard to Find, Wall Street Journal, May 7).

Disinfectant wipes can’t be made as readily as hand sanitizer. The process combines fabric wipes with the cleaning solution, and the Environmental Protection Agency has in place criteria for cleaners to be considered effective for use against SARS-CoV-2, the virus that causes Covid-19.

And unlike toilet paper, which is ubiquitous in homes and businesses, only about half of American households stocked disinfectant wipes before the pandemic, Clorox’s Mr. Jacobsen said. That led to an even more dramatic demand spike as current wipe users consumed a much higher volume while new buyers sought them out.

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How the air cargo market has adjusted to the pandemic

The ongoing pandemic has created a host of problems for a host of industries and supply chains. Logistics providers have had to scramble as demand for some goods has dried up while demand for other items has surged. On top of that, passenger airlines — which play a large role in international air freight — have been hard hit. How is all that playing out? Check out this video:

 

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Shifting risk in supply chains

It’s been a long time since I’ve written anything on supply chain contracts but a story in the Wall Street Journal caught my eye (Retailers Canceling Apparel Orders Amid Coronavirus Torments Clothes Makers, May 5). Basically it outlines how a shift in the standard contract between retailers and their Asian suppliers has come back to really bite the suppliers.

For reference, think of a retailer or brand in the west who outsources production either directly with a factory or through an agent. The factory incurs the upfront cost of sourcing materials and hiring labor in anticipation of being paid once the goods are delivered. But what happens if the market shifts between the order’s placement and delivery? Like, say, there is a pandemic and no one in North America is buying new jeans.

That’s where the shift in contracting comes in.

Letters of credit, a once-common backstop guaranteeing payment through banks, have faded away in the past decade. Under that payment system, the buyer’s bank committed to pay the supplier once the goods were shipped, ensuring factories were paid without delay or last-minute haggling.

Even in cases of force majeure—when retailers say they can’t pay owing to circumstances beyond their control—banks would generally still be obligated to pay suppliers if the goods had shipped, said Sonja Chapman, a professor of international trade at the Fashion Institute of Technology and longtime apparel-industry executive.

Retailers have moved away from letters of credit, opting instead for an open-account system—essentially an honor system—where factories trust retailers to pay after shipment. Factory owners in Bangladesh said they accepted the shift because they worried that if they didn’t go along, a competitor from India or Latin America would. They also are reluctant to speak up or take legal action because they don’t want to alienate buyers.

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What happens when each level of a supply chain self-optimizes or where are all the N95 masks?

One of the recurring themes of the current crisis is the persistent lack of protective medical equipment — both masks and gowns. Part of the reason is that there has been unprecedented spike in demand. As the graph below shows, the US lacks the capacity to keep up with current demand.

But “not enough capacity” can’t really be the whole explanation for the current shortage. Capacity is a limit on what can be done in one period. As long as capacity exceeded demand in some periods (i.e., back in the before times), providers could have built up inventory. Inventory might not have met the pandemic demand spike but it could have at least tempered the shortfall.

So why did the supply chain for masks fail?

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The great manufacturing pivot of 2020

One of my favorite podcasts is 99% Invisible, which covers various issues in design. This week’s episode is largely about the history of masks and managing pandemics (Masking for a Friend, April 21). That part is interesting in its own right. But the tail end of the show (starting around the 28:45 point) is on what the host terms “the great manufacturing pivot of 2020.” That is, how are are companies that have never medical equipment or other necessary supplies shifting on the fly to serve these new markets?

There are two great examples here. The first is Sound Devices, a Wisconsin manufacturer of recording equipment. They are now making face shield — which makes their product page rather trippy. The interesting discussion here is about lead times. Sound Devices is using their existing suppliers for some of the necessary components (preamps need molded plastic parts too) but that doesn’t mean that they can get the parts you want to you tomorrow. While a month and a half wait ahead of product launch may be tolerable in normal times, it can be a huge problem when the goal is to pivot in less than a week,

The second interesting example is the Industrial Sewing and Innovation Center (ISAIC), a Detroit nonprofit that aims to develop a sustainable apparel business in the US. There are two really interesting points. The first is around prioritizing values. ISAIC is now producing disposable protective gowns, which doesn’t exactly jive with having sustainable, environmental production. The second is about adjusting manufacturing processes given the need for social distancing. ISAIC wants to run a lean operation and particularly produces in cells. How do you compromise an efficient layout with the need to space out?

You can find out a little bit more about the role ISAIC is playing in coordinating the work of multiple Detroit firms here.

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UPS and using contracts to share the risk of building new capacity

Imagine you are service provider and you line up a bunch of extra capacity because your customers tell you that they are expecting they are really going to need you. What should you do when your customers turn out not to have that much business for you?

If you are UPS, you don’t have to imagine. This is a problem they face at the holidays. Retailers want to make sure that there will be space for their shipments on the truck, so they have an incentive to talk up their potential. Of course, no one can tell the future so sometimes their big talk will prove to be just hot air. UPS apparently is thinking of making the initial forecasts from retailer a little more binding (UPS Tries a New Twist on Surge Pricing, May 1, Wall Street Journal).

With the retail world in upheaval, UPS is asking retailers to help pay when the extra space and workers aren’t put to use—or even when the boxes don’t match the sizes that retailers promised earlier in the year.

“If there are variations to the plan, let’s see what we can do, but we should be compensated accordingly,” said UPS Chief Executive David Abney in an interview. He said the charge isn’t meant to be punitive but one element of a broader negotiation with retailers over pricing during peak times.

UPS is apparently also thinking of imposing charges at times beyond the holiday — say for flowers at Valentine’s or when a new product release causes volumes to spike.

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