Sadly, we are quickly approaching the completion of two full years of the being in a pandemic. It was just over a year ago when I wrote my first blog post discussing if supply chain would learn from the pandemic and better practice contingency planning. Throughout this pandemic, there have been glimmers of hope for the betterment of contingency planning in the supply chain world. Yet, it seems that most businesses still have not fully grappled with the idea of implementing supply chain contingency plans and avoiding the “knee-jerk” reactions surrounding catastrophes.
A huge part of supply chain is maintaining an appropriate level of inventory, which translates for most companies in operating with as minimal inventory as possible while still achieving a target service level. However, the world has changed, and maybe for good. Supply chains need to rethink the idea about what an appropriate inventory level is in order to meet their stated service levels. Companies are most likely building in additional lead times for their orders and recalculating safety stocks and stocking strategies based on that. It begs the question, though—is that enough? Sure, our suppliers are stating a lead time of 45 days, but there are port delays, labor shortages, and a transportation crisis we have not seen before. How can your safety stock calculation account for all these intangibles? One strategy could be to view the actual delivery time your suppliers are able to meet, but even then, consumer demand alongside already thin inventories might still maintain the current shortages.
Service levels seem to be taking on an even more important role for customers. Yes, price matters. Yes, relationships matter, but companies need to have products available for their customers and shortages are creating distrust in both the business-to-business (B2B) and business-to-consumer world (B2C). B2B suppliers are prioritizing their most critical customers and ensuring that they get the bulk of their volume while the smaller customers tend to suffer. The customers unable to obtain materials or products are looking elsewhere for others able to fulfill their needs opening the opportunity for other suppliers to get into business with strategic customers.
The same can be said in the B2C world. Customers are going to stores and cannot find their favorites brands. This is forcing them to try an alternative or competitor product. Suddenly, brand loyalty is not as important as it was before and is leading to a more open customer-base. Companies are having to weigh whether low inventory is outweighing the loss of business. Recently, we have seen Toyota take over GM as the top seller of vehicles in the United States. Some of their ability to take this top spot was due to their supply of semiconductors. This is coming from a company that invented the idea of just-in-time inventory. They saw an industry problem and decided to accumulate inventory to safeguard their ability to produce rather than be reactionary to the situation.
Companies everywhere are citing supply chain troubles hitting their bottom line as the recent quarter had ended. Both Toyota and GM have stated their quarterly numbers were lower than expected due to supply chain issues. Boston Beer Co. (maker of Samuel Adams) and Constellation Brands (maker of Pacifico, Corona, & Robert Mondavi) have both stated disappointment in their quarterly figures citing supply chain troubles in their bottle supply. How and when will companies tackle supply chain contingency plans? It may take years for some companies to recover from the current shortages, but will customers still be looking for their business when they finally are able to stock products?