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Fleets of container ships loaded with consumer goods are sitting outside the harbors of Long Beach and Los Angeles. There is a national shortage of truck drivers to deliver these containers. Computer chips from manufacturers in Asia are in short supply, impacting the availability of new cars, toys, computers and other consumer goods.
How did we get here? When will it end? Who broke the supply chain?
I asked a number of local experts for their insights as to how we got here and the impact on Wisconsin businesses.
Pat Cronin, an international business consultant who works with many large Wisconsin manufacturers, feels that what we are experiencing is a result of two factors: the robust global economic recovery and impact of the continued COVID-19 pandemic. He states economic recoveries are rarely neat and tidy, especially when they are global in scope and consequence. Popular opinion is that the current supply chain challenges are emblematic of the downside of globalization. In reality, they are a patch of gravel on a long and hilly road to recovery and growth. The start/stop/re-start of supply chasing demand in the current recovery has knocked the send-and-receive processes of supply chain out of sync. This process will smooth out and port schedules and work rules will be sorted out.
Re-shoring of supply chains is the current discussion in the business press. Massive re-shoring is very unlikely; the management rationale for an international or global supply chain hasn’t fundamentally changed. Minimum quality/low-cost production goes to where the costs are lower. Rebalancing of a supply chain may make more management sense, however, especially if manufacturers are caught in an all-eggs-in-one-basket dilemma during this recent downturn, particularly if that basket was made in China. Global dependence on concentrated sources of key manufacturing inputs (e.g., microchips, lithium, etc.) also has management thinking about a new long-term supply vision.
Ed Panelli, the group director for the plant manager and quality peer advisory groups organized by the Paranet Group, provided his insights. His groups are composed of manufacturing companies like Magnatek, Yaskawa Electric, Charter Steel and Regal Ware.
His members have been affected, and the increase in demand has exacerbated the supply chain dilemma. They are experiencing:
- Order lead times growing five to 10 times the norm. Suppliers are raising prices with the reciprocal pass on to customers.
- Some suppliers have even stopped giving lead times on orders.
- Another factor complicating shortages is that some customers are placing orders to stockpile parts to fill their own end-user orders.
Paranet members have taken various actions to address these disruptions, such as:
- Administration personnel are being used to handle calls to vendors to get order status updates.
- Engineers are being used to design for out-of-stock parts to help source similar replacement parts in the interim.
- John Deere has taken the action of sending teams of 10 people to vendors to help on production lines to make their parts.
Steven Powers, the president of Curtis Industries, provided specific examples of the impact of the supply chain disruption on his business.
As a manufacturer of electrical components, including terminal blocks, custom moldings, EMI/RFI filters, power supplies and related components, Curtis Industries has experienced a number of hurdles related to the supply chain and transportation of raw materials used with our products. For example, a number of plastic resin manufacturers have issued “force majeure” or allocation letters for several categories of resins. These notices reference availability of essential raw materials, extreme weather events, plant outages and carrier (shipping) delays. Quoted lead times have grown from four to six weeks to, in some cases, over 30 weeks.
Curtis products are safety agency (UL,CSA,CE) approved and, as such, they are not able to use resins other than those previously tested and approved by the regulatory agency. Getting alternative resins approved involves a long process of first identifying a suitable resin that is compatible with the safety requirements as well as existing molding dies. Additionally, these molding samples are submitted to the safety agencies for compliance testing, review and approval. This entire process is expensive and can take over three months to complete. Besides resins, the availability of metals, especially brass, and components like capacitors are also experiencing price increases, extended lead times and transportation delays as many sources for these materials are located in southeast Asia.
As you can see, what is happening at the docks in California is impacting businesses in Wisconsin and ultimately the consumer.
The disruption is projected to last through the first half of 2022. Cronin feels that over time the supply chain process will smooth out and we will see things return to a new normal. n