Companies should ready for a six-month disruption to global supply chains and prepare for changes in sourcing strategies moving forward as a result of the coronavirus pandemic, supply chain experts warn.
Victoria Kickham, an editor at large for Supply Chain Quarterly, started her career as a newspaper reporter in the Boston area before moving into B2B journalism. She has covered manufacturing, distribution and supply chain issues for a variety of publications in the industrial and electronics sectors, and now writes about everything from forklift batteries to omnichannel business trends for Supply Chain Quarterly's sister publication, DC Velocity.
Companies should prepare for a six-month disruption in global supply chains as the novel coronavirus pandemic increases in intensity—and they should also brace for changes in global sourcing in the long term, according to business experts tracking the situation.
Silicon Valley-based supply chain technology firm Resilinc said this week it expects global supply chains to be disrupted for six months due to inventory shortages, lead time delays, and logistics and transportation concerns related to the virus. The firm had previously projected a three-month disruption, but revised its outlook due to the increasing intensity of infections and deaths from COVID-19, the name of the respiratory illness that began in China and has now spread around the world. The total number of cases worldwide has topped 200,000 and there have been more than 8,000 deaths, according to the most recent statistics from Johns Hopkins University.
Bindiya Vakil, Resilinc founder and CEO, said the majority of the supply chain across Asia is being disrupted and that the company is tracking growing concerns in European supply chains due to the U.S. travel ban and increased cases of COVID-19 there. Resilinc is tracking the situation globally, monitoring data from more than 90,000 companies as well as public domains to map scenarios and the potential impact to businesses and consumers around the world.
Vakil said Resilinc and others had hoped the virus would reach a peak in mid-March and begin to show signs of slowing, but she said this week the situation has "gone in the opposite direction." She said all industries are being affected, but pointed to high-tech and automotive industries as some of the most at risk, due to declining demand as well as supply disruptions out of Asia. Growing demand at grocery stores and pharmacies has been a boon to those businesses, but the increases are temporary, she said, and can lead to supply disruptions as shelves await restocking.
"No industry is left unscathed at this point," Vakil said, adding that Resilinc is tracking longer term concerns about meeting growing demand for pharmaceuticals and medical supplies in the United States. "We are very concerned about this market, and how to [fulfill] increasing demand ... people are going to [get] sick and need treatment—antibiotics, different medications, and supplies as well."
Vakil echoes broader concerns on that topic. President Trump said today that he is invoking the Defense Production Act as part of the administration's efforts to tackle the coronavirus pandemic. The act ensures the private sector can ramp-up manufacturing and distribution of emergency medical supplies and equipment. The move gives the government the authority to increase production of masks, ventilators, and respirators, as well as expand hospital capacity to combat the coronavirus.
Resilinc is monitoring about 60,000 supplier sites of all kinds across North America to determine how many might be disrupted in the coming months. Vakil added that supply chain operations in Asia are a bell-weather for monitoring the health of the global supply chain because more than 50% of all global manufacturing output comes from Asian countries such as China, South Korea, Japan, Taiwan, Singapore, Indonesia, and India.
Logistics steps up, prepares for the future
Although challenges persist and the long-term outlook is uncertain, logistics companies are stepping up to keep supply lines flowing here at home. Transportation and logistics firm XPO Logistics said this week it's stepping in to handle an overflow of need for trucking and working with customers to develop better visibility into long-term demand.
"We're helping our customers who sell the essential items consumers need. Our brokerage team is handling the extra overflow to complement the customer's own fleet. We're helping find the extra capacity they can't handle. For instance, last week a lot of supermarkets ran out of toilet paper. That's not happening as much this week because we're able to pick up those loads," said Drew Wilkerson, president of the company's North American Transportation business. "One of the other things we're seeing is more business from customers we haven't worked with recently. We're helping our long-term customers a lot, but we're also hearing from customers we haven't heard from in a while, and helping them handle all that extra capacity."
Wilkerson also said XPO is fielding inquiries for other services down the road.
"Customers are also starting to ask about intermodal," he said. "Big box retailers are starting to plan further out and know that as the truckload business tightens, we could see a pick-up in Intermodal."
Vikal adds that supply chain companies should also be preparing to meet longer term challenges, first and foremost by developing supply chain risk programs and alternate sources of supply. Although everyone is being disrupted, she explains, not everyone is being equally disrupted.
"There are some [companies] that have been thoughtful—in how they manage supply, manage contracts, et cetera. All of these capabilities are there when you have a good supply chain risk program [in place]," she said. "There are these types of companies that have put in place good practices, that will definitely do better."
Elements of a good supply chain risk program include scenario planning, communicating with suppliers and subcontractors to ensure readiness, training employees on scenarios and next steps, and determining weak links in their supply chains.
Vikal also said she expects the current situation to spur changes in sourcing strategies and manufacturing capabilities.
"We will see the supply chain change for sure," as a result of the COVID-19 pandemic," she said, noting that changes will vary by industry.
"This has shown us that, in general, we need to have a back-up plan," she added, noting that that could mean having a plan with the same supplier but in a different geography, having better visibility across your supply chain, or just implementing better control over inventory. "Definitely, things will change. Procurement will have to take this opportunity to rethink how they've sourced in the past."
J.B. Hunt President and CEO Shelley Simpson answers a question from the audience at the Tuesday afternoon keynote session at CSCMP's EDGE Conference. CSCMP President and CEO Mark Baxa listens attentively to her response.
Most of the time when CEOs present at an industry conference, they like to talk about their companies’ success stories. Not J.B. Hunt’s Shelley Simpson. Speaking today at the Council of Supply Chain Management Professionals’ (CSCMP) annual EDGE Conference, the trucking company’s president and CEO led with a story about a time that the company lost a major customer.
According to Simpson, the company had a customer of their dedicated contract business in 2001 that was consistently making late shipments with no lead time. “We were working like crazy to try to satisfy them, and lost their business,” Simpson said.
When the team at J.B. Hunt later met with the customer’s chief supply chain officer, they related all they had been doing for the company. “We told him that we were literally sitting our drivers and our trucks just for you, just to cover your shipments,” Simpson said. “And he said to us, ‘You never shared everything you were doing for us.’”
Out of that experience, came J.B. Hunt’s Customer Value Delivery framework. This framework, according to Simpson, provides a roadmap for creating value and anticipating customer needs.
Framework for Excellence
J.B. Hunt created the above framework to help them formulate better relationships with customers.
The framework consists of five steps:
Understand customer needs: It all starts, according to Simpson, with building a strong relationship with the customer and then using the information gained from those discussions to build a custom plan for the customer.
Deliver expectations: This step involves delivering on the promises made in that custom plan.
Measure results: J.B. Hunt believes that they are not done when freight makes it to the destination. They also need to measure how successful they were versus what the customer expected from them.
Communicate performance: This step involves a two-way exchange, where J.B. Hunt walks the customer through their performance and gets verbal agreement on whether or not they have met the customer’s needs.
Anticipate new value: Here J.B. Hunt looks at what they are hearing from their customer today and then uses that information to derive what the customer may be looking for in the future.
Simpson said the most important part of the process is the fourth step, communicating performance (perhaps reflecting the piece that went wrong in that initial failed customer relationship).
Not only can this framework be used to drive excellence in a company, but it can also be adapted as a model for driving personal excellence, Simpson said. Instead of understanding the customer needs, the process starts with understanding yourself: what your strengths and interests are. This understanding helps drive a personal development plan and personal goals for the year, which can be measured and assessed. For example, each year, Simpson gives herself a letter grade on each of her personal goals and communicates her assessment back to her boss. She has also found it helpful to anticipate where opportunities lie beyond what she is personally doing.
Confronted with the closed ports, most companies can either route their imports to standard East Coast destinations and wait for the strike to clear, or else re-route those containers to West Coast sites, incurring a three week delay for extra sailing time plus another week required to truck those goods back east, Ron said in an interview at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
However, Uber Freight says its latest platform updates offer a series of mitigation options, including alternative routings, pre-booked allocation and volume during peak season, and providing daily visibility reports on shipments impacted by routings via U.S. east and gulf coast ports. And Ron said the company can also leverage its pool of some 2.3 million truck drivers who have downloaded its smartphone app, targeting them with freight hauling opportunities in the affected regions by pricing those loads “appropriately” through its surge-pricing model.
“If this [strike] continues a month, we will see severe disruptions,” Ron said. “So we can offer them alternatives. We say, if one door is closed, we can open another door? But even with that, there are no magic solutions.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.