The Current State of Supply Chains
We recently chatted with Bernie Henderson, Director of Strategic Sourcing at Protolabs, about the difficulties of maintaining supply chains, what's causing those issues, and ways to avoid them.
1. The past few years have been fraught with supply chain disruptions. We’ve had COVID-19, massive political upheaval, and most recently, the war in Ukraine. Which of these has most stressed supply chains nationally, and why?
And hey – let’s not forget weather and cargo ships running into the ground! I never would have imagined some of these happening, let alone happening one right after the other. It’s really hard for me to quantify which disruption has stressed the supply chain the most. I would say the biggest stress is that we never fully recovered from each event, and they are now overlapping with each other. Almost like a domino effect that started with the COVID-19 shutdowns.
2. Where is the greatest supply chain risk for companies—where are the vulnerabilities?
Almost every industry’s supply chain has been affected because they likely have global suppliers at some point in the supply chain. However, the greatest risks are for companies with a reliance on international suppliers. The more global the supply chain, the longer the total lead times and the longer recovery. A more regional supply chain will have shorter total lead times and shorter recovery.
3. Let’s move forward to today: What is the current state of supply chains for manufacturing? Are you still finding issues sourcing materials as happened in 2021?
It really depends on the industry, but overall things have been slowly improving for manufacturers. Unfortunately, as each new disruption transpired, the overall recovery has been delayed. At Protolabs, we are doing significantly better with our raw materials, however we are still not back to where we were at before all this started in 2020. We have increased our safety stocks although lead times are still longer than before. We will continue to take actions to proactively secure supply until we are certain of a full recovery.
4. We recently blogged about the frequency of black swan events. From your perspective, are supply chain disruptions becoming more frequent?
The more supply chains rely on global sources, the more frequent the disruptions will be. This makes it even more important for supply chain organizations to invest in risk management activities, including:
- dual sources of supplies
- inventory/safety stocks
- a mix of regional and global suppliers
5. So, are you suggesting that companies should relegate global sources to secondary status and should work domestically almost exclusively?
From a Protolabs point of view, absolutely! But seriously, taking advantage of on-demand or digital manufacturing should be part of a solid supply chain strategy. Organizations need to rethink their traditional supply chain approach of stockpiling inventory and functioning with long lead times from suppliers throughout the world because that strategy just isn’t working. I say this all the time, Sourcing is responsible for getting the right part at the right time at the right price. This is a balancing act of buying quality parts, delivered on-time, and for the best total cost. If you are waiting for parts from a global source because they are cheaper, that’s not a stable supply chain. Organizations need to turn back to regional suppliers to help mitigate the risk of global disruptions. Manufacturing closer to the point of consumption is more feasible now with digital manufacturing.
6. The automobile and technology sectors seem to have been especially hard hit recently. What issues have there been that are particular to those industries?
The automobile and technology sectors are some of largest industries that rely on global suppliers, particularly with electronics out of China. When borders were closed due to COVID, this stopped production and transportation of components and assemblies needed by these industries. Because lead times to transport parts overseas are so long, it takes weeks and months to ramp back up and get the supply chain filled again.
Then, just when we thought recovery was in sight after the pandemic shutdowns, more disruptions followed that continued to elongate the recovery. Remember Texas’ February 2021 snowstorm? How about the Evergreen cargo ship stuck in the Suez Canal in March 2021? And can you believe that another Evergreen cargo ship got stuck again this year, just one year later? All of these issues have a ripple effect on our supply chain somehow or somewhere.
7. How has all this affected the cost of producing products?
The disruptions add to the total cost of producing parts. Downtime is waste, pure and simple. When there is not enough supply and manufacturers wait for parts to come in, you have huge potential for inefficiency and waste. Which all leads me back to my point of why it’s important to have a supply chain built around getting the right part at the right time at the right price.
8. At the time of this blog post, COVID seems to be waning somewhat. What are some of the things that you anticipate will affect supply chains in 2022 and beyond, and will any of these prove severe?
Yes, COVID is waning, but there are continued concerns about its variants. Other areas of concern are labor shortages, inflation, impacts of climate change, more government unrest, logistic issues…I’m sure I could go on. They could all prove severe, especially if we go into a recession, which appears to be a real possibility. It all affects the supply chain.
9. Why are some companies hesitant to rebalance their supply chains, given all the recent evidence that suggests it’s the only way to survive in today’s active economic state?
It comes down to material cost. The benefit of global sourcing is lower piece-part cost, which supports overall gross margin. However, considering the events during the past two years, companies need to examine their total cost of downtime and the impact to lost revenue.
10. What can companies do now to protect themselves from supply chain inconsistencies?
Companies should implement and execute supply chain risk management plans. Essentially this is a strategy to minimize disruptions in the event of an unforeseen disruption. To truly be protected, organizations should have multiple sources of supply—preferably more local—to shorten lead times. For organizations with larger volumes, these sources of supply should be a mix of regional and global suppliers. The plan should be built around how to ensure their manufacturing operations maintain supply in the event of any disruption.
Bernie Henderson is the Director of Strategic Sourcing at Protolabs. She has more than 20 years of supply chain management experience across several industries. Henderson holds a Master of Business Administration degree from Bethel University in St. Paul, Minnesota.