Self-inflicted Supply Chain Wounds
There are 2 unwritten rules for Supply Chain Management which the real supply chain experts do not wish to be reminded of, and even more than that, do not want to be confronted with:
1. Supply Chains only get global attention when they fail.
2. By the time individuals without knowledge and experience with Supply Chains have opinions about Supply Chains something has gone really wrong, and it takes too long to resolve it.
Now that supply chain issues are all over the news and there is hardly an analyst who hasn’t added their views to the current global supply chain crises, both unwritten rules have come into effect in full force. Supply chains are failing, and it is taking way to long to resolve the issues.
Looking at the mess from the outside, the easy and most often drawn conclusion is of course that the supply chains failed. Technology, planning, scheduling, drivers, the usual suspects. That is nothing more and nothing less than describing the symptoms and not what the real causes are. Plural causes because there are many.
The volatile political stage in which finger pointing and aggressive stances towards illusive opponents go hand in hand, has deteriorated the already fragile international collaborations and coalitions we would need badly right now to navigate through what appears to be a perfect storm. That means that what could be best described as international teamwork to solve this crisis is simply not in the cards, at least not for now.
There is however a driver behind the current avalanche of supply chain mishaps that goes far beyond the damages caused by nationalism and populism at the international political stages. For decades now, the corporations that feed the supply chains on all thinkable and unthinkable levels have been on a frenzy of cuts and savings, outsourcing and resourcing, and whatnot, to drive up profits and drive down costs, far beyond their reserves and anything that mature risks evaluation would even consider to be acceptable and manageable.
The costs of working capital had to be driven down, so the push for as little material on hand called for new concepts. Just-in-Time alone was not enough. Just-in-Time on consignment was rolled out. And to make sure that suppliers would not simply increase the consignment stock levels to avoid potential issues, escalating storage penalties for consignment stocks were introduced. That in addition to contractual penalties in case the supplier would not fulfill demand Just-in-Time…
Labor costs appear to be the eyesore every executive must cure, and headcount reductions and outsourcing appear to be the common answers. It is not uncommon that executives see a direct link between profitability and headcount reductions, and productivity being seen as the result of the same headcount reductions. There seems to be little understand for doing more and better with the same, because doing more with less rules the world.
Fancy labels like “breathing factory”, “interim capacities”, and “embedded third-party service providers” are nothing other than moving workforce from its own organization to external contracted labor partners and agencies. Zero liabilities, lower costs, and the not fully correct believe that the contractual stipulation are adequate to avoid exposing the corporation to risks.
The drive to outsource (read get cheap labor) has for decades also included the drive to outsource to so-called low-cost countries (read get even cheaper labor). The equation behind this is very simple. As long as the total costs including shipping are lower than that of local production/services, the deal pays off. And all thinkable risk evaluations are covered by contractual stipulations, or at least that is what we are told.
What has been created is a chain of supply chains that forms a network of weakest links and interlinked single points of failure, which escalate beyond control once the first domino block falls. Every thinkable safety reserve and alternative scenario has been eliminated in the push to reduce costs and increase profits. So far so good has never been an appropriate risk management evaluation but appears to be the rule of thumb at major parts of the global manufacturing stage.
Does this all mean that politics and politicians carry almost no responsibility for the global supply chain crises? Definitely not! Infrastructure like roads require publicly funded investments. Regulation on obligations to guarantee basic services require political leverage to make them come into play. The battle cries that whatever country “took jobs away” are nothing but an alibi to deflect responsibility for allowing the overdone outsourcing to the same countries, and at the same time a deflection of liability for creating an economy in which these jobs are apparently not attractive enough for the own population.
These wounds are all self-inflicted and we need to start working on healing the root causes instead of falling over each other over the symptoms. Creating a global collaborative political environment would be a great start. Corporations thinking beyond the short-term bottom line and returning to proper risk management would be another.
And consumers might consider doing more with less for a while and reduce some of the stress. Maybe we might even discover that we don’t need all the gadgets and toys we are now so anxiously waiting for, and that will give the sustainability drive a major boost!