By Gary A. Smith, CPIM-F, CSCP-F, CLTD-F
“Raindrops keep falling on my head.” - B.J. Thomas
The world is now in the throes of “The Great Supply Chain Disruption.” This worldwide crisis named by Peter S. Goodman of the New York Times and whose origin was the outbreak of Covid-19 will be with us for quite a while. How long? No one knows for sure, but my guess is that its effects could linger into mid-decade. In the meantime, we can expect this wild ride to continue as whipsaws in demand and supply are followed by “Whack-a-Mole” company responses.
If material is out of stock the supply chain professional has options. Production may be rescheduled until the material arrives, the item may be purchased from another supplier or shipped from another of the company’s warehouses. Supply chain problems rarely affect just one area: their impact usually ripples through the entire company and requires cooperation and coordination with other departments or even other companies. Typically, however, a short-term problem can be worked out quickly.
In the universe of supply chain four “elements” form the foundation of supply chain management and represent its basic functions. Like earth, air, fire, and water in ancient Greece, these elements material, equipment, people, and space define both the breadth of supply chain and its limitations. Without them supply chains simply cannot exist.
Short-term problems in supply chains occur when one of the four elements is out of balance. This is like a process going out of tolerance in six-sigma. It can usually be corrected by making small adjustments.
But what if the problem is a long-term problem?
When studying supply chain management at a macro level, it becomes obvious that we are dealing with networks, not simply chains. A company is not connected to just one supplier but to hundreds, possibly thousands. Similarly, that same company is not tied to only one customer but to thousands (maybe millions). Multiplied across thousands of companies it now becomes a complex, weblike network.
Long term problems occur when two or more of the supply chain elements, or multiple supply chains become unbalanced. When this occurs, complications can grow tenfold. Systemic problems can shutter entire factories (think computer chips and automobiles). Such long-term problems also have predictable outcomes; spot shortages spread system-wide, buyers double-down and place massive orders that end up late or do not arrive at all, workers are idled and laid off. As the processes unravel, one affected company can become five, five can become ten, and ten can become an entire industry. Then due to scarcity, inflation sets in. It is the Bullwhip Effect on steroids, and it has evolved such that it is neither a supply chain problem, nor a company problem. It is now an economic problem. This describes “The Great Supply Chain Disruption” in a nutshell.
The market, through innovation, eventually finds better alternatives and begins closing the gap as disruptive concepts, products, and companies are created, adding capacity to supply chains and the economy. Companies begin to make investments again in products, facilities, equipment, and people. New companies are created, while others succumb. Many organizations will shorten their supply chains by regionalizing, nearshoring, reshoring, or rationalizing product lines as they readjust and redesign their networks. The survivors will adapt, and in the process, develop resiliency and agility. At some point, the imbalances in people, equipment, material, and space, will reach a new “set point” of normalcy and predictability. This is because economic markets crave certainty; they thrive on predictability and covet steady growth curves. Yet, at the same time, they also place high value on the creation of new companies, products, and concepts to make order of magnitude changes. These are what Joseph Schumpeter called disruptors.
This “Jekyll and Hyde” market duality between normal and disruption states cannot peacefully coexist. Conflicts will be continuous at every level. Some will be volatile, and while there are stormy seas ahead, I am convinced that we will also see some real innovation in supply chain management. How successful we are at managing, maintaining, and regulating those innovations, however, remains to be seen.