From the U.S. to Europe to Asia, supply chain bottlenecks are inflating prices, delaying deliveries, and evaporating small business margins across the board.
High raw material and energy costs are forcing manufacturers into bidding wars to get containers on ships, leading to record freight rates. The cost of sending a shipping container from Shanghai to Los Angeles today is about six times higher than it was in May 2020.
Adding insult to injury, what was supposed to be temporary will now, almost certainly, last well into 2022.
Managing supply chain risk
Businesses that are overly reliant on a single geography or supplier for key products, and/or lack the proper technology and systems to project stock-outs of raw materials and finished goods are the least prepared to mitigate the impact of our current supply chain woes.
Everything's not lost, though. Here are just a few steps businesses can take to manage their ever-increasing supply chain risk:
- Diversify geographically beyond the world's factory (oh, hi China!) by identifying and activating secondary supplier relationships in other parts of the world to secure additional inventory and capacity.
- Work to gain visibility to your extended supply network - not only the suppliers you do direct business with, but also your suppliers' suppliers. This is a game-changer for inventory planning, production/purchasing/sales forecasting, and cash flow management.
- Expect the (seemingly) unexpected like declines in on-time, in-full deliveries from suppliers. This anticipation forces you to prioritize what products you produce, inventory, and sell before you are "surprised" by more shortages.
- Seek alternate shipping routes with your logistic partners to help secure long-term capacity. The issues surrounding port congestion, air freight capacity, and truck driver shortages aren't going away any time soon. It's important to think of creative ways to ship/receive materials and goods.
How much price inflation and delivery delays should manufacturers and retailers expect in the next 12 to 18 months?
It's hard to say, but it depends largely on the growth of the U.S. money supply and how fast businesses invest in and adopt emerging supply chain technologies.
Yes, the seas are rough, my friends, but remember...fortune favors the bold.
Stay alert. Stay educated. And most importantly, stay cool.
Have a great week!
Talk soon,
Old Man Winter
