The purpose of supply chains is to move material from one place to another quickly and cost efficiently. Our current global supply chains have failed at both.
Modern globalized supply chain components are so intertwined that disruptions in one link cascade throughout the chain and disrupts all the other components in a chain reaction. Modern global supply chains evolved over a period of about 40 years of continual steady growth that drove the design of components in a stable interconnected environment. That stability resulted in tightly linked supply chains that worked well in times of even flow and modest growth. But what works well in the “steady state” blows up under even small perturbations of just a single component. The Covid pandemic has been a big perturbation in many components.
Consider just one component of a global supply chain—a port’s space devoted to storing containers unloaded from a ship waiting to be picked-up by rail or over-the-road (OTR) trucking equipment. Historically some ports have been very efficient at this process by putting containers on chassis and picked-up by OTR carriers right at the dock just as they were unloaded from vessels by cranes. But suppose, for some reason, perhaps a slight surge in unloading activity, the dock gets crowded, trucks can’t get to the dock position to pick-up their designated containers. Then, because dock space is so valuable, off-loaded containers must be moved to another position at the port—a “pile” of full containers.
The position of that container in the pile is critical because when the OTR carrier comes to pick it up, it must be retrieved from that position, transported to another position, loaded on a chassis and hitched to the OTR truck. As the pile of containers increases, this retrieval gets tougher, takes longer and consumes more port resources. Retrieval may need to move several other containers in the pile to find the right one.
As the pile of these off-loaded containers increases, the space for them runs out. Port management slows ship off-loading at the dock. Then ships are “turned” less often, they stay at the dock longer. Then ships coming into the port are told to wait at anchor.
Time marches on. The US company that ordered the material on waiting ships notices the increased lead-time it takes to get material from their foreign suppliers. Their ERP systems sense the increase and order even more material even earlier—a double whammy.
One particularly insidious disrupter is the management of empty containers. Common sense tells us that empty and full container flows must, in the long-term, balance each other. A plant in Xinyang China must receive an empty container for everyone it ships. This balance can easily be disrupted in the short-term and has. To move them out quicker, ships are unloaded and not reloaded with the same number of empties—imbalance right there. This builds up the pile of empties at the port taking up more space, perhaps intruding on the just off-loaded full container pile. In turn this slows stacker trains coming into the port to off-load empties. Stacker trains needing to pick-up full containers, then come into the port without empties. More empties back-up at US intermodal facilities and individual warehouses. Suppliers of containerized material in Asia can’t get empties to load their products into. Their lead-times increase. On it goes. It’s a chain.
These reactions can be triggered by small perturbations of any supply chain component. Why? Because supply chains were designed in a period of slow and steady growth; 5 to 10% per year. Components were sized and balanced based on this stable flow. Now the big impacts of the pandemic have slowed supply chains worldwide.
What’s the solution? Simple. Let it play out. Let supply chain managers, buyers, port executives, truck dispatchers and rail schedulers do their jobs—gauge demand and react accordingly. Let them change ports, shut down for a while to clear backlogs, employ stack trans for shorter distances, transport containers back to the port themselves, whatever. As congestion eases in one component, processing times in others will increase.
What was a chain reaction in one direction will be a chain reaction in the other. The sun will come up tomorrow.
Our supply chain problems are an omen for other interconnected systems; energy generation comes to mind. It is very difficult to store electrical power, so its generation and consumption are in sync all the time. Due to this linkage and to its historic stable demand, energy generation has been provided by large facilities that run stably on coal, gas and nuclear. Wind and solar systems are not stable. Tightly integrating these green systems in the power generation grid will cause disruptions just like our supply chains.
It already has. Europe and the UK have already experienced wide swings in energy prices and supply interruptions. While the sun will come up tomorrow, it might be cloudy and calm.