14 Jun How We Manage Supply Chain Problems
Today we look at how supply chain problems are affecting the appliance and outdoor lifestyle industries.
It’s safe to say that 2020 was full of surprises. Companies everywhere simply did not know how the pandemic would affect their businesses. As it turned out, the outdoor living industry saw steady demand growth mainly due to the large shift toward working from home and backyard “staycations.” Home owners installed pools, patios, firepits, outdoor movie screens, and outdoor kitchens. But with the increased demand (which has continued into 2021) companies were impacted by strains on their supply chains.
What is a supply chain?
A supply chain includes all the activities, people, organizations, information, and resources required to move a product from inception to the customer. The end goal is simple: meet the customer’s request.
The pandemic has revealed how much the world is interdependent and interconnected. Restrictions that were put in place to limit movement affected supply chains, trade, and national and local economies. When you look closely at the organization of the product supply chain, it begins from the gathering and assembly of raw materials and continues all the way through production and transportation to the end consumer. This long process has been affected at each stage by the pandemic.
The recent blockage (albeit temporary) of the Suez Canal demonstrated how tenuous the global supply can be, threatening shipments of thousands of items world wide.
The intricacies of the global supply chain can be illustrated by a quick story.
An item that is as critical to the global economy as a giant freighter (and equally in peril) is the humble pallet. Demand for pallets has risen over the past year as shipments of construction materials and numerous industrial products have remained strong, even during the pandemic. Furthermore, as more and more consumers shop from home, pallets are in demand to handle the vast number of packages shipped to and from warehouses and distribution centers.
However, the swelling market for pallets is threatened by a series of challenges:
- Surging lumber prices and a shortage of available lumber stock have made it difficult for wooden pallet manufacturers to obtain the main raw materials for their products.
- Increasing nail prices (more than 100 can be used to assemble each pallet) have further driven up pallet costs.
- Labor shortages (from workers needed to assemble pallets to the truckers needed to transport them to manufacturers and shippers) have producers scrambling to find employees to assemble and repair pallets and deliver them to customers.
If something like a simple pallet has been so affected, you can envision all the problems facing the outdoor life industry.
The lockdown and closure of borders by various countries caused a decrease in the supply of raw materials to manufacturers who required them for the production of goods.
Transportation restrictions that were enacted slowed the delivery time of products and resulted in numerous empty containers on the docks, which has continued to the present. Companies have faced increased pressure to transport by air, road, and rail adding to their cost and increasing the price of goods.
Three Reasons Why the Supply Chain Is Strained
Supply shocks represent an unexpected, sudden change in the availability of raw materials, parts, and manufacturing capabilities. It’s not just that prices can surge, but sometimes the availability of essential components can vanish because of a lack of raw materials or parts or a lack of labor necessary for procurement.
Similar to supply shocks, demand shocks imply a sudden change in demand due to unforeseen circumstances. For several items (such as food) hoarding may trigger a temporary surge in demand with several items becoming unavailable. In our outdoor life industry there has always been a strong demand, but that demand has increased exponentially during these times.
During a pandemic, the distribution capabilities can be impaired by restrictions on trade, the lack of a workforce, or the closing of key distribution facilities such as airports, ports, or distribution centers. This implies that existing inventory could be mainly unavailable because of a lack of distribution capabilities. So even if production capabilities are present, the lack of distribution capabilities can create shortages irrespective of the demand.
How Summer Breeze Is Handling The Supply Chain Challenges
On top of the typical production system, the outdoor life industry faces some self-contained problems. At Summer Breeze our products are complex and their production is slow in the first place. Our products are not mass apparel.
They are not backpacks that your children take to school. To make the outdoor products we use and to make them well takes time even in “normal” situations with no material or labor shortages. We are now in the busy spring/summer season and we do not have the luxury of a full supply chain to lean on. But at Summer Breeze we’ve taken five steps to help us stay ahead of the supply chain.
We Are Exercising Product Discipline
We are working closer with our suppliers and trying to use core products on our projects. Deeply stocked materials can ensure a much better fill rate on our material needs. We try to lead all our clients down the most convenient and available path. By understanding lead times we can set realistic client expectations in this more volatile supply chain environment.
We Incorporate Design Flexibility
We always have a back up plan. Availability disruption will continue throughout this year, so we make sure that we have alternatives in mind for each part of our client’s project. Many times we have found that our client’s expectations are more dependent on time frames than exact product selection, so we always make sure we fully understand our customer expectations and have a contingency plan should delays occur. We proactively communicate up and down our supply chain which differentiates us from many of our competitors.
We Plan Ahead of Need
Giving longer lead times on all products it is imperative to stay ahead of all project needs. Nothing is worse to us at Summer Breeze than delaying the completion of a project due to lack of material. Containers out of American ports typically took a week to 10 days to reach transport but current estimates run 30-45 days. This means we must invest in inventory earlier and deeper than normal in an effort to protect our supply chains. We always ask questions about project-based lead times before making commitments to our customers. We find that decisions based on realistic timelines make customer satisfaction a lot easier.
We Buy Early for Upcoming Projects
Along with increasing material costs, supply chains are experiencing equipment and labor shortages as well. Manufacturers typically try to avoid mid-year price increases but that’s exactly what we are anticipating in 2021. When manufacturing and fuel costs are up, along with freight being at a premium, all goods in any category or service will cost more. We are trying to buy early (prior to cost increases) to save money but, more importantly, to ensure we will have what we need when you need it.
We Always Try to Increase Product Expansion
At Summer Breeze we are always looking to add new products and services so that our customers are never wanting for something that we could have offered them. The outdoor living consumer market remains strong as people continue to invest in their outdoor spaces. At Summer Breeze we never assume that our supply chain is a fixed asset. Rather, we understand that it’s a dynamic partner in our overall business strategy. We diligently work with our manufacturing partners to stay at the forefront of our supply chains. Our open communications and proactive planning have allowed us to bypass many of the challenges that other companies have experienced.
We also understand that consumer demand is difficult to fulfill in times of supply chain stress. But we will always provide transparent communication. Communicating often and clearly, we will never leave our customers in the dark. We want to finish your project as much as you want it finished! But in times of supply chain stress, there might be a time when patience is needed. At Summer Breeze we have worked hard to insulate us from supply chain issues, but there can always be an occasional bump in the road. We will work hard to always try to deliver on our promises to our customers, and that’s why we have labored to develop sustainable relationships with our supply chain.
All in all, we’re not out of the woods. But at Summer Breeze we have kept our systems strong and we’re prepared to offset disruptions that we might experience in our supply chain.