Lisa Anderson, a supply chain expert and president of California-based LMA Consulting Group, says that the Chips Act “has spurred on certainly quite a bit of investment” in the US electric car sector. And Mexico is also booming through ‘friend shoring’.

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Read the full article at the BBC website. 

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Manufacturing Matters – Safety & Security

Manufacturing promotes safety and security and mitigates risk. Controlling your supply chain and mitigating geopolitical risk can become paramount overnight as geopolitical events occur, natural disasters emerge, and supply chain challenges arise (strikes, disruptions, shortages). These types of issues have been increasingly concerning with recent events.

For example, the war in the Middle East has caused disruptions in the Suez Canal. Container ships are being diverted and traveling around the southern tip of Africa, adding 10,000 miles and 7-10 days. This situation delays critical supplies and causes further inflation with increased costs. Additionally, the reason China has been threatening Taiwan is partially to gain control over 90% of the world’s advanced computer chips that go into everything from medical devices to critical infrastructure.

During the pandemic, the U.S. discovered it was dependent on China for critical supplies and everyday necessities. Not only can a worldwide pandemic cause disruptions of these supplies, but country specific policies can dictate whether your supply will be cut off. For example, China rolled out zero COVID policies, directly impacting production and shipping to the U.S. China could prioritize who received limited supplies.

China also wants to control the Red Sea and could decide to cut off supplies produced in other Asian countries in the region. Clearly China thinks manufacturing is essential to national security. For example, their shipbuilding capabilities are over 200 times greater than the U.S. According to the Maritime Executive, China produces more than half of all new tonnage in the world. These types of statistics are gravely concerning and the proactive will build capabilities.

Manufacturing Will Thrive in the Next Decade

As companies realize they must gain control over their supply chain to better support customers, reshoring and regional expansion of manufacturing capabilities will soar. Additionally, the cost has come into alignment for non-commodity products if you evaluate the total cost to produce, ship, store, protect, etc., China won’t have the advantage. Piles of inventory tying up cash unnecessarily are no longer acceptable, especially as customer needs change rapidly, increasing the risk of obsolescence. As interest rates soar, this situation is untenable.

Customers are not willing to accept prolonged periods of delays and stock outs. Thus, they are taking control of their supply chain and focusing on manufacturing capabilities. In addition, companies must prioritize customers and address proactively with strategic pricing and capacity decisions. Thus, smart companies are utilizing a SIOP (Sales Inventory Operations Planning) process to proactively navigate these changing circumstances to maintain high levels of customer service, profitability, and working capital results. SIOP will bring visibility to customer and product profitability, sourcing decisions, make vs buy alternatives, capacity bottlenecks and more.

The proactive will thrive and have more opportunities than ever expected. In fact, they will be in the catbird seat. The rest will continually struggle and weaken. With the significant skills gap (refer to our recent article on where the talent has gone), the proactive executives are hoarding the “best of the best” (employees, trusted advisors, suppliers, etc.). Are you prepared to thrive?

If you are interested in reading more on this topic:
SIOP/ S&OP: Proactive Approach to Maximizing Production Output and Capacity

The post Why Manufacturing Matters & Will Thrive in the Next Decade appeared first on LMA-Consulting Group, a supply chain consulting firm.

Given the succession of unforeseen events in recent years, from the blockage of the Suez Canal by the Ever Given ship to the supply crisis during the pandemic, Lisa Anderson, president of supply chain consultancy LMA Consulting Group, believes that companies must be more proactive and take the initiative instead of simply reacting when something happens and it’s too late. “That means establishing alliances and regional supply sources, better planning inventories and being at the forefront of technological advances.”

Lisa Anderson was quoted in EL PAÍS.

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This is how companies deal with the Red Sea crisis: planes, storage, and closest suppliers

The impact on inflation still seems limited, and major stock outages are not expected, but experts and those affected agree that the key will be the duration of the conflict.

The rain of drones loaded with explosives and Houthi missiles on merchant ships in the Red Sea has turned the once boring and reliable maritime industry into a focus of uncertainty and negative surprises , with unexpected delays due to route changes, cost overruns due to the increase in the cost of freight, and sky-high insurance against the possibility that the cargo never reaches its destination. It is exactly the opposite of what companies intend in this way, which place their orders months in advance so that they can be delivered on time by heavy container ships, slower but cheaper and with more cargo capacity than airplanes.

As the crisis becomes more chronic, the list of those affected continues to grow. The sources consulted point out that despite the magnitude of the detour of the ships, forced to avoid the Suez Canal and make a detour around the Cape of Good Hope that implies at least nine more days of travel, the impact is not yet dramatic or for global economic growth or inflation. “The first estimates suggest for now that the impact of the Red Sea crisis on inflation will be moderate, with an additional rise of a few tenths this year and an impact mainly focused on imported goods,” explains Ángel Talavera, chief economist for Europe at Oxford Economics. The Bank of Spain also lowers the volume of the shock: it believes that fragile global demand and the absence of congestion in the logistics industry will prevent the traffic jams of yesteryear.

The key word, however, is that still : if the US and EU military missions do not achieve their objective of returning security to the area, the consequences could be very costly. At the moment, they already involve uncomfortable surcharges and hasty adaptations. This is the case of automobile companies, with a supply chain based on the just-in-time model , and less accustomed to storage. “Some automotive suppliers installed in Spain are being affected by delays in the components or raw materials necessary to manufacture them, as well as an increase in costs by having to resort to air transport instead,” the employers say Sernauto.

The crisis cabinets have not stopped meeting to minimize the blow. “Being a tremendously flexible and resilient industry, they are already adopting measures such as increasing stocks , readjusting transit times, advancing orders to suppliers and contingency plans,” adds Sernauto. Companies such as Tesla, Volvo and Michelin have already announced temporary stoppages in some of their production plants in Europe due to not having the materials they need on time. This will translate into thousands of fewer cars manufactured, between 5,000 and 7,000 in the case of Tesla and the pause of one of its factories in Germany.

“Non-urgent orders are being postponed, the key variable is the duration,” say sources from the business association CEOE. Talavera agrees. “The precedent of 2021-22 tells us that there are risks of an exponentially higher impact if the crisis is sustained over time and the blockade begins to create disruptions in supply chains. “Europe imports liquefied gas from Qatar, which crosses through the Suez Canal, and a significant part of oil traffic could also be affected.”

More expensive freight and insurance

The large consumer association Aecoc warns that the impact is already significant in sectors such as food, textiles and fashion, hardware and DIY or technological consumer goods, with freight rates that in some cases have become “300%” more expensive. which adds to the higher premiums requested by insurers, who sometimes even refuse to cover the risk of shipments.

Even so, the employers assure that for now there will be no shortage of stocks , that is, that shortages will be avoided. “In recent weeks, companies have focused their efforts on anticipating purchases of raw materials, looking for new suppliers in closer geographic areas and managing their supply through new routes and other means of transportation as an alternative to maritime transportation,” they point out.

From the Spanish Federation of Food and Beverage Industries (FIAB), they detect that warnings are growing for companies that import to increase their safety stock due to expected delays, and they perceive that the merchandise in warehouse is expanding due to the greater transit times. As more time is spent at sea and less available, the difficulties in obtaining space also increase, despite the fact that the number of new boats sailing has grown in recent months. “The direct impact is on the routes with Asia and the Middle East, but there is also an indirect impact on the route between Europe and America due to the shortage of containers and ships,” FIAB sources say.

The perfect storm is completed by the celebration of the Chinese New Year in February, a period that historically involves a slowdown in production, limited transportation operations and supply chain disruptions. And with the problems in another key artery, the Panama Canal, which has limited the passage of ships due to a severe drought. “Container ships are also diverting to the ports of Los Angeles and Long Beach, and transporting those shipments across the US to the East Coast. Air freight is increasing for urgent shipments and manufacturers are experiencing delays,” explains Lisa Anderson, president of supply chain consultancy LMA Consulting Group.

Given the succession of unforeseen events in recent years, from the blockage of the Suez Canal by the Ever Given ship to the supply crisis during the pandemic, Anderson believes that companies must be more proactive and take the initiative instead of simply reacting when something happens and it’s too late. “That means establishing alliances and regional supply sources, better planning inventories and being at the forefront of technological advances.”

Minor impact to the pandemic

The investment manager Federated Hermes expects that the economic impact of the interruptions will be accentuated in the first two months of the year because cheaper trips contracted before the attacks in Israel are replaced by current ones at higher rates. In context, the cost overruns are even lower than those of the supply crisis closest in time. “The recent increases in container shipping rates are significant, but do not come close to the sharp increases in 2020 and 2021 during the covid-19 pandemic.”

Then, as now, shipping companies were the big beneficiaries , multiplying their income and reaping increases in profits accompanied by strong increases in the stock market. On the losing side of the Red Sea crisis, the insurer Crédito y Caución places European manufacturers in first place. “They import a wide range of intermediate goods from Asia-Pacific, such as electrical equipment, high-tech goods, rubber and plastics, chemicals and machinery. If the crisis continues, waiting times, prices and congestion at ports are likely to increase. This may accelerate the return to a greater willingness to maintain higher inventory levels out of an abundance of caution,” they note.

See the original article here.

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The Economy: Big Picture

In the last month, we’ve participated in at least six economic forecast presentations or discussions with experts (economic, banking, investment, manufacturing). Although they each had nuances, common themes emerged. Adding our expertise into the mix, we see volatility on the horizon. 

The bottom line is that inflation is likely to continue, interest rates are unlikely to decline near-term without creating additional down-the-line inflation, unemployment will have fits and starts and trend up slightly yet the labor participation rate will remain lower than pre-pandemic. From a jobs standpoint, low skilled jobs are being automated, yet high-skilled jobs are experiencing a severe skills gap. Overall, the economy will be slower than it has been. Last but not least, geopolitical risks are concerning every expert, leaving volatility the name of the game in the foreseeable future.

The Economy & The Data

A summary of findings from recent research on the state of the economy includes the following:

• Stimulus (COVID money flooded the economy): Inflation would need to rise by 30% to absorb the stimulus. So far, inflation has gone up around 20%. Thus, there is around 10% left to absorb to get supply and demand in alignment. If interest rates stay put, the COVID funds will run out in about a year. Otherwise, we will have spurts & starts.
• Government spending: Government spending has continued at historic levels. For example, in 2023, nominal GDP was up $1.5 trillion yet federal debt increased $2.5 trillion, leaving a gap. Debt is increasing at what some see as an alarming rate.
• Inflation rate: It has gone up by 20%, but to absorb the stimulus, there is still 10% to go. It is likely interest rates will remain flat to work through the COVID money. If not, there will be bursts of inflation and recession (volatility). Inflation is likely to stay higher than the goal around 3-3.5%.
• Unemployment rates & labor participation rates: Layoffs surged 136% in January to the second-highest level on record with financial companies, the technology sector, food production companies, and retail with the highest levels (in order of sequence). On the other hand, these findings led the experts to think employers would show the latest hiring at 180,000 workers yet the number came in double that amount (353,000). The unemployment rate stayed about the same at 3.7% with the labor force participation rate at 62.5% (which close to 1% lower than pre-pandemic, 63.4%). There is 1.3 jobs for every person looking for a job. From a client point-of-view, they simply do not have the high-skilled resources required although they are automating low-skilled jobs, and depending on the industry, they have put a pause on hiring.
• Wages: Workers’ wages are improving but they still have not caught up with inflation. In the last three years, real average hourly earnings are still down 2.4%. Thus, people are not feeling better.
• GDP (gross domestic product): Real gross domestic product has largely recovered. It increased 3.3% in the 4th quarter and consumer spending has remained relatively strong. It shifted from goods to services, but has held up overall even with the interest rate hikes thus far.
• Banking: There is concern about the regional banks. They hold most of the commercial real estate loans that will need to be refinanced at higher rates over the next few years. Also, bank’s liquidity requirements are driving concerns with the changing of bonds prices with the quick increase in interest rates.
• Geopolitical risk: Every expert mentioned concern around geopolitical risk. It will lead to inflationary pressures with reshoring, increased prices (for example, the Red Sea rates, diversion costs, and/or expedite costs), impact on energy prices, etc.

The bottom line can be summed up in with the misalignment of demand and supply, the shrinking workforce (with Baby Boomer retirements – by 2030, the youngest of the largest generation in history will be older than 65) combined with the divergent needs for high-skills vs low skills, and the emergence of high geopolitical risk. Thus, volatility and uncertainty will remain.

What Should We Take Away

Smart executives will take bold actions to ensure they can supply their key / ideal customers while pruning low margin/ non-value added customers. They are adding customer/ product profitability, pricing, and costing trends into their SIOP (Sales Inventory Operations Planning) processes to evaluate options, set strategy and make decisions.

They will invest in the best high-skilled resources, supplement with additional options (refer to our article, Where the Talent Has Gone, and create a high-performance culture. Strong leaders will be pivotal to ensuring success. People follow leaders; not companies.

Proactive clients are upgrading ERP systems to ensure the basic processes (blocking and tackling) are in place. Additionally, they are rolling out advanced technologies including artificial intelligence (AI) to automate, digitize and thrive. To read more about these strategies, refer to our article, Automate, Digitize and Thrive in Supply Chain. It will be cornerstone to success in the next decade.

Additionally, smart clients are upgrading business processes, cleaning up their data to better utilize their ERP and peripheral systems, and building flexibility and scalability into their future thinking. The core processes include demand planning, production planning, engineering (for engineer-to-order ETO and configure-to-order CTO companies), production and inventory control, and replenishment/ distribution planning processes. From a data perspective, it is important to review bills of materials, routings, work centers, item masters, customer and supplier masters, and MRP parameters. Proactive clients are ensuring the basics are intact and they are focusing on the roadmap to stay at least a few steps ahead of changing conditions.

If you are interested in reading more on this topic:
Supply Chain Volatility, Risk & Capacity Remain Critical Priorities

The post The Economy, Outlook & Strategies for Success appeared first on LMA-Consulting Group, a supply chain consulting firm.

CLAREMONT, CALIFORNIA – January 25, 2024 –  Amidst escalating global supply chain challenges, LMA Consulting Group remains at the forefront of offering strategic solutions. Lisa Anderson, MBA, CSCP, CLTD, President of LMA Consulting Group Inc., highlights the critical situation: “The recent turmoil in the Red Sea, triggered by Houthi drone and missile attacks, has significantly amplified risks in global shipping, particularly affecting the Suez Canal and Red Sea routes. These complexities, combined with ongoing disruptions at the Panama Canal, underscore the urgent need for agile and robust supply chain management.”  

The Red Sea, a vital maritime artery, is now a high-risk zone due to geopolitical tensions. Houthi attacks have forced a significant rerouting of shipping lines, with many opting for the longer journey around the southern tip of Africa.  This detour, while safer, adds around ten days and 1900 nautical miles to typical Asia-North Europe services, escalating costs and prolonging delivery times.  

Additionally, the Panama Canal faces challenges from drought-induced vessel limitations, further exacerbating global supply chain disruptions. Its reduced capacity is compelling more ships to navigate through the already stressed Suez Canal.

Ms. Anderson advises, “In this volatile global context, businesses must swiftly adapt and strategically plan ahead. Exploring alternate routes, diversifying supply sources and considering nearshoring or reshoring are imperative to mitigate these emerging risks.“

LMA Consulting Group is at the forefront, aiding clients in traversing these intricate challenges. By implementing a comprehensive Sales Inventory Operations Planning (SIOP) process, businesses can boost agility, secure capacity and maintain a dependable supply chain despite these disruptions. Companies that had preemptively diversified their manufacturing and supply chain networks are now experiencing the benefits of reduced risks and enhanced customer service.

LMA Consulting specializes in guiding businesses through turbulent times with strategic planning, comprehensive supply chain transformation and resilience-building solutions. For more insights, download Ms. Anderson’s eBook SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.

About LMA Consulting Group – Lisa Anderson, MBA, CSCP, CLTD

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., specializing in manufacturing strategy and end-to-end supply chain transformation.  A recognized supply chain thought leader, Ms. Anderson has been named a Top 40 B2B Tech Influencer by arketi group, a Top 16 ERP Expert to Follow by Washington-Frank, among the Top 10 Women in Supply Chain by Warner PR, in the top 55 Supply Chain & Logistics Experts by flexport, and a woman leader in Supply Chain by RateLinx.  Her primer, “I’ve Been Thinking.” offers strategies for creating bold customer promises and profits. An expert on the SIOP process, advancing innovation and enhancing supply chain resilience, Ms. Anderson is regularly interviewed and quoted by leading publications. For information, sign up for her Profit Through People® Newsletter or for a copy of her book, visit LMA-ConsultingGroup.com.                 

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Media Contact Kathleen McEntee | Kathleen McEntee & Associates, Ltd. | p. (760) 262 – 4080 | KMcEntee@KMcEnteeAssoc.com

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Lisa Anderson, a supply chain expert and president of California-based LMA Consulting Group, says that in the past, shippers, vessel operators and manufacturers may have waited too long to properly evaluate an emerging threat such as COVID-19 or the Houthis, when taking action sooner would have been prudent.

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As Houthi attacks on ships escalate, experts look to COVID supply chain lessons

An upsurge in attacks on commercial ships by Iranian-backed Houthi rebels in the Red Sea threatens to disrupt the global supply chain as vessels are forced to reroute around Africa to avoid the conflict zone. Normally, about 15% of the world’s trade passes through the Red Sea, and delays and escalating insurance costs are hitting industries such as petroleum, food and electronics.

Manufacturers have already experienced some problems in getting parts to assembly floors, and both Tesla and Volvo last week blamed the Red Sea troubles for delays at plants in Europe.

But shipping industry experts hope lessons learned during the COVID-19 pandemic, the Suez Canal disruption in 2021 and Somali pirate attacks more than a decade ago will help mitigate widespread problems this time, should the conflict widen in the Red Sea.

Since October, the Houthis have targeted several ships on the Red Sea with ballistic missiles and drones and have hijacked others near the entrance to the vital corridor at the Bab-el-Mandeb strait. The Houthis have said their attacks are in response to Israel’s air and ground assault on Gaza, which has killed nearly 25,000 Palestinians, according to Gaza’s Health Ministry. The military campaign in Gaza followed the Oct. 7 attack by Hamas that Israel says killed 1,200 people.

The U.S., leading a maritime coalition involving more than 20 countries, according to the Defense Department, has launched airstrikes against the Houthis to secure the waterway.

Supply chain disruptions are nothing new for the shipping industry. The COVID-19 pandemic presented an unprecedented challenge for the industry — with vessels stuck at ports waiting to load goods even as freight rates skyrocketed from a lack of capacity and quarantined consumers ordered everything online. Also in the Red Sea, the giant Ever Given container vessel became lodged in the Suez Canal in 2021, halting all traffic through that vital area for nearly a week. And more than a decade ago, Somali piracy was a major concern for shippers as well.

Read more at NPR here.

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Disruptions have not stopped. China has been flying balloons over Taiwan. North Korea is threatening South Korea. Russia continues its war with Ukraine. Israel is at war with Hamas which has spread throughout the region, diverting container ships from the Suez Canal in addition to causing a bunch of other negative consequences. The Panama Canal is experiencing a drought and has reduced the number of container ships that can pass. It got so bad that tankers are now avoiding it altogether which has improved pricing to jump to the head of the line for container ships.

And this is before we bring up one of the hottest topics for companies – the skills gap. In essence, although the high level numbers have improved a bit, if you talk with executives, they are challenged to find resources with the appropriate skill sets. Only the companies advancing technology will thrive; however, it requires additional resources with technical skills to pursue these avenues. It is a complete jumble. If a client thinks they have the resources, it turns out they don’t know what the executives expect them to know. Or, as conditions change (new ERP system, new company ownership, changing economic conditions), they fall short. To read more about where the talent has gone and strategies for success, read our blog article.

Why The Issues All Fall to Planning

At multiple clients, the issues are stockpiling in Planning. We consider Planning to include the following areas:

• Demand planning
• Production planning & scheduling
• Replenishment planning (transfers, distribution)
• Materials planning
• Logistics planning (warehouse, transportation, international)

Here are the common causes that are flowing into the Planning Teams. Executives are frustrated and often think the people are the issue when it is the process, the system, the way the organization is set up etc.

• Customer Service: If Customer Service doesn’t proactively manage customer requests, push back when appropriate, handle customer concerns proactively, enter sales orders with the appropriate fields filled in correctly, every issue will fall in Planning’s lap. As Planning plans and schedules, these issues will arise, and they will have to reschedule, expedite, etc. Additionally, as customers change their mind or orders are pushed out or in, if Customer Service isn’t on top of these issues and proactively communicating cross-functionally, the issues flow to Planning’s desk.
• Engineering: In CTO (configure-to-order) and ETO (engineer-to-order) companies, the product is not finalized until it goes through Engineering. If delays or mistakes occur during this process, the issues flow into Planning’s lap. Also, typically if customer approvals are required, the follow up falls to Engineering. If the customer is delayed in providing approval, they typically still want it on the original request date, even if the company has a policy against this occurring. It happens anyway and falls to Planning to resolve.
• Transactions: If the warehouse doesn’t ship, receive, and transfer on a timely and accurate basis, if production doesn’t enter production and issue materials on a timely and accurate basis, if whoever is responsible for scrap and usage adjustments don’t handle them on a timely and accurate basis, if the inventory team doesn’t cycle count, research and resolve root causes on a timely and accurate basis, the issues pile up in Planning. To determine what to plan, inventory must be accurate and performed on a timely basis. Another issue that arises related to transactions are design decisions made on the basis of minimizing transactions in one department that pushes the workload to Planning. Unfortunately, the fact that the workload will end up in Planning isn’t typically known, but it is what happens as someone needs to figure out what to do. If you don’t track at a detailed level yet you need to plan at a detailed level, Planning will have to figure it out manually.
• Suppliers: If suppliers struggle or transportation is delayed (such as the Suez and Panama Canal or via strikes), production must be rescheduled. Again, the issues wind up in Planning to resolve before moving on.
• ERP setup and use challenges: There are millions of setups and processes tied to how an ERP system is rolled out or upgraded. Thus, there are many ways the system can drive incorrect actions. For example, if an item is set up to flow through MRP when it should flow through a min-max planning process or vice-versa, the planner will not receive the appropriate signals. If your branches are not set up properly and in conjunction with your sales forecast, you can send the wrong product to the wrong place at the wrong time. If lead times and safety stocks are not monitored, you can run the plant out of materials or create an overage quite easily. If there are ECNs (engineering change notices) but the ERP system cannot handle them, the Planners might be left updating countless work orders to know what to produce and order.

In the last six months, we’ve seen Planning get bombarded with these types of issues across multiple clients in multiple industries and multiple geographies. It is a common situation.

Path Forward: Reactive to Proactive

Unfortunately, there are no easy solutions. In fact, that is how “we” have got into this situation. Someone has to figure out the path forward. If no one else does it and the ERP system hasn’t been designed to handle it yet, Planning will be your last resort. Thus, ensure you have the appropriate skills on your Planning teams. If they are supposed to catch whatever goes wrong throughout the lifecycle of an order, make sure your planners are ready to do that for an interim period of time. Have you provided ongoing training and education? Have you hired consultants to help your team upgrade the process? Have you invested in additional technology to support your team?

Look around you. Have you had several retirements of long-term employees? Are you sure someone has absorbed ALL of the relevant tasks? How sure are you that the tasks will be automated? How sure are you that they are no longer required if you’ve implemented a process change? How sure are you that your new resources understand the big picture? In several situations, smart executives wondered why these tasks couldn’t be automated. Of course, the answer is that they can be automated, but ONLY with a high-skilled resource(s) with practical experience that can ensure items don’t fall through the cracks. Don’t wait for retirements to occur to go backwards and think about the process. Plan ahead, develop career paths, and transition plans.

Have you implemented a new ERP system or new ERP functionality? Most likely, the ERP team said we will start with base information and add your requests to future phases. How sure are you that those requests will be covered in the interim period? Have you planned to bring on board the appropriate resources for the workload in the interim? Do your employees know what should be done? They might just know what doesn’t seem right, but not know what to do to make it better. Are there a few of those items that should be fought for instead of postponing to a future phase? If you don’t want your business waiting on the Planning Team, re-review if you hear any of these watch-outs. Supplement your team, provide support, and tie rewards with the outcomes you want to achieve for not just the ERP team, but also for those required to ensure success.

Pivot from reactive to proactive is the message. Think forward, invest wisely, provide training and education to your people, communicate clearly, hire leaders with the experience to “jump in” and take on tasks to “see” what their team members are experiencing and help their team climb out of holes. We are in a business environment that is not for the faint of heart. Strong leaders that are willing to take on smart risks, work hard, and pivot with changing conditions will deliver strong results.

SIOP: Reactive to Proactive

Smart leaders are rolling out a SIOP (Sales Inventory Operations Planning) process to proactively plan demand and supply. SIOP will alert you to bottlenecks, issues, the need to pivot etc. Forward-thinking companies are gaining an advantage as they have planned ahead to be agile, pivot quickly, and most importantly, are ahead of the curve in securing capacity, materials, and key resources.

Think ahead and pay close attention to what’s going on in your Planning Team. If the ball is rolling downhill, put stopgaps in place to catch it while proactively addressing the topic.

If you are interested in reading more on this topic:
Master Planning & Production Scheduling Case Study: Gaining Visibility for Results

The post Why Planning Is Impacted As Disruptions Abound appeared first on LMA-Consulting Group, a supply chain consulting firm.

The best consulting clients are razor focused on supply chain volatility, risk and capacity. The recent events in the Red Sea highlight these critical priorities. As Houthi drone and missile attacks create chaos in the Red Sea, shipping container lines play it day by day as to whether to brave an attack or sail around the southern tip of Africa. If they reroute, it adds approximately 10 days and 1900 nautical miles onto a typical Asia-North Europe service. Additionally, some ships go through the Suez Canal for the East Coast of the U.S. This route has increased with the recent reduced capacity of the Panama Canal. Read our recent article, Supply Chain Optimization Remains a Priority as the Panama Canal Worsens on those issues.

High Risk in the Red Sea

What started with an Iran-backed Houthi attack on container shipping lines sympathetic to Israel has blossomed into a volatile, risk-laden decision to sail through the Suez Canal. For example, there was an attack on an MSC ship sailing from Saudi Arabia to Pakistan. According to Freightos CEO, approximately 50% of ships have been diverted from the Suez Canal, reducing capacity (due to extended lead sailing time) and increasing rates by around 30%. Safety is top priority, and CEOs are evaluating risk on a daily basis.

Alternate Routes & Sources of Supply

Clients are starting to ship to the L.A. and Long Beach ports to transport across the country to the East Coast; however, this change cannot happen rapidly, and adds time and cost to shipments. For quicker needs, companies are sending product by air freight to quickly respond to changing customer needs. Certainly, air freight is more expensive, thus inflating prices further. More and more companies are realizing they must reshore, nearshore, and take control of their ability to serve customers. Some are finding backup sources of supply while others are expanding their manufacturing footprint. The bottom line is supply chains are on the move.

Mexico Border Closures Impact Intermodal Trains

According to the Journal of Commerce, a major intermodal rail connection between Mexico and the United States was halted after US authorities shut down border crossings at Eagle Pass and El Paso in Texas so customs officers could help US Border Patrol process a flood of migrants. The two major class 1 railroads, Union Pacific Railroad (UP) and BNSF Railway, were impacted. Unfortunately, this is the second time in three months the Eagle Pass Crossing was shut down due to a surge in migrant arrivals. Intermodal has opened up again; however, UP and BNSF have a logjam of laden containers built up that need to be transported to the US.

Again, customers waiting on this freight experienced delays and reduced capacity. It is clear that risk and volatility remains high throughout the world with goods movement.

Forward-Thinking Companies Thrive

Smart executives are thinking ahead, planning capacity and backup capacity with a SIOP (Sales Inventory Operations Planning) process and successfully navigating these ongoing disruptions. Forward-thinking companies are gaining an advantage as they have planned ahead to be agile, pivot quickly, and most importantly, are ahead of the curve in securing capacity. For example, a proactive client moved production from China to Vietnam ahead of the pandemic when China shut down production with Zero-COVID policies. Again, they are ahead of the curve by expanding capacity in Mexico and the U.S. to ensure sufficient capacity to supply key customers. While the competition struggles, they can provide rapid deliveries with increased prices and gain long-term customers.

The key is to proactively address these issues to mitigate the impacts to the customer and cost, and longer term, to revise your manufacturing and supply chain footprint and network to best support profitable growth and mitigate risk.

If you are interested in reading more on this topic:
Supply Chain Risk Has Risen to the Top with the White House Council

The post Supply Chain Volatility, Risk & Capacity Remain Critical Priorities as Highlighted by Mexico Train & Red Sea Delays appeared first on LMA-Consulting Group, a supply chain consulting firm.

Supply chain optimization must remain a priority as disruptions continue. For example, although the Panama Canal started experiencing issues in the summer (refer to our article for details), it has been worsening lately. 40% of the goods movement from Northeast Asia to the U.S. East Coast go through the Panama Canal, and so the Panama Canal issues are driving shortages, late deliveries, and re-routing of goods.

Panama Canal Issues Worsen

Drought conditions are creating a new round of disruptions:

• Reduced container ships: by > 50% (from 40 to 32 earlier in 2023 to 25 Nov, 20 Jan & 18 Feb). 
• Restrictions on ship draft: to a maximum ship draft to 44 feet (vs. 50 feet) – requiring larger ships to sail light or unload, rail across & reload 
• Capacity restrictions: Neopanamax locks (handling larger ships) restricting to capacity by 50% (from 10 to 5 per day)
• Gas container ship impacts: LNG and VLGCs (very large gas carrier) will experience the greatest impact since deprioritized 

Inflation impacts: Creating inflationary pressures, shortages and delays. Some ships paying up to $4M to go to the head of the line

The China Risk

In addition to the disruptions to the Panama Canal, there are other risks associated with the Panama Canal. Hutchison controls the terminals at both ends of the Panama Canal. Thus, if China wants to “control” the flow through the Panama Canal, they can do so via Hutchison. It is an important risk to consider.

Responses to the Panama Canal Issues

Proactive executives are not waiting to see how this turns out. They are pivoting. Several of the actions include the following:

• Alternate routes: Depending on the start and end point, companies are pursuing different routes. These include the Suez Canal and sailing around the southern tip of Africa or South America.  
• Alternate modes of transportation: Depending on urgency, and start/ end points, companies are using air freight, rail etc.
• Alternate routes & modes of transportation: Companies are also going to an alternate U.S. port and sending product via rail or truck to its destination.
• Moving and/or reallocating manufacturing: Companies are certainly pursuing reshoring, nearshoring, and expanding manufacturing to minimize risks and shorten lead times. In addition, if they have multiple facilities and/or contract manufacturers, they are proactively moving manufacturing to support customer needs and mitigate risks.
• Forward position inventory: Depending on the manufacturing and distribution network, clients are also positioning inventory close to customers so that they can absorb additional disruptions without impacting customers.
• Change distribution network: Clients are also moving and expanding their distribution networks to better support customers. They are doing this in creative ways, sometimes partnering with customers, suppliers, and competitors.

The key is to proactively address these issues to mitigate the impacts to the customer and cost, and longer term, to revise your manufacturing and supply chain footprint and network to best support profitable growth and mitigate risk.

If you are interested in reading more on this topic:
Supply Chains are on the Move

The post Supply Chain Optimization Remains a Priority as the Panama Canal Worsens appeared first on LMA-Consulting Group, a supply chain consulting firm.

CLAREMONT, CALIFORNIA – December 20, 2023 –  Manufacturing and Supply Chain Consultant Lisa Anderson, MBA, CSCP, CLTD and President of LMA Consulting Group Inc., emphasizes the critical necessity of prioritizing supply chain optimization as global disruptions continue. Key issues, such as the worsening conditions at the Panama Canal, have been highlighted as significant contributors to the ongoing supply chain crisis. LMA Consulting Group specializes in supporting manufacturers and distributors in strategic planning and comprehensive supply chain transformation, focusing on enhancing the customer experience and robust business growth.

The Panama Canal, a critical passage for 40% of the goods moving from Northeast Asia to the U.S. East Coast, is experiencing severe disruptions that are intensifying supply chain challenges globally:

• Drastic Reduction in Container Ship Capacity: A decrease in container ships by more than 50%.
• Draft Restrictions: Limitation of the maximum ship draft to 44 feet, necessitating larger vessels to sail light or undergo complex reloading processes.
• Capacity Cuts at Neopanamax Locks: A halving of the daily capacity, now limited to 45 ships per day.
• Impact on Gas Container Ships: LNG and VNLCs face significant operational challenges and delays.
• Inflationary Pressures: These disruptions are contributing to inflation and causing delays, with some ships incurring costs of up to $4MM for expedited transit.

In addition, the control of the Panama Canal terminals by Hutchison, a company with connections to China, presents a potential geopolitical risk. This, coupled with the most recent challenges for ships going through the Suez Canal, will impact the flow of goods, posing additional layers of risk for global supply chains.

“There are proactive measures that companies can take,” noted Ms. Anderson. “Alternate routes, diverse transportation modes, manufacturing and distribution adjustments and inventory strategies can proactively address challenges and minimize impacts on customers and costs.  In the long term, revising the manufacturing and supply chain footprint is essential for sustainable growth and risk mitigation,” she said.

For deeper insights into navigating the complex landscape of global supply chains, download Ms. Anderson’s special report The Road Ahead: Business, Supply Chain & The World Order and her eBook SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.

About LMA Consulting Group – Lisa Anderson, MBA, CSCP, CLTD

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., specializing in manufacturing strategy and end-to-end supply chain transformation.  Ms. Anderson is a recognized Supply Chain thought leader by SelectHub, named a Top 40 B2B Tech Influencer by arketi group, a Top 16 ERP Expert to Follow by Washington-Frank, in the Top 10 Women in Supply Chain by Warner PR, in the top 55 Supply Chain & Logistics Experts by flexport, and a woman leader in Supply Chain by RateLinx.  Her primer, I’ve Been Thinking, provides strategies for creating bold customer promises and profits. An expert on the SIOP process (Sales, Inventory Operations Planning), advancing innovation, and making the supply chain resilient, Ms. Anderson is regularly interviewed and quoted by publications such as Industry Week, Bloomberg, Fox News and The Wall Street Journal. For information, sign up for her Profit Through People® Newsletter or for a copy of her book, visit LMA-ConsultingGroup.com.

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Media Contact Kathleen McEntee | Kathleen McEntee & Associates, Ltd. | p. (760) 262 – 4080 | KMcEntee@KMcEnteeAssoc.com

The post Lisa Anderson, Manufacturing & Supply Chain Expert Emphasizes Urgent Need for Supply Chain Optimization Amidst Ongoing Global Disruptions appeared first on LMA-Consulting Group, a supply chain consulting firm.