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 White House has launched a cabinet-level supply chain council as the criticality of the topic rises to the top. Although they emphasized the minimization of supply chain disruptions as it relates to inflation, our perspective is that the supply chain is much bigger than that. From national security to securing supply chains of the future, there is tremendous work that industry must take on at a dramatically accelerated pace for companies that want to thrive 5 to 10 years from now.

Why Supply chain Resilience Matters

China is the largest manufacturer of the world and there are many risks rising to the top. For example, China is quietly working on several fronts:

• Supporting Russia and Iran behind-the-scenes (buying up oil etc.)
• Threatening Taiwan (which produces 90% of the advanced computer chips in the world)
• Threatening goods movement in the South China Seas (risking shipments to/from Asia)
• Buying up and/or taking control of farmland, critical minerals, ports/ terminals (including control of the Panama Canal), and other infrastructure around the world
• While the US has decreased carbon emissions by 20% since the peak, China is expected to be at an all-time high in 2023. They permitted 2 coal plants per week in 2022.

There are other risks throughout the world. Look no further than the Russia-Ukraine war, the Israel-Hamas war, etc. Each of these events impact the supply chain. In addition, there are the many disruptions carrying on since the pandemic caused by a variety of factors including lack of resources (labor, materials), weather, strikes, etc. The baby boomers are retiring at a quick pace, creating a shortage of resources we haven’t seen in our memories.

Thus, supply chain resilience has become of paramount importance.

Supply Chain Resilience Path Forward

Unfortunately, there is no 5-step plan to check off to create a resilient supply chain. The bottom line is that it requires confronting reality, uncommon common sense, execution of process disciplines, innovation, and a willingness to take smart risks and invest wisely.

Our proactive clients are jumping on creating a resilient supply chain. In no special order, they are following several of the following strategies:

• Rapid assessment: It helps to know where you are starting (strengths, weaknesses, risks, priorities) so that you can focus efforts rapidly. Learn more about LMA’s complimentary supply chain assessment. 
• Reshoring: Getting manufacturing under better control
• Nearshoring/ Friend shoring: Bringing manufacturing closer to consumers/ customers to minimize disruptions and lengthy transit times.
• Backup sources of supply: Pursuing multiple backup sources of supply to cover for unexpected issues.
• Securing funding to support resiliency and growth: Investments are required (technology, people, infrastructure) to create supply chain resiliency.
• Implementing technology to support resiliency: Smart executives are upgrading ERP and related technologies (IoT, AI, CRM, customer/supplier portals, business intelligence, etc.) to increase visibility, automate mundane tasks, and upgrade the customer experience.
• Cross-training internal & external: In addition to cross-training resources to backfill key roles, smart executives are supplementing resources with consultants, collaborating with supply chain partners, and finding creative solutions to ensure customer service and profitable growth during volatile times.
• Moving from vendors to partners: Vendors will not be there when you need them. Vendors implies price. Upgrading to suppliers is a step in the right direction; however, during the risk laden times, partners are needed.
• SIOP (Sales Inventory Operations Planning): Upgrade your demand and supply planning to get in front of what’s needed to create a resilient supply chain with a SIOP process. Learn about SIOP, also known as S&OP, and read our recent article on moving manufacturing forward instead of backwards with SIOP.

The Bottom Line

There are many more strategies you should pursue to ensure supply chain resiliency. Start with a rapid assessment while jumping on at least one strategy that supports your company objectives. Don’t just add a program and assign your already limited resources to another priority. Instead, do the hard work to determine what will make a difference and focus your resources.

If you are interested in reading more on this topic:
A Resilient Supply Chain Built for Competitive Advantage

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Lisa Anderson was quoted in a Harvard Business Review report about supply chain volatility and uncertainty that are part of the new normal.

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Since early 2020, supply chain disruptions have captured global attention like never before. Newspaper headlines reported dramatic events ranging from surging toilet paper demand to empty store shelves to a ship blocking the Suez Canal. These events only worsened the existing global supply chain crisis. Much of the disruption was pandemic-related, but it hasn’t waned nearly as much as Covid-19 has. Many organizations find that supply chain volatility and uncertainty are part of the new normal.

Consequently, companies find it difficult to accurately predict demand. In
February 2023, Harvard Business Review Analytic Services conducted a
global survey of 459 respondents familiar with their organizations’ supply
chain operations. The survey found that of those whose organizations
execute demand forecasts, 69% say, on average, the accuracy of their demand
forecasts has been below 80% over the past three years. And respondents
are not particularly pleased by this result; only 8% indicate that they are
“very satisfied” with the average level of accuracy of their organization’s
demand forecasts.

Indeed, forecasts are inherently wrong. The questions often are just how
wrong a forecast will be and when that failure will occur.

Extreme Events Changed the Game

It is difficult for organizations to predict demand and plan operations if they can’t be certain about what lies ahead. Lisa Anderson, founder of Claremont, Calif.-based LMA Consulting, says the military term “VUCA”—volatile, uncertain, complex, and ambiguous—best describes global supply chains at present.

“Since the pandemic, new issues have arisen—the Russia-Ukraine war, for example—that are causing issues in many supply chains,” she says. “Oil and natural gas are used in the production of multiple products, and this affects everything from medical devices to fertilizer and food production. When you add the heightened tensions between the U.S. and China, and extreme weather events, the picture is one of continued disruption. We have to stop waiting for it to end. It’s not going to end.”

To read the full report, click here.

Originally published on Harvard Business Review, June 15, 2023

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Lisa Anderson was quoted in the Snowflake blog about how data is critical to healthcare – especially in times of supply chain vulnerability as a result of natural and man-made disasters.

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The COVID-19 pandemic, coupled with increasingly common climate-based natural disasters, showed us how vulnerable global supply chains are. But while a broken supply chain in the automobile industry may mean a shortage of spark plugs at your local auto repair shop, the same situation in the healthcare industry can result in the inability to effectively treat illness or injury.

Many of us tend to be surprised when we realize healthcare is not immune to market forces. Medical logistics includes medical devices, from oxygen pumps to scalpels; prescription drugs and other medication; personal protective equipment (PPE); healthcare furniture; and disinfectants. These are channeled through almost 6,100 hospitals and 67,000 pharmacies handling about 6 billion prescriptions in the United States alone. Cast the definition of logistics a little wider and you have to account for the indispensable human equation: doctors, nurses, technologists, specialists, and administrators. 

By innovating data sharing and collaboration with partners and agencies, we may be able to better identify and more quickly analyze the most vulnerable links of the healthcare chain, predicting supply chain shortfalls and other issues before they happen

Data is critical to healthcare, said Lisa Anderson, President of the LMA Consulting Group. “Data can lead to figuring out better where your product is,” she said. “It allows you to track the demand for your product, to keep critical supplies in stock where they need to be. Everyone I’ve talked to believes data sharing is the future. The problem is, it is really quite hard to get competitors to agree to share data when you don’t know if you’re going to come out on the equal side of that situation.”

To read the full article, click here.

Originally published in Snowflake, April 11, 2023

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In an era defined by disruption, organizations must be able to respond quickly to changing business needs and customer demands. In the past few years alone, a trifecta of events—the pandemic, political turmoil, and natural disasters—have wreaked havoc on the supply and demand equation, challenging organizations to rethink their supply chains so that they might build the visibility and flexibility needed to become more resilient.

A Resilient Supply Chain Built for Competitive Advantage: Report

Supply chains have been thrust into the spotlight recently, and for good reason. Customer expectations have evolved, sustainability is top of mind, and leaders are left navigating economic disruptions with legacy solutions that make it difficult to respond. Amid these challenges is the opportunity to reimagine supply chains to be more agile, connected, and adaptive. Simply put, the status quo is no longer sufficient. In recent years, we’ve seen how fragile existing supply chain networks are; disconnected and disparate systems lead to slow response times and limited visibility to orchestrate and triage disruptions in real time. But it doesn’t have to be this way. According to this new research from Harvard Business Review Analytic Services, 97% of respondents agree that a resilient supply chain positively impacts a company’s bottom line. While it may seem like an overwhelming time to examine existing systems, it’s clear based on the research that strategic leaders are ready to embrace what’s next. This report illustrates where the opportunity lies.

Disruptions Still Plague Supply Chain Operations

These days, customers, investors, and governments are increasing pressure on organizations to demonstrate greater environmental stewardship. By improving strategic sourcing practices, such as repurposing raw materials that might otherwise be scrapped, organizations can reduce waste while meeting the demand for supply chain sustainability. “Anything an organization can do to reduce waste improves sustainability,” says Lisa Anderson, founder of LMA Consulting, a supply chain consultancy based in Claremont, California.

To bridge critical supply chain capability gaps, organizations may want to begin by reimagining their digital infrastructure. Single-purpose solutions can lead to data silos and network issues, preventing supply chain practitioners from making fast and informed decisions as market conditions and customer preferences rapidly evolve.

It’s unsurprising that 82% of survey respondents do not agree that the digital tools their organization uses to manage their supply chain work well and do not need improving, with 67% blatantly disagreeing with this statement. Executives are taking note of these low levels of digital satisfaction; 76% of respondents say their organizations are currently implementing or are in the planning stages of implementing improvements to the digital infrastructure of their supply chain. At the same time, 71% say recent disruptions to the supply chain have caused their organization to rethink the supply chain technology they use. But rethinking supply chain technology and overhauling it are two different things. Replacing legacy systems with modern applications or retrofitting existing solutions with sensors and other advanced capabilities can be time-consuming and costly endeavors.

“Companies are concerned about investing, because some of these technologies and implementations are not necessarily for the faint of heart,” says LMA Consulting’s Anderson. “They’re concerned, but they shouldn’t be. The only way they’ll be successful going forward is to utilize technology.”

As originally posted in Harvard Business Review

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Originally posted in Adhesives and Sealants Industry in May of 2023

As the healthcare industry supply chain faces more challenges, supporting industries must be proactive, resilient, and innovative.

Although the visible bottlenecks in the healthcare supply chains are getting calmer, volatility will remain high. From the impacts of increasing interest rates and bank failures to labor and material shortages to global conflicts, the risks in healthcare supply chain will skyrocket. This situation will create as many opportunities as challenges, and so the proactive, resilient, and innovative companies will thrive while the rest diminish. The key will be deliberately making that choice and ensuring your end-to-end supply chain partners are on that same trajectory.

Current Status of Healthcare Supply Chains

Since the supply chain is an interlinked series of suppliers, manufacturers, and logistics partners, the bottleneck moves from one link to the next as demand and supply are out of alignment. During the pandemic, the visible signs were abundant with ports stacked up at the ports. Fast-forward to post pandemic and much of China was locked down for almost a year, the Russia-Ukraine region has been in war and the Great Resignation has grown across the world (reducing the number of people in the workforce to lower than pre-pandemic levels), severely limiting supply while demand raged as people started to spend money, catch up on medical appointments and live life again.

Thus, critical shortages and extended lead times remain while there is a glut of inventory in the “wrong” products in the “wrong” place at the “wrong” time, leading to continued disruption, inflation caused by limited supply, and recessionary signals caused by the cost of capital and the oversupply of “wrong” products throughout the supply chain. To make matters more challenging, global tensions are on the rise with China and several other countries that supply essential medical devices, key materials, and active pharmaceutical ingredients, as well as other critical commodities and components.

Inflation, Workforce Issues & Labor Shortages Adding to the Volatility

Inflation, workforce issues and labor shortages are further disrupting healthcare supply chains. The country faces a shortage of up to 124,000 physicians by 2034, including 48,000 primary care physicians, according to the American Medical Colleges. Of immediate significance, according to The American Hospital Association, 136 rural hospitals closed from 2010 to 2021 alone. And, according to the Chief Healthcare Executive, the Texas Hospital Association has warned that 1 in 10 hospitals in that state is at risk of closure, with nearly half of that state’s hospitals projecting negative operating margins. As these medical professional shortages persist and closures occur, patients still require attention. Thus, healthcare is on the move, and the supply chains will have to catch up. Thus, more of the “wrong” items will be in the “wrong” places at the “wrong” time., thereby creating additional disruption, inflation to move and/or transfer them (from one owner to the next), and inventory stockpiles in the “wrong” place.

The Successful Path forward

There will be more opportunity than ever before for proactive, resilient, and innovative companies to gain market share during these volatile times. The successful companies will take control. Starting by targeting their ideal customers, they will focus limited resources on what provides the most value to these key customers, including providing value-add services such as vendor managed inventory so that their customers have the “right” products in the “right” place at the “right” time with minimal resources and risk.

They will go further into their supply chain to assess risk and mitigate shortages of critical components and supplies due to resolvable issues such as delays in transportation and material and labor issues at a third-tier supplier. Reliability will be prioritized over cost, and additional suppliers will be qualified even though the cost and time required is high. Backup suppliers will be scalable to mitigate issues such as those that occurred in the baby formula market. And taking control of essential healthcare supply chains will become a priority as reshoring and nearshoring production gains momentum. For example, Costa Rica and Mexico are building strong medical device manufacturing clusters to support healthcare supply chains. And the successful will deploy technology to support the sustainability and scalability of these initiatives.

It is no longer sufficient to leave manufacturing and supply chain reliability to chance. The proactive, resilient, and innovative will thrive and gain the opportunity to grab market share from those remaining on the roller coaster of volatility. Think ahead, be proactive and be willing to invest in supply chains of the future to support your ideal customers and be uniquely positioned to grow and thrive.

Lisa is founder and president of LMA Consulting Group, Inc., a consulting firm that specializes in manufacturing strategy and end-to-end supply chain transformation that maximizes the customer experience and enables profitable, scalable, dramatic business growth. She recently released SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth as an e-book that can be found at https://www.lma-consultinggroup.com/siop-book/.

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Originally posted in Adhesives and Sealants Industry in February of 2023

Transportation has been in chaos since the pandemic. It started with logjams at the ports that persisted for multiple years, continued with atypical events such as the ship getting stuck in the Suez Canal and truckers blocking the border of US and Canada, and continues to rage on with labor shortages across the board in rail, trucking, and all transportation sectors. Although these specific transportation woes will eventually come to an end, since the supply chain is interconnected, new disruptions will arise. Instead of responding to each issue, the best will use a proactive approach to successfully navigate and stand out from the crowd with high service levels.

The transportation woes have certainly proven the importance of the transportation sector. If materials and ingredients don’t move, nothing will be produced and shortages such as the baby formula and children’s Tylenol shortage will persist. If fertilizer and food doesn’t move, grocery store shelves will be bare. If chemicals are not transported by rail, purified water will become scarce and medical devices will not be produced (as anything with plastic will be an issue). The one common element in every supply chain is the need to transport materials and goods from point A to point B. Thus, what could be more important than taking the proactive approach to navigating transportation woes.

Reshaping of Supply Chains

Do not assume that what worked in the past will work in the future. There is a reshaping of supply chains taking place. Supply chains are on the move. For example, manufacturers have realized they cannot rely on China and are reshoring, nearshoring, and friendly-shoring their supply chains. They are also sourcing new partners, putting backup suppliers in place, and derisking their supply chains. Distributors and retail has also realized they must take action to avoid the fiascos that occurred in recent history. For example, they are moving freight from the Los Angeles and Long Beach ports to the East Coast ports to avoid a potential port strike and backlog at the ports. Consumers have shifted to e-commerce, accelerating the need for last mile delivery. The only element staying the same is level of change.

Proactive Approach to Successful Navigation

Start by taking the long-term view and be willing to confront the realities of the changing landscape. Before jumping on the low price bandwagon as prices decrease across the transportation sector, think about the impacts of the reshaping of supply chains. As supply chains move, the transportation needs will evolve and change, creating further disruptions. Instead of negotiating price with potential suppliers, source reliable partners that will scale and adjust with your changing needs and who will provide the appropriate level of service for your target customers. Find win-win strategies to innovate, collaborate, and drive joint profitability.

Take a step back and assess your ideal customers’ future state needs. Using a SIOP (Sales, Inventory, Operations Planning), also known as S&OP, process, match these needs with your transportation capabilities, capacities, and contingencies. Proactively reshape and disrupt your supply chain and transportation infrastructure before it disrupts you. Change modes of transportation. Source new partners, divert resources to new regions, collaborate with unlikely bedfellows such as competitors, and secure resilient capacity when everyone else is cutting back. Success will follow if you persist.

It is no longer sufficient to respond to transportation disruptions. The resilient and strong will survive, yet the proactive and innovate will thrive. There will be more opportunity than any period in history including those who leapfrogged the competition for decades to come during the Great Depression. Think ahead, be proactive and create your future supply chain and transportation capabilities while your competition is securing a ten-cent price decrease. You will be uniquely positioned to grow and thrive.

Learn more about how to use SIOP to succeed during volatile times in our new eBook SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. Download your complimentary copy.

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