The Minimum Wage Hike

California’s minimum wage went up to $20/hr. for fast food restaurants with at least 60 locations nationwide that do not make bread. This law is causing widespread unintended consequences. For example, Fosters Freeze in Lemoore closed suddenly after the wage hike. Mod 5 Pizza is closing five locations. There are widespread price increases including at In n Out, Burger King and more. Significant layoffs are also occurring at restaurants like Pizza Hut, Round Table Pizza, and Auntie Anne’s as companies determine how to deal with the wage hikes while maintaining profit levels. Some franchise owners are “on the move” to states with less regulation such as Nevada. It will also negatively impact manufacturing and supply chain as companies compete for resources and increase prices. The Skills Gap and misalignment of high-skilled and low-skilled jobs will worsen.

More Shortages & Sky High Prices…..NOT Chocolate!

The price of cocoa has doubled in the last year. After three years of poor cocoa harvests with a weak outlook, the supply of cocoa has been slashed. Thus, prices are escalating and shortages are becoming widespread. Processing plants are saying they cannot afford to purchase the beans. For example, 60% of the world’s coca is produced in Africa’s the Ivory Coast and Ghana, and these plants have stopped or cut processing. Unfortunately, there is a massive misalignment of demand and supply which is creating supply chain shortages and causing inflationary pressures. In addition, substitutes are starting to occur. To read more about persistent shortages, see our article, “Supply Chain Shortages Remain a Concern“.

Egg Inflation

The largest producer of fresh eggs, Cal-Maine Foods, Inc. temporarily shut down one of its facilities due to the bird flu. It also resulted in the depopulation of 1.6 million hens. These issues are bound to lead to further price increases. Egg prices increased over 8% in the last month, have more than doubled since before the pandemic, and are bound to go even higher as potential shortages loom. What is the bottom line? Supply and demand misalignment is creating havoc throughout the supply chain.

It Isn’t All About Food

Oil and gas prices are increasing again, which will have an impact on countless products from medical devices to electronics and industrial machinery. Since the supply chain has been thrust into chaos throughout the world (listen to our recent Supply Chain Chats on what’s going on in the global supply chain), container shipping rates are increasing. And after the recent bridge collapse in Baltimore, the automobile supply chains have been disrupted, and it is likely to lead to inflationary pressures. No matter the product, supply chain risks have been heightened.

How to Navigate

Unfortunately, there is no easy answer and magic wand to resolve the shortages and realign demand with supply. On the other hand, the focus of SIOP (Sales Inventory Operations Planning) is to align demand with supply and provide the visibility and insights to proactively navigate these rough waters. For example, clients are reallocating capacity among production facilities, making make vs buy decisions, offloading to supplement short-term spikes in demand, and maximizing customer and product profitability with a SIOP process. To learn more about these strategies, download our complimentary book, SIOP: Creating Predictable Revenue and EBITDA Growth.

In addition, there is no doubt the proactive clients are finding ways to leverage ERP systems and advanced technologies to automate, digitize and better navigate these trying circumstances. For example, a healthcare products manufacturer is using artificial intelligence and robotics to produce standard product with minimal resources so that they can dedicate their high-skilled talent to their complex product lines supporting aerospace and defense. Another client is pursuing additive manufacturing/ 3D printing to get a leg up on the competition and bring down lead times to support growth plans. There is plenty of opportunities if you look for them!

If you are interested in reading more on this topic:
How Do You Rate in Your Supply Chain?

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The Francis Scott Key Bridge Collapse

Horribly, a container ship collided with the Francis Scott Key Bridge, and much of the bridge collapsed. Cars went into the water, and it has become a deadly disaster. Our thoughts go out to the families impacted.

As we commented in Inc., from a supply chain point of view, it has caused significant near-term impacts and extended disruptions in the region. Transportation bottlenecks immediately emerged. Container ships, trucks, and rail were all impacted.

Port Impacts

It just so happens that the collapse of the bridge cut off the Baltimore port by in essence setting up a wall between the port and the Chesapeake Bay. The bridge’s collapse means that for the foreseeable future, it won’t be feasible to get to the container terminals. The port is likely to remain closed for several months and traffic diverted. This port is the 5th largest container port on the U.S. East Coast and the busiest port in the region for handling roll-on/ roll-off cargo such as cars, light trucks, construction and farm equipment, and more. The port also handled sugar, furniture, home appliances, coal, and other items.

Near-term, container ships will be diverted to nearby ports such as New Jersey, Pennsylvania, and Virginia ports. There will be delays, congestion, and diversions. Most likely, these delays will be relatively short-term as they are absorbed to nearby ports; however, it is another disruption in the global supply chain with short-term and long-term implications. As we communicated in a recent article on the impacts of the drought conditions in the Panama Canal and container ship attacks in the Suez Canal (both impacting shipments from Northeast Asia to the East Coast), this is an additional disruption at the East Coast ports. Thus, some shippers are likely to divert to the West Coast ports and rail or truck product to the East Coast.

Regional Logistics Impacts

There are 3,200 sites involved in logistics, distribution and warehousing nearby the port and bridge. Thus, there will be severe near-term disruption in the region. The timing will be heavily dependent on how quickly the debris can be cleared to restore safe passage in the area. Some experts believe this task could be accomplished in the next 1-2 weeks whereas others say it could take months. With that said, with the ports closed and diversions underway, it will take time for the supply chain to level out.

Trucking Impacts

According to the American Trucking Associations (AMA), almost 4,900 trucks travel the bridge each day, with $28 billion in goods crossing each year. There are alternate routes; however, there are issues associated with several of the options. For example, the two tunnel options to cross Baltimore harbor cannot carry hazardous materials, and there are height and width restrictions on the tunnels. Thus, trucks will be diverted on I-695 on the western side of the city. These diversions will cause additional delays, diversions, and cost.

Industry Impacts

The auto industry will experience the most significant impacts because the Baltimore port is the top American port for the import and export of cars. BMW, Volkswagen and Mercedes-Benz have facilities close to the port to handle vehicle shipments, and Mazda is had the highest dollar value of imports. The auto industry supply chain will be resilient but it will be another disruption after finally returning inventory to pre-pandemic levels.

The energy industry might experience disruption as well. There could be a disruption in coal supplies, gasoline and ethanol. The oil industry will have to find alternate routes for barge deliveries and/or pursue alternate modes of transportation (trucking). CSX transports imported coal and is communicating expected delays.

SIOP & Backups

It is quite clear that a single backup is no longer sufficient. You must proactively plan for likely risks and think 3 steps ahead of your competition to succeed in today’s global supply chain. SIOP (Sales Inventory Operations Planning) is a process to align demand with supply. It provides visibility across the supply chain so that companies can take proactive actions to mitigate risks, source backup sources of supply, and pivot with changing circumstances. For example, there is significant regional manufacturing, reshoring, and nearshoring occurring. To learn more about these strategies, download our complimentary book, SIOP: Creating Predictable Revenue and EBITDA Growth.

If you are interested in reading more on this topic:
How Do You Rate in Your Supply Chain?

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Manufacturers wish they left supply chain shortages behind after the pandemic, but they remain top of mind. Concerns remain. According to KPMG, “71% of global companies highlight raw material costs as their number one supply chain threat for 2023.” And the trend isn’t ceasing. According to a survey by LeanDNA and Wakefield Research, supply chain shortages remain a leading concern for manufacturers as they look to the future.”

In fact, if you look at the pharmaceutical industry, shortages have been creating havoc. For example, there have been shortages of over-the-counter drugs and prescription medications for ADHD, cancer and diabetes have been widespread. There has been commentary about a spike in demand, but there are also comments about manufacturing delays. Of course, this is before we discuss the state of logistics disruption.

In addition to product, material and healthcare shortages, clients are experiencing a severe shortage of high-skilled talent and are struggling to upgrade ERP systems and related technologies. These issues are aggravating the shortage situation as multiple clients have the lack of system support creating further shortages and work stoppage in addition to frustrating their employees.

It is simply creating havoc as people jump into jobs they are not prepared to execute, and Executives are struggling to understand why their resources no longer seem to have the expertise they used to have. Worse yet, if they don’t realize this is occurring, the situation gets worse as employees make poor decisions and struggle to keep up. Refer to our article, Where the Talent Has Gone & Strategies for Success.

Strategies for Success

Customers will not suffer endlessly as shortages persist. They will find alternative sources of supply, source from different regions of the world, find backup sources, search for suppliers that can provide visibility and status of the end-to-end supply chain and invest in reshoring, nearshoring, and expanding regional manufacturing footprints.

Thus, proactive executives are getting ahead of these challenges. We have no doubt that the companies that can supply critical items in the next several years with uninterrupted supply will lead their industries for decades to come. What are some of the best practice strategies being deployed?

1. Go back to the basics: It is simply surprising how many clients are running into problems with the fundamentals. Who knew a best practice was to return to basics! According to a leading authority on the subject of generational diversity in the workplace, the younger generations is struggling with ambiguity and decision making. This has proven to be “on the mark” as clients have employees stuck and struggling as they don’t know why the computer is spitting out answers that are wrong and what to do about it. Thus, we are jumping in to define processes, educate on concepts and help clients over this unexpected bottleneck. Perform a supply chain assessment to quickly size up where to focus. Take our complimentary supply chain assessment quiz.
2. Planning best practices: There is no doubt that production planning, materials management, replenishment planning, and each planning expertise is in limited supply yet is cornerstone to mitigating shortages and getting in front of demand. Refer to recent examples of how this topic can make or break success in our recent article.
3. SIOP (Sales Inventory Operations Planning): One of the single best strategies to get in front of changing conditions and ensure profitable growth is to rollout a SIOP process. A SIOP process will align Sales with Operations, demand with supply, and, most importantly, it will provide a proactive view into changing circumstances with recommended solution options, impacts on product and customer profitability, heads up to capacity bottlenecks, and sales funnel changes. Read our book, SIOP: Creating Predictable Revenue and EBITDA Growth.
4. ERP, advanced technologies & automation: No client will succeed with manual spreadsheets long-term. The most successful clients are better utilizing their ERP systems to provide enhanced visibility, flexibility, and service while also pursuing advanced technologies (digital twins, artificial intelligence, IoT, robotics, meta) and automation to improve efficiencies, reduce errors, and increase scalability and profitability.
5. Innovation: Continuous improvement is no longer enough. Only those companies that innovate and turn 1+1 into 22 with collaborative partnerships will succeed.
6. Trends & Metrics: Although it is essential to review progress and results by tracking key performance indicators like OTIF (on-time-in-full), production output, and inventory turns, it is even more important to be focused on “where the puck is going” (not where it has been). Tracking trends, listening to diverse perspectives, researching and trialing new and potential trends is the focus of our most successful clients.
7. Regional manufacturing: Although this topic should arise through your SIOP process, our money is on regional manufacturing. Clients must take control over their ability to service customers. Reshoring, nearshoring, expanding manufacturing and collaborative partnerships are hot topics. For example, even industries such as medical device, pharmaceutical, and computer chips are joining aerospace, food & beverage, industrial equipment, and building products to produce close to customers.
8. Talent: We’d be remiss not to mention that talent will “win” in the end. Attract, hoard, develop, train, and mentor talent!

Shortages are persisting. Geopolitical tensions remain high. Critical supplies such as computer chips, medical supplies, and aerospace and defense products are providing evidence that it isn’t just a lack of “nice-to-have” items. Pursue strategies to ensure you are ahead of the curve, and your business will thrive.

If you are interested in reading more on this topic:
Why Manufacturing Matters and Will Thrive in the Next Decade

The post Supply Chain Shortages Remain a Concern: Strategies for Success appeared first on LMA-Consulting Group, a supply chain consulting firm.

Status of the Medical / Healthcare Supply Chain

The supply chain has calmed down since the height of the pandemic; however, smart manufacturers are thinking ahead to changing conditions. Geopolitical risks are at an all-time high. The Russia-Ukraine war rages on and Israel and Hamas are at war which has spilled over to the Iran-backed Houthis rebels attacking container ships in the Suez Canal, disrupting a major shipping lane.

Additionally, China continues to threaten Taiwan which produces 90% of the advanced computer chips for the world and an important component in medical devices. China is also being very aggressive in the region which could impact shipping lanes through the South China Seas, manufacturing in China and manufacturing in countries in the region. Since China dominates the medical device supply chain, this is concerning. Thus, proactive manufacturers are moving towards regional manufacturing. This trend started following the pandemic (refer to our quote in a MPO Medical Products Outsourcing article) and has been picking up steam.

Reshoring & Expanding Manufacturing Capabilities

According to Xometry’s Medical Industry Survey, medical device manufacturers are rapidly reshoring operations to strengthen their domestic supply chains. In fact, 67% of medical device manufacturers are in the process of reshoring operations within the next 12 months. There is a focused effort in rethinking supply chain strategies.

Although many companies are reshoring, executives remain concerned about the cost impact of expanding production in the USA. The good news is that labor costs have decreased as a percentage of total cost dramatically since the offshoring craze while other costs have increased, making reshoring more attractive. For example, transportation costs were heightened during the pandemic and have been impacted by the Panama Canal drought, the diversions of the Suez Canal, and other supply chain disruptions. The cost of capital has increased significantly with the increase in interest rates which has made the cost of carrying inventory much higher. And there are many other costs to consider in the total cost to produce. In fact, the total cost of product can be equivalent or even less in the USA in some non-commodity situations.

Many advancements have been made in manufacturing and technology. Companies are automating and digitizing their manufacturing and supply chain. For example, they are using 3D printing/ additive manufacturing, robotics, artificial intelligence with IoT, and other advanced technologies to improve efficiencies and enhance visibility. As manufacturers expand their manufacturing footprint, source new regional suppliers and reshore production, these advanced technologies maximize operational performance and minimize cost while maintaining and improving customer service levels with lower inventory levels. Thus, margin concerns are mitigated depending on the upgrades and improvements to the manufacturing process.

In the medical device industry, companies are starting to expand regional manufacturing in the USA. For example, Ascential Medical & Life Sciences is reshoring to Minnesota. Their new state-of-the-art facility has highly innovative automation solutions, making reshoring financially viable. Certainly, they are not alone. Companies are expanding operations in the USA.

Manufacturers are also nearshoring to the region. Mexico has expertise in medical devices and the ability to scale. Since customer requirements are significant in North America, the ability to scale in the US and Mexico is a relevant factor. The availability of advanced manufacturing and technical skills is also an important factor. Medical grade material supply can be sourced nearby, and the USA is ramping up computer chip manufacturing capabilities. For high labor component products, Mexico provides an excellent option because their labor rates are lower than China, and they benefit from the USMCA agreement between the two countries.

Although the USA and Mexico are great options with scale, there are additional medical device manufacturing hubs in other nearby countries. For example, Costa Rica has advanced skills, computer chip manufacturing, and therefore a thriving medical device manufacturing concentration. The Dominican Republic has medical device manufacturing, and Puerto Rico is known for pharmaceutical manufacturing.

Manufacturing Resurgence

There is no doubt that the successful companies will mitigate risk and manufacture regionally. Thus, the USA, Mexico and business friendly countries will experience a resurgence in manufacturing in the next decade. It will require investments in manufacturing, tooling, and other resources although there are opportunities to keep costs intact or even reduce total product cost.

The most successful companies will upgrade their processes, ERP systems, utilize advanced technologies, maximize customer and product profitability and proactively manage these opportunities with a SIOP (Sales Inventory Operations Planning) process. Assess your supply chain to learn how you stack up. Take our complimentary supply chain assessment. Upgrade, innovative, get ahead of the competition, and thrive.

If you are interested in reading more on this topic:
Why Manufacturing Matters and Will Thrive in the Next Decade

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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.

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

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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

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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.

No client has enough high-skilled talent. In fact, it is the single largest issue facing executives. The skills gap is severe for high-skilled roles. Yet any company that wants to succeed is automating, digitizing, and utilizing advanced technologies such as robotics, additive manufacturing, and predictive analytics. These advanced programs automate low-skill jobs and increase the need for high-skill resources. Do you have the talent?

Where Has the Talent Gone?

So where has the talent gone?

• Baby Boomers shrinking: Baby boomers are retired or retiring at a quick pace, and the generation is shrinking. As the largest generation in history (although recently surpassed by the Millennial Generation), the brain drain is extreme. Although many clients do not fully appreciate the issue until it is too late, the experience and dedication that is retiring is extreme.
• Gen X Stretched: The generation following the Baby Boomers (Gen X) is no where near as large, and the pandemic seems to have spurred folks into early retirement or a change of career. The remaining leaders are simply swamped and running around like chickens with their head cut off – and extremely frustrated unless appreciated.
• Work life balance has shifted: The 24/7 days that were common for decades are no longer common or desired. Although it is no longer common, the expected results and profit growth has not changed. Thus, there is a quandry.
• Increased Demand: As advanced technologies are utilized, the demand for high-skilled talent increases.
• Shortage of technical talent: Technical colleges and apprenticeships have not kept up with demand.
• Lack of training & education: We haven’t invested like we should have in training, education, and mentoring. It was “easy” for many years to simply hire the talent needed. Now we must build it.

Client Examples

Unfortunately, there are countless client examples we could provide on the lack of talent as it is a widespread problem. A widespread and surprising issue that has arisen recently across multiple industries, client sizes, and geographies is the lack of fundamentals. For example, two of our best clients have expressed frustration that such a bedrock topic such as inventory accuracy is requiring consulting support. Although it is certainly not rocket science and shouldn’t require a supply chain consultant to figure out, it continues to create consulting project bottlenecks.

Thus, both clients ended up needing support to roll out transactional process disciplines to improve customer service and meet audit requirements. From our project perspective, we could not build a house on a faulty foundation, and so we had to start by shoring up the base. We supplemented internal talent by collaborating across functions, figuring out how to best utilize the ERP system to support business processes, documenting processes and rolling out process disciplines while integrating with the daily routine, developing metrics, and providing training and education. Once we had a sustainable process in place, we upgraded business processes with advanced processes such as SIOP (Sales Inventory Operations Planning) and ERP and technological improvements such as business intelligence and predictive analytics.

In two other client examples, base process disciplines such as date changes were not occurring. Unfortunately, when fundamentals such as updating sales order dates and work order dates are not occurring, manufacturing, purchasing, shipping, and the rest of the organization can become disjoined and chaotic. In one client, the client incurred 800 hours of changeover time because no one could determine the schedule, and the sales team required that the schedule change back and forth to satisfy customers. Thus, we works hand-in-hand with the production site to roll out a production schedule and brought past due down to close to zero and doubled schedule adherence.

In another client, the planning team received hundreds of emails a day from Sales on orders yet didn’t have clarity on date expectations from the customer or from Purchasing as to when materials would be available. Something had to change! Clearly, the situation caused unnecessary chaos. Thus, we worked with the client to upgrade process disciplines, define the use of date fields and timing of transactions, and roll out training, education and metrics across the board. Email traffic went down and customer service went up rapidly.

The Bottom Line

There is a lack of talent. No matter where in the world we ask, thus far, we’ve received the answer that there simply isn’t enough talent. The leaders that take control and attract, retain, and develop talent will thrive and have more opportunities than ever before. The countries with proactive leaders who find creative solutions to this talent shortage will lead the rest. Where will you stand?

If you are interested in reading more on this topic:
Lost Revenue Due to Lack of Resources: How to Attract People to Your Company

The post Where Is Your Supply Chain Talent? appeared first on LMA-Consulting Group, a supply chain consulting firm.

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

The post Supply Chain Resilience Has Risen to the Top with the White House Council appeared first on LMA-Consulting Group, a supply chain consulting firm.