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.

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How Do You Rate in Your Supply Chain?

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The Baltimore disaster is expected to further compound the stress already placed on the global freight system. “Container shipping traffic has already been quite disrupted, because of the drought going on in the Panama Canal–ships from there [are] going through the Suez Canal to come to the east coast of the U.S. from Northeast Asia,” says Lisa Anderson, a supply chain expert and president of California-based LMA Consulting Group.

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Baltimore’s Business Community Grapples With Impact of Francis Scott Key Bridge Collapse

For founders in the city, the loss of a Baltimore landmark is about more than missed income.

Early Tuesday morning, a cargo ship collided with Francis Scott Key Bridge in Baltimore, immediately collapsing the structure and sending cars plunging into the Patapsco River.

The incident sparked waves of alarm throughout the country. In speeches, Transportation Secretary Pete Buttigieg and President Joe Biden pledged federal assistance in rebuilding efforts. There is no indication that foul play was the cause of the accident, according to the Baltimore’s FBI field office.

Rescue crews continued to search the area for six construction workers who were on the bridge when the Dali, a 948-foot cargo ship bound for Colombo, Sri Lanka, collided with a bridge pylon around 1:30am, according to multiple reports. Two additional construction workers had been rescued from the water, and one was taken to the hospital. No fatalities had been confirmed by Tuesday afternoon, officials said. The Dali, a Singapore-registered vessel, dropped anchor prior to impact after the ship lost propulsion, CNN reported. The Maritime Port Authority of Singapore, which confirmed the loss of propulsion to CNN, says it is in contact with the US Coast Guard and cooperating with investigations.

The National Transportation Safety Administration announced an investigation into the incident on Tuesday afternoon, noting it would probe whether the ship did in fact drop anchor prior to impact.

In addition to the psychological toll inflicted by a disaster, the bridge’s collapse has massive economic ramifications: Submerged in the river, the remnants of the bridge now block access to the Port of Baltimore, the ninth largest port in the United States. The detritus will cause a massive re-routing of all traffic heading to the Port of Baltimore to nearby ports on the northeastern seaboard, Lisa Anderson, a supply chain expert and founder of the LMA consulting group, explains to Inc.

Read the full article at Inc.

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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.

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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.

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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Israel was attacked by Hamas, and the world has another war in another region of the world. Since the global supply chain is interconnected, in addition to the devastation in the region, supply chain impacts will emerge. As I discussed with the Los Angeles Business Journal earlier this week, supply chain disruptions will impact every partner connected to the region in the end-to-end supply chain and/or those that must travel through the region.

Labor Shortages

Israel is already affected as companies are saying that employees are part of a mass call up of army reservists. Labor shortages were already causing challenges throughout the world; as key high-skilled labor must participate in the war, businesses will be impacted. In addition to labor shortages, Israel is a hub for advanced computer chips. In fact, it is one of the key regions aside from Taiwan for advanced chips. Intel produces chips for AI and self-driving cars. Nvidia produces chips for AI, and Apple designs some of its silicon in Israel.

Hub for Advanced Computer Chips

In addition to labor shortages, Israel is a hub for advanced computer chips. In fact, it is one of the key regions aside from Taiwan for advanced chips. Intel produces chips for artificial intelligence /AI and self-driving cars. Nvidia produces chips for AI, and Apple designs some of its silicon in Israel.

Import/ Export Impacts

Israel’s imports and exports are impacted. For example, Israel has significant trade with India, increasing from $200 million in 1992 to $101 billion in 2003. Israel exports fertilizer, electronic components, petroleum, and agro-chemicals. Other import/ export items include chemicals, plastics, metals, medical and industrial equipment and more.

Regional Impacts

Israel is in a critical region of the world known for producing oil. Since energy is vital to fuel manufacturing and supply chain, it is important in fueling the world. If the war in Israel expands beyond the country’s borders, it can pose a risk to two key shipping choke points: the Suez Canal, a key waterway for all types of commercial container ships, and the Strait of Hormuz, which is pivotal to oil and gas shipping. 

Impacts on the Supply Chain

In thinking about Israel’s impact on the region and the world, it is clear that many supply chain disruptions are likely to emerge. If your supply chain is dependent on a trading partner of Israel such as India, you could be affected. If you are dependent on advanced computer chips, your supply chain will be impacted, even if you get your chips from Taiwan.

Anytime there is a disruption in one node of the supply chain, it can expand to all nodes connected to that node. Almost every manufacturer and logistics organization is dependent on oil and natural gas and will be indirectly impacted with higher prices at a minimum. Equally concerning would be an expansion of the war that impacts the Suez Canal. We have evolved into a globally-connected supply chain, and successful executives will rapidly determine their risks and mitigate them.

Strategies for Success

Every forward-thinking organization is getting on top of their end-to-end supply chain. You need something like a supply chain control tower to keep track of potential risks and impacts with changing conditions so that you can successfully navigate changing circumstances. It is no longer for the large global organizations. If you want to succeed, you will dedicate resources to monitoring your supply chain.

Uncommon common sense will prove essential in the years to come. Sourcing backup materials and logistics suppliers is simply required. Knowing your partners will be essential. Since your viability might be dependent on your suppliers, you should determine if they are trustworthy, financially viable, and innovative. Thus, although having access to multiple suppliers in various regions is important, you will also have to consolidate efforts to just those that meet your requirements as a partner, not just a transactional vendor.

Smart executives are also pursuing reshoring, nearshoring and friendly shoring programs. To learn more about what the most successful companies are doing, read our special report, “The Road Ahead: Business, Supply Chain & the World Order“. Unless you can afford to risk your customers, you must take control of your supply chain. Don’t forget to evaluate geopolitical risks, energy, natural resources, and supplier networks as you pursue these strategies.

Following a SIOP (Sales Inventory Operations Planning) process that is forward-thinking and predictive to develop demand plans and sales forecasts is becoming even more vital. With heightened supply chain and geopolitical risk, the lack of resources and labor shortages, and escalating costs, only those that look forward and plan for how they will fulfill their orders profitably and with high service levels will succeed. They will be evaluating customer and product profitability, manufacturing capacities and capabilities, supply chain networks, pre-positioning of inventory and capacity, and the required resiliency to best support customer needs.

The Bottom Line

The supply chain is interconnected globally. A ripple in China can impact Europe. A weather event in Japan can influence the U.S., and a war in the Middle East will impact every region of the world. Assess your supply chain, its interdependencies, and your alternative and backup options. Put it together into a strategy and path forward to ensure you can meet your customer needs and deliver bottom line results.

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

The post Israel-Hamas War & Impacts on the Supply Chain appeared first on LMA-Consulting Group, a supply chain consulting firm.

Global supply chains are on the move. Executives have been hit with the harsh reality that the risk (supply chain, geopolitical, cyber, IP, etc.) is far higher than they realized when they outsourced with an eye to cost. In addition to that 80 pound gorilla, they also have suffered with delays, disruptions, and uncertainty in serving customers due to lengthy distances and logistical risk. Thus, supply chains are on the move. Strategies need to be rethought, the end-to-end supply chain assessed, and future customer needs evaluated to get in front of this changing landscape. SIOP (Sales Inventory Operations Planning) is a key process and toolset for successfully navigating this transition with profitable growth fueling the process.

Risks Abound in the Global Supply Chain

Risks abound in the global supply chain. From Russia-Ukraine to China’s extreme risk including threats to Taiwan to the increasing cyber risk, executives are struggling to navigate the global supply chain. A few critical points that “tell the story” of risk include:

• Russia-Ukraine war: The war has disrupted the critical commodities of oil and natural gas. Europe put sanctions on Russia which left them in a bad situation in getting enough energy to power their current lifestyle as well as critical manufacturing, logistics and infrastructure needs. Thus, Europe has been scrambling to address backup sources of supply. In the interim, Russia sold oil and natural gas to China and India. The end result is price escalation in addition to “supply on the move”. Oil and natural gas is used in countless products from medical devices to glasses to phones, thus impacting the global supply chain.
• The China risk factor: China is simply a mountain of risk. China is the number one manufacturer in the world and accounts for almost 30% of the world’s output. Thus, from internal issues (severe water and energy shortages with “solutions” of permitting two coal plants a week) to threatening Taiwan (putting 90% of the world’s advanced computer chips and 60% of the world’s standard computer chips at risk) to monopolizing rare earths (produces 60% and processes 85% of the world’s rare earths) to buying up critical infrastructure around the world (such as controlling both ends of the Panama Canal) and controlling the South China Seas, China wants to control the world’s supply chains.
• Talent & Technology: Resources are limited around the world. For example, according to EY and an iMocha report, 81% of organizations are experiencing a shortage in skilled tech workers. Similarly, the risk of cyber attacks and supply chain security issues increase with each passing day. For example, according to Deloitte’s report 2023 Global Future of Cyber Survey 2023, 91% of organizations report experiencing one or more cyber incidents or breaches.

And now Israel is at war. Volatility, uncertainty, complexity and ambiguity (VUCA) is at an all-time high in recent history. The bottom line is that risks have reached a level that is unacceptable to many executives.

SIOP to Devise a New Path Forward

SIOP (Sales Inventory Operations Planning), also known as S&OP is a process that will help you navigate changing business conditions (such as these extreme risks). SIOP starts with a view into your future customer demand (sales forecast, customer orders, quotes, CRM) and translates that into manufacturing and supply chain requirements. The process will highlight capacity constraints (production, storage, resource), upcoming bottlenecks, forecasts for investment (equipment, inventory, resources), make vs buy decisions, and customer/ product profitability opportunities.

For example, when consulting with an industrial manufacturer that was concerned about risks in the end-to-end supply chain, and so used the SIOP process to visualize what should be done. Based on their demand plan, they were able to see impacts to their supply plans and where risks were in their current manufacturing and supply chain. Thus, they assessed and took action to transition to backup sources of supply, expand their supply base into India, pre-purchase critical commodities to give them time to assess their future needs, and they expanded regional manufacturing by sourcing offload suppliers. By taking these actions, they were able to secure supply to meet their aggressive growth plans.

Assessing Strategies

In our book, “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth“, we discuss how SIOP will fuel transformative strategies for growth while mitigating risk.

• Supply chain footprint: SIOP looks forward to future customer requirements and determines how to reallocate manufacturing and change the supply chain footprint (reshoring, nearshoring, regional manufacturing, additive manufacturing) to support key customers and grow the business while mitigating risk in how product is manufactured, distributed, transported and delivered in the order fulfillment process. Vast changes are occurring. For example, Apple is moving from China to India, Dell is moving from China to Vietnam, HP is moving from China to Mexico, and Intel is building a ‘mega’ factory in Germany and expanding capacity in the U.S. with its first new manufacturing facility in 40 years.
• Supply chains on the move: As the supply chain footprint evolves, the global logistics landscape must change to support it. Thus, as I said at the IMUI international conference, shipping routes will change and evolve with changing business conditions and risks. For example, in addition to keeping up with manufacturing changes, as China becomes risk laden and the South China Seas becomes uncertain at best, companies will continue to move manufacturing and/or change shipping routes. As delays consume shipping routes such as the Panama Canal, companies will find alternatives, and as strike risks impact supply chains such as the West Coast ports, shipping routes move (and the East Coast gains in this example).
• Examining links: SIOP opens the door to examine every link in the chain. From enabling margin analysis by product groupings, customers, markets and regions to examining the customer experience, the SIOP provides for holistic as well as departmental strategies.
• Margin vs risk: SIOP also provides the data and process for evaluating cost reduction opportunities, pricing strategies, sales channel and marketing options, operations and supply chain alternatives, and inventory and capacity fulfillment options while assessing customer value-add business risk.
• Talent & Technology roadmap: Last but not least, SIOP translates demand and supply plans into talent and technology requirements. More importantly, the resource requirements can will be impacted by the technology roadmap, and so the best SIOP strategies proactively address talent and technology to optimize, digitize and thrive. There are simply not enough resources at any company. Only those that automate, utilize technology and innovate will survive, let along thrive.

As risks abound, the best in class will utilize the proven process of SIOP to proactively navigate changing conditions in a manner that is not only supportive of profitable growth but is also focused on critical risks and long-term success.

Innovation: A Forward Take on Risk

Beyond the uncommon common sense strategies to ensure predictable revenue and EBITDA growth, executives must develop a culture of innovation. The world has become not only complex and convoluted, but also a maze of geopolitical risk dependent on advanced technologies. These advanced technologies escalate risk further as they are dependent on commodities in risk abundant regions of the world and carry the threat of cyber attacks. Thus, the smart are innovating. Only forward-thinking innovators willing to do what most executives will not do (such as invest when everyone else panics) while remaining calm, resilient and strong will thrive for decades to come.

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SIOP/ S&OP Playbook: Creating Predictability & EBITDA Growth

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Although the supply chain challenges have abated since the COVID-19 pandemic, disruptions continue to persist and risks have increased. VUCA (volatility, uncertainty, complexity, ambiguity) has increased substantially in the world, negatively impacting the safety, security, and reliability of the supply chain. Successful executives are creating resilient supply chains to navigate these changing conditions, while the best find ways to create an advantage for future growth.

Most of the supply chain challenges have eased, creating an unrealistic expectation of normalcy. Yet, the risks still exist and remain elevated. Geopolitical tensions are high: The Russia-Ukraine war continues to rage, and Taiwan-China tensions are simmering. This leads to disruptions and shortages that don’t adequately support growth in customer service requirements, let alone overall growth trends in medtech.

Material Influences

Alloys are commonly used in medtech, but most are heavily concentrated in geopolitically challenged zones. Aluminum, for example, is used in many medical devices, yet the world’s top aluminum producers are China, Russia, and India.

Titanium is another key alloy used in medtech products, but the United States mostly sources the material from Japan, Ukraine, Russia, and other countries. The United States does not include titanium in the National Defense Stockpile. The reason for its absence is a mystery.

Cobalt—frequently used in such medical devices as hip and knee implants, surgical tools, and vascular stents—is sourced from the Democratic Republic of Congo, Russia, and Australia. The common thread with most of these alloys is their manufacturing base, which is concentrated in geopolitically challenged areas. Consequently, forward-thinking manufacturers must focus on the resiliency of these supply chains in order to avoid further disruptions.

Plastics—also used widely in medical devices—are derived from natural, organic materials such as cellulose, coal, natural gas, salt, and crude oil. However, the planet’s natural gas and crude oil supply is currently impacted by geopolitical events like the Russia-Ukraine war and regulations. The United States has limited crude oil production in order to save the environment but in doing so, it has become partially dependent on other countries and therefore is experiencing much more volatility in pricing and inflationary pressures. This limited supply and inflationary pricing will eventually be passed on to medical device manufacturers, potentially leading to cost-cutting pressures and inventory reductions. Unfortunately, this can become a circular issue because it leads to additional supply chain disruptions and a lack of agility in navigating these risks.

The dwindling reserve of computer chips during COVID-19 greatly impacted the medtech supply chain as well. Availability has eased considerably since the pandemic’s darkest days, when manufacturing in Asia ground to a near complete halt. It took quite a while to get supply moving again once the world reset, as China was plagued with intermittent Zero-COVID policy shutdowns. According to an April 2022 Deloitte study, more than 50% of respondents single-sourced semiconductors, although all were pursuing alternative suppliers. Such alternative sources were difficult to find, as 90% of the world’s advanced computer chips are produced in Taiwan and the largest overall producers are Taiwan, Japan, China, and Korea. Since the chip shortage, the United States has made significant investments to expand semiconductor manufacturing capabilities.

Labor Pains

There are a plethora of other reasons for continued supply chain disruptions. Labor strikes, for instance, can be particularly disruptive to supply chains. Both rail and UPS strikes were averted in the United States this past summer, but West Coast Canadian ports went on strike until a tentative deal was reached. The Southern CA ports reportedly have a tentative deal, but it hasn’t yet been ratified.

Since manufacturers cannot afford to be solely reliant on logistics providers that can bring production to a halt with foreseeable consequences, cargo volumes have been moving from the West Coast to the East Coast as a preemptive move. These types of changes occur frequently, which alter the global supply chain footprint and create additional disruptions. Proactive device companies will be able to successfully adapt to these changes with minimal impacts while unprepared firms will caught off-guard and risk losing business.

Labor issues remain a considerable pain point for the medtech industry as well as almost every manufacturing segment worldwide. Recruiting the appropriate amount of people to manufacture, distribute, and transport products is challenging, and can significantly impact a company’s ability to support customer requirements. The opening of a new semiconductor facility in Arizona, for example, has been postponed by a year due to labor challenges. The most successful companies find the best way(s) to attract, retain, and engage their employees and partners.

There is no shortage of potential supply chain risks and issues to address. Our most successful clients are turning these obstacles into opportunities by getting ahead of the game and preparing for success. Given the abundance of risks, a disruption will undoubtedly arise somewhere along the line, impacting competitors and other industry players. The best industry players will be prepared to absorb volumes from their struggling cohorts and service their customers. These companies will grow, expand their market share, and prosper. There are likely to be more opportunities for growth than at any other time in history for medtech organizations prepared for success and ready to take the plunge.

Although there is no shortage of supply chain improvement opportunities, it will be important to focus on the top priorities to gain maximum momentum. Otherwise, if everything is a priority, nothing is a priority. One priority across the board is to review supply sources. Securing backup supply alone will not suffice. Given the level of risk, at some point in the future, when things go wrong, it will not be feasible to secure supply at the scale required to satisfy demand unless a more robust plan is in place. For example, the best clients will purchase 20% continually from their backup supply sources so these sources can help them in the future.

Although the backup source may have to double or triple volume for a period of time, it is unrealistic to do that for extended periods of disruption. Thus, this strategy must be accompanied with additional methods.

Diversifying and expanding supply sources will be essential to prepare for success as opportunities arise. Smart executives are researching what makes sense in their industry, for their products, and given their supply chain footprint and expertise. One size doesn’t fit all. Medtech manufacturers are moving production and/or expanding capabilities in countries that support North American customer requirements. Mexico, Costa Rica, and the Dominican Republic are gaining significant volumes but they cannot produce to scale for the North American market rapidly. Mexico has the best opportunity as that country has experienced resources and is in close proximity to the United States.

Reshoring is another alternative. In today’s digital, automated, and robotic world, labor costs are not nearly as relevant. With investment in a culture of innovation as well as a deep dive into manufacturing and supply chain advancements and technologies, expanding U.S. manufacturing can be the best option. Reshoring enables companies to control their ability to scale up to meet customer demand and to control costs and inventories when scaling down. Investing in the appropriate technologies to improve the customer experience while minimizing labor and maximizing output will give medtech firms an advantage in the marketplace.

Reshoring in a regional cluster can provide further advantages of scale, flexibility, and responsiveness, resulting in rapid product development, quick problem resolution, and collaborative innovations, thereby improving margins.

Another critical supply chain process is SIOP (sales, inventory, operations, planning). SIOP will be essential in supporting an agile and forward-looking supply chain because it continually monitors changes to customer demand, changes in the business environment, how demand stacks up against manufacturing capacity and other sources of supply, and the risks and costs associated with alternate strategies. It also brings visibility to key strategic decisions so alternatives can be evaluated, and new options/ strategies developed. Most importantly, the process forces the organization to think about the future, evaluate and prioritize risks, and provides guidelines for decision making to ensure profitable growth and scalability.

Smart executives will establish a control tower to monitor their supply chain to ensure speed of responsiveness and resiliency. Although these actions will be essential to improving performance, the best, forward-thinking executives will take advantage of the disruption and confusion to turn disruption into opportunity. Preparation, innovation, and forward-thinking will create medtech’s future leaders. 

Originally published in MPO – Medical Product Outsourcing, 9/25/2023

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There has been a run of strikes or threats of strikes lately with the latest UAW strike impacting the Big 3 automobile manufacturers. If it lasts longer than a few days, there will undoubtedly be a huge impact on the end-to-end supply chain as well as the economy.

The two sides appear to be far apart in labor negotiations with employees asking to work 32 hours and get paid for 40 with a 40% raise while management agreed agreed to a 20% raise so far. As the strike spreads, it will impact additional manufacturing facilities and down-the-line supply chain partners. Unfortunately for the Big 3 automakers, Tesla and foreign automakers with facilities in the U.S. will be ready to pick up the slack. Alternatively, the workers have realistic concerns in that they haven’t been receiving cost of living adjustments with rampant inflation and regulations dictating electric cars which threaten their jobs. On the other hand, the non-union automakers do not have higher wages.

The economy doesn’t take sides. According to the Anderson Economic Group, if 143,000 UAW employees strike for 10 days, it could have greater than a $5 Billion dollar impact.

Supply Chain Impacts

In addition to severe economic impacts, the UAW strike will spread throughout the end-to-end supply chain.

• Suppliers: Suppliers will be impacted as orders are delayed and cancelled.
• Suppliers’ suppliers (multiple supplier tiers): The extended supply chain is vast supporting the auto industry. Impacts will carry down-the-line.
• Mix changes: If consumers need to purchase a car, they might switch to a different brand, changing the product mix of parts for the end-to-end supply chain. This is likely to lead to shortages, overages, and challenges. In essence, the right inventory won’t be in the right place at the right time because the demand has become unpredictable.
• Dealers & service centers: If the strike extends, it will impact dealers, service centers, parts and much more. Again, in this industry, it can spread like wildfire.
• Pricing: With limited availability, prices can go up. Inflation is already 20% higher overall vs 2019, and so additional inflation isn’t desirable as it directly impacts product cost, margins, investment, and consumers.
• Tesla & other car companies: If they can ramp up rapidly (scalability), opportunities abound. On the other hand, for consumers, prices are likely to increase.
• Wage increases: Strikes bring about more strikes. After all, if the railroads, ports, UPS and others didn’t gain a decent outcome due to the threat of strikes, it is doubtful the UAW would strike. As wages increase, price increases get passed on to the consumer and it spreads to other areas of the economy.

Transportation, goods movement, and industries with extended supply chains have such a large economic impact that these issues must be addressed rapidly to mitigate substantial supply chain risks.

Be Proactive

Don’t wait for strikes, down-the-line impacts, unhappy employees, or any of these issues to occur. Instead, take control of your supply chain. Here are a few strategies to deploy:

• Engage employees: One of the best ways to avoid strikes or stay non-union is to engage employees in their work.
• Empower employees: This goes hand-in-hand with engaging employees. Empower employees to make decisions within a reasonable guidepost.
• Prioritize your union negotiations & relationship: Clearly, if you have a union, there is a risk of a strike. How is your relationship? Are you prioritizing this relationship?
• Assess supply chain risk: Detail out the scenarios about how the strike might impact your business, your suppliers, your customers, and/or your extended supply chain.
• Backup sources of supply: No matter if you are related to this industry or not, you should prioritize backup sources of supply.
• Your supply chain network optimization: How should you change your supply chain to be resilient and prepared to scale up/ down etc.?
• SIOP (Sales Inventory Operations Planning): Put a SIOP process in place if you don’t already have one to stay ahead of changing conditions so that you are prepared to pivot, understand your alternatives, and are forward-thinking.

Don’t wait for problems to arise, especially when there are known risks. Stay on top of the risks in your industry, business, and end-to-end supply chain. Set your company up to be resilient, and monitor and adjust as needed.

The Bottom Line

Fingers crossed that a deal will be reached to avoid severe economic impact; however, we don’t want to trade an immediate economic impact for a long-term economic impact that will continue to spread through industry. Be vigilant, involve your executive team and get ahead of potential supply chain risks. If you want to learn more about SIOP, read our book of best practices for designing and implementing SIOP, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.

Please contact us with your stories, issues, and ideas on how these types of disruptions impact your company and end-to-end supply chain. And, please keep us in the loop of your situation and how we can help your organization with supply chain optimization, risk mitigation and supporting SIOP programs.

P.S. To get ahead of the curve on where to focus, download our complimentary report, and The Road Ahead: Business, Supply Chain & the World Order.

The post UAW Strike & Impacts on the Supply Chain appeared first on LMA-Consulting Group, a supply chain consulting firm.

The Panama Canal has a 40% market share for containers moving goods from Northeast Asia to the U.S. East Coast, and drought conditions are creating a new round of supply chain disruptions. There have been between 130 – 160 ships waiting, leading to supply chain delays. Supply chain risk is extreme in the global supply chain. This is simply the latest issue impacting supply chains.

Due to a lack of rainfall, the Panama Canal has reduced the number of container ships to pass through on a daily basis by 20% (from 40 to 32). Additionally, it has put restrictions on the maximum ship draft to 44 feet (vs. around 50 feet previously). The trip through the Panama Canal takes 8-10 hours. If you have to find an alternate route, it adds 8000 miles.

Luckily, many companies started to diversify their supply chain with the pandemic, and they moved from just-in-time (JIT) to just-in-case inventory, and so disruptions have been muted thus far. However, as time goes on, the supply chain impacts are increasing. Costs are escalating with surcharges of up to $300-500/ container as not uncommon.

Smart Executives Responding with Supply Chain Optimization

Smart, forward-thinking executives are responding with supply chain network optimization and risk mitigation strategies. For example:

• Alternate routes: Forward-thinking executives are finding and using alternate routes. You never know when an issue will arise, and you cannot afford to wait for the crisis to occur to use your backup plan. Thus, smart executives are using alternate routes for at least a minimum percentage of shipments so that they establish their presence. Depending on your beginning and ending point, there might be several alternatives with varying levels of benefit/ cost.
• Alternate modes of transportation: This strategy will certainly cause hefty price increases, and so it is used as a last resort. However, it makes sense to establish these options.
• Reshoring & expanding manufacturing capabilities: Several clients are planning for a resurgence of manufacturing closer to customers and ramping up in the U.S. By virtue of this strategy, shipping lanes will change and diminish.
• Nearshoring/ Friendshoring: Many clients are also searching for manufacturing capabilities closer to customers, not in the U.S. or Europe. For example, MedTech is nearshoring to Mexico, Costa Rica, and the Dominican Republic. it is critical to ensure you find a friendly country to mitigate supply chain risks.
• Forward positioning of WIP inventory: Depending on your products and customer requirements, you could change your manufacturing process to produce and ship work-in-process (WIP) so that it can be turned into multiple products based on customer need and/or it can be stored at a lower cost while mitigating risk. This concept can be called mass customization, configure to order (CTO), assemble to order, and other names. The product can be redesigned to apply this strategy in some situations.
• Distribution network design: Your distribution network can be redesigned to mitigate risk while accounting for customer requirements and cost concerns.
• Right-size inventory levels: Although moving from just-in-time (JIT) to just-in-case isn’t necessarily the best plan for profitable growth and happy customers, reevaluating your replenishment planning strategies can make good sense. By resetting your planning processes, ERP / MRP settings, and kanban strategies, you can store more of the high risk inventory while storing less of unnecessary inventory to achieve a win-win outcome. To learn more about how to right-size inventory, read our recent article.

These are a few options. The key is to reevaluate your supply chain and optimize your supply chain design and network strategy.

Deep Dive into Supply Chain Risk

The Panama Canal might seem like an ideal solution, and there is significant investment going into upgrades over the next few years. However, have you performed a deep dive risk analysis? It turns out that China can control the Panama Canal even though the U.S. built the Panama Canal and gave control to Panama.

According to the Hay-Bunau-Varilla Treaty of 1903, the United States gained a 10-mile wide strip of land for the canal and provided a one-time $10 million payment to Panama in addition to an annual annuity of $250,000. However, in 1978, the President Jimmy Carter and Panamanian dictator Omar Torrijos signed a treaty agreeing to transfer control of the Panama Canal from the United States to Panama at the end of the 20th century. Panama earns around $3 billion in revenue annually.

China in essence ‘owns’ the Panama Canal since Hutchison Ports controls both ends of the Panama Canal with a terminal at each end. If China gets into a war or conflict with the U.S. or Japan (as the top 3 users of the Panama Canal are U.S., Japan, and China), they could cut off access to both ends of the Panama Canal. Which other ports does Hutchison own? If you are concerned about supply chain risk, you better find out.

The Bottom Line

A key part of a SIOP (Sales Inventory Operations Planning) process, also known as S&OP relates to proactively evaluating supply chain risk as part of your supply chain optimization strategies. Learn more about why a SIOP process should be a key part of ensuring the successful execution of your company’s strategy and the best practices for designing and implementing in our book, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.

These types of disruptions and inflationary pressures will not stop in the current volatile and uncertain global environment. Thus, be proactive and forward-thinking in your supply chain optimization and risk mitigation strategies. At a minimum, perform an assessment of your current state supply chain and begin with the top priorities for improvement. Learn more about LMA’s complimentary supply chain assessment.

Please contact us with your stories, issues, and ideas on how issues like the Panama Canal impact your company and end-to-end supply chain. And, please keep us in the loop of your situation and how we can help your organization with supply chain optimization, risk mitigation and supporting SIOP programs.

P.S. To get ahead of the curve on where to focus for the best results to build on your foundation to get ahead of the competition, download our complimentary report, and The Road Ahead: Business, Supply Chain & the World Order.

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Supply chain risks are exploding. Just look at the news, and you’ll see a potential UPS strike, a Canadian port strike, potential hurricanes (Hawaii, Florida), China stirring up potential conflict with China, the Crimean bridge attack, and much more. Any one of these issues could have a detrimental impact on the economy and could put a business in the wake of the issue out of business. Clients must prioritize preparation and prevention of significant risks.

For example, when I was VP of Product Supply for a mid-market manufacturer, our largest production facility (70% of the volume) was located in an area that could flood due to hurricanes. The Board of Directors wasn’t happy about purchasing excess stock year after year in preparation for hurricane season although we made a good case for it and continued to prepare. It used cash that couldn’t be invested elsewhere.

One year, a hurricane arrived that completely flooded the area. The cars were under water at the airport and no one could get to work, let alone trucks arrive with materials or leave with shipments to customers. The products were used in hospitals and nursing homes and so lengthy delays were not acceptable. Luckily, the builders of the plant had the foresight to build on a hill so that it was one of the only buildings in the area not affected; however, employees could not get to and from work.

The backup plant went into overdrive with production although it couldn’t produce everything that the main facility could produce. Because prevention and preparation were a priority, as soon as the roads were passable, trucks could pick up the excess stock and production could start full force because raw materials were already on hand. Thus, we were able to supply our customers with seamless customer service.

Unfortunately, most clients and colleagues are not in this position. They must prioritize preparation and prevention.

Preparation & Prevention Priorities

Preparing in advance will be far less expensive than waiting to respond once the issue occurred with contingent action. Once the hurricane arrived, no suppliers could get through with raw materials. Even if they could, they would have multiple priorities for businesses impacted by the hurricane. Most likely, we would have ended up on a waiting list. The best case scenario is that we would have to pay expedite fees if we could gain priority, and we would have waited a week to several months to get the required materials. Worse than that, our customer service would have suffered and we might have lost customers.

In today’s supply chain, the risks are much higher and voluminous, Thus, instead of suffering these unacceptable consequences, executives must prepare.

• Safety stock: Safety stock of key items or at certain times of the year (such as hurricane season) or for key customers make sense.
• Treat key suppliers as partners: Suppliers are not going to come through for you if you treat them as a vendor. Instead treat them as partners so that they will come through for you when these risks occur. You most likely should cut back on the number of key / critical suppliers and increase your focus on these partnerships. Be upfront with them, hold them accountable but also share in wins and losses while working towards win-win solutions/ path forward.
• Safety preparedness: Think about how to build safety into your process; it is not a one-time activity, and it isn’t something you should prioritize after the fact.
• Risk assessments: Develop meaningful risk assessments. Unfortunately, I’ve seen many risk assessments throughout the years that were more of a “check the box” exercise and not a focus on which risks to prioritize with accountabilities for leaders to mitigate those risks. Lots of paperwork with little sustenance will not lead to success in the coming decade.
• Inspections: You should follow up the assessments with the appropriate inspections to ensure everything is in order. These can be physical inspections, process inspections and systems inspections. Every client will be in deep trouble if their ERP system or IT infrastructure goes down. Inspect your critical manual work processes, your backup systems, etc.
• Insurance: Get the appropriate types of insurance to protect your company. You will need property insurance, D&O, automobile (potentially), cyber, etc. It isn’t easy to get insurance when you need it. You must get insurance before you need it.
• Other forms of insurance: Consultants can have an insurance like quality. There has been significant turnover and transition occurring since the pandemic, and several clients have kept us on board as an “insurance” to run decisions by to gain additional insights and to jump in and fill gaps while upgrading processes as needed. Trusted advisors and consultants can fill these types of roles.
• Sprinkler systems: You should install “contingent actions” as well such as sprinkler systems although prevention is better than preparation in this case! When you need it, you must have these contingent actions “ready to go”.

Please contact us with your thoughts on preparation and prevention stories, issues, and ideas. And, please keep us in the loop of your situation and how we can help your organization prepare to thrive and mitigate your highest risks. We are introducing a new SIOP (Sales Inventory Operations Planning) assessment to ensure your supply chain is ready to support your growth plans while mitigating critical risks. Contact us if interested to discuss further. Learn more about these topics in our blog and download your complimentary copy of our recently released special report: The Road Ahead: Business, Supply Chain & The World Order.

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