This Article is part of an ongoing series where we take an in-depth look into the Food & Beverage, FMCG, Retail and Wholesale industries.
Mitigating a Blocked Supply Chain
Supply chain challenges for the consumer goods and staples industry are a common pain point. Interruptions in the labour market and shipping and port clearance requirements can quickly toss a monkey wrench into the works. Now, nearly a year into a global pandemic, some of those obstacles have become even more treacherous to navigate.
Businesses focused on fast-moving consumer goods (FMCG) and those centred on providing retail and consumer package goods are struggling the most. Existing complications and new supply chain disruptions are further exacerbated by a continued diversification in consumer lifestyles and tastes, especially in the restaurant and retail industries.
Before and after:
Food grocers felt the sting of COVID-19 supply chain issues, thanks to changes in consumer behaviour. Fears of being locked down in their homes for prolonged periods prompted consumers to 'panic buy' certain items, including toiletries and canned goods. Cleaning supplies also flew off the shelves quickly. With manufacturing and food plants experiencing outbreaks and closures, the supply chain was slow to rebound.
Retailers are not immune to global supply chain interruptions. Buying frenzies during the early days of COVID focused on certain products whilst demand for others dropped significantly. These buying practices caused such a shift in the supply chain that many retailers struggled to keep their shelves stocked. More than half of all retailers reported a moderate level of supply chain disruption due to the pandemic, with 12 per cent indicating they experienced heavy disruption.
Wholesale distributors are especially vulnerable to supply chain disruptions. Typical business models for wholesale distributors do not include manufacturing of materials. Acting as aggregators for demand, they are tasked with making sure the right products are available when and where customers need them at the best price possible. When supply chain interruptions occur, it can squeeze the lifeblood out of an operation.
Addressing the challenges:
Restrictions and extreme mitigation efforts surrounding the global pandemic are beginning to ease. Whilst logistics experts continue to analyse the long-term effects of COVID, they are faced with one glaring reality: COVID exposed potential areas of weakness within the global economy. These failings must be addressed immediately to prevent future supply chain disruptions of this magnitude.
We take a deeper dive into the supply chain challenges plaguing these industries at present and offer solutions to help mitigate future risk.
Challenge #1: Shipping and port clearances
When your supply chain is global, any inbound or outbound delay in shipping is a huge stressor on your bottom line. Before any goods can be imported or exported internationally, a shipment must clear customs. Shippers are required to provide documentation that confirms all duties owed are paid in full before shipments are processed. Customs officers verify all completed paperwork and ensure shipments match what is described on the paperwork. Under normal circumstances, customs clearance takes roughly 24 hours. With the backlog created due to COVID and tighter measures implemented by some countries, shipments are taking days and even weeks to push through.
What led to this extreme port congestion? Warehouses that were full or closed due to lockdowns prevented some consumer goods and staples businesses from picking up cargo and containers. Some ports are experiencing reduced workforce. The combination of these two restricts the amount of space available to offload and load new shipments.
Solving this issue requires coordination and cooperation amongst global governments. There are also some steps businesses can take to help minimise the risk of their cargo ending up stuck in limbo.
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Secure off-dock storage or additional warehouse capacity to move your cargo quickly.
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When storage capacity is limited, opt for slower ocean services or detention in transit.
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Consider using alternative gateway ports experiencing lesser congestion.
Challenge #2: Diversifying away from dependence on China
Inventory disruptions abounded during the height of the global pandemic as the workforce in China experienced country-wide shutdowns. Factories that produced vital parts used in the manufacture of other products were shuttered. Access to ingredients and electronics used by consumer goods businesses was cut off. These extreme mitigation efforts shone a light on the need for more near-shoring to help diversify away from dependence on Chinese-produced consumer goods and products.
Diversification is about more than reducing off-shoring by bringing the supply chains homeward. It is about recovering with resilience. Australia, India, and Japan began taking steps toward a feasible solution with the launch of a Supply Chain Resilience Initiative at the end of 2020. The goal of the initiative is to provide a “free, fair, inclusive, non-discriminatory, transparent, predictable, and stable trade and investment environment and in keeping its markets open.”
Challenge #3: Vertical integration
Vertical integration is challenging historical supply chains. With cost reduction and quality control at the top of the list of priorities for most businesses, vertical integration helps create a competitive edge. It allows businesses to control or own two or more elements of their value chain to help avoid disruptions in the supply chain.
Vertical integration has its advantages, but it also reduces a company’s flexibility and can delay production if any stage of the supply chain is interrupted. Vertical integration is only as strong as its weakest link.
When other players in the value chain begin to exert market power that can, in turn, generate unusually high returns, repositioning integration may be necessary to avoid increases in capital costs. One of the emerging technologies showing promise is blockchain. It provides transparency and accuracy of end-to-end tracking within the supply chain without dependency on third parties.
Challenge #4: Dominance of OEM brands
Original Equipment Manufacturer (OEM) brands are favoured by some manufacturers of consumer products because they are less expensive than retail. OEM brands now dominate most of the global marketplace. Traditionally, OEMs drove down costs through aggressive negotiations and other tactics that weakened suppliers. During COVID, it has become glaringly clear that businesses must create more resilient and agile supply systems to avoid the pitfalls of OEM dominance. One such way to accomplish this is by shifting power from OEMs to suppliers. Doing so takes into consideration the total life-cycle costs of the supply chain, which is a win-win situation for everyone.
A final word on supply chain challenges
If the global pandemic has stressed anything, it's that consumer goods and staples businesses must become more proactive in monitoring and managing the supply chain. COVID revealed weaknesses in the global supply chain that cannot be ignored. Building resilience in the consumer goods supply chain is the best approach.
Sources:
https://www.jstor.org/stable/10.5325/transportationj.59.3.0215?seq=1
https://www.joc.com/special-topics/coronavirus-effect-supply-chains
