(Image found at www.newdesignfile.com/...)
For most of my career (over 20 years now), I’ve worked for distributors. I spend a significant amount of my time thinking about supply chain — how it works, where it works, where it breaks down. 2020 and 2021 have demonstrated both the robustness and vulnerability of the supply chain.
What is the supply chain:
The metaphor of the supply chain is helpful. It gives us a clear way to imagine product from raw material to end user. Raw materials go to manufacturers, who create the product, product goes to distributors who deliver it to retailers who sell to end users.
It’s a clean, clear, linear process.
Except it’s not.
Each “link” in the supply chain is a network. The supply chain is a complex web of nodes and connections in which one network handles a specific stage in the delivery of products before moving product to the next network and so on. The technology required to manage these networks is impressively complex. In fact, the tech required is evolving rapidly, using data analytics to comprehend what has happened in the past and predict what will happen in the future. Don’t make the mistake of thinking this analysis is anything other than mind-bogglingly complex. It’s also incredibly important — billions upon billions of dollars in labor and products depend upon successful management of the supply chain.
In a network, there are nodes which connect to other nodes. When a network is functioning, if one node goes down, the network routes around it to other nodes until it comes back up. Even if there is a defined path, there are other, equally valid paths that will work. Within the supply chain, these suppliers and manufacturers work through interlocking networks by which raw ingredients flow to manufacturers, who produce a component of a final product, which they then ship to another manufacturer who takes multiple components to produce an actual product; this product makes it way through the distribution and logistics processes to installers, builders etc., before reaching the end user.
he networks that make up these systems are dispersed, cross and multinational, complex and deeply dependent on advanced technologies. At the same time, these network are local, tied to local identity and markets, and intensely personal.
In this network, a storm in the Gulf Coast of Texas can mean that a housing contractor in Boise, ID can’t build the houses he’s contracted to build. A shipping container delayed in the port of Charleston, SC can mean a factory in Tennessee has to shut down for lack of parts.
To give an example: PVC requires a particular resin. When Texas experienced it’s power grid failure earlier this year, the plants producing the resin shut down. This shutdown meant that plants producing PVC had greatly curtail (and in some cases shut down) production. The net result was that PVC products, generally treated as a commodity, were suddenly difficult to get and expensive. Lead times, previously measured in days, suddenly became lead times measured in weeks.
This change disrupted the entire supply chain; it disrupted downstream as well as contractors couldn’t purchase the PVC they needed; housing, commercial, industrial and government building projects were delayed and more expensive.
The Texas freeze in 2021 was an external force that disrupted the network. The node in the network producing resin for PVC went down; there weren’t sufficient other nodes to compensate so the whole network was disrupted.
Even today, months later, the impact of that disruption continues. Gulf Coast hurricanes have further impaired the production of resin. PVC production continues to experience problems.
Logistics and Supply Chain Management
Twenty years ago, there were a handful of programs studying and teaching logistics and supply chain management. Today, they are legion.
Not only is there money to be made, but effectively managing logistics and supply chain is absolutely essential. Our contemporary economy requires the effective management of both.
Every product sitting on a shelf is money not available for other purposes. If a distributor has five million dollars in product on their warehouse shelves, they have tied up their capacity to purchase other products or to hire staff or purchase delivery vehicles.
Logistics is simple; purchase product from the manufacturer, put it on a shelf until the customer purchases it; give it to the customer. Maybe you put it on a truck and drive it to the customer. But it’s easy.
Logistics is hideously complex. Deliver it to the customer too early or too late and you create problems. Too early: where do they store it, does it get damaged because it’s in the way, or does it get stolen or misplaced. Too late and they miss deadlines.
How you load a delivery vehicle has an impact on fuel efficiency. (Don’t ask me the details — it has to do with the weight distribution but this it not my area of expertise.)
Delivering the right product at the wrong time can be as disruptive as delivering the wrong product.
A few years ago, one of our drivers was in a hurry; she loaded her delivery truck and took off. When she arrived at the first customer, she realized she had to unload her truck to deliver their product. She reloaded and drove to the second customer where . . . you guessed. By the time she unloaded and reloaded her truck, she was over an hour late for the third delivery, 90 minutes late for the fourth and so on. By the time she made the last two deliveries, it was late enough in the afternoon that the customers couldn’t receive the material, sort it by job, and load it onto the trucks for the morning crews. This situation meant meant the morning work crew had to sort the product at the main shop, load their trucks and deliver it; the morning crews delayed their start times. A few moments of carelessness on the part of our delivery drive threw off work schedules at a half dozen job sites.
In another example, a customer needed product at their job site by 11 am for the afternoon crew. The truck from the vendor was in an accident so product was transferred to another vehicle, delivered to us a day later than scheduled. By the time it was properly received (including quantity check and verification it was not damaged), it was too late to make the morning delivery. We had to hire a third party courier to deliver the product from our warehouse to the jobsite. The cost was less than the cost of having the afternoon crew stand around with no work.
How we arrange and manage warehouses is changing rapidly. Back in the day, all the products from a particular manufacturer would be on the same aisle in the warehouse. The newer models, including velocity slotting, arranging the warehouse so the most common products are easiest to access. Obviously, this arrangement seems common sense until you consider that it requires access and the ability to process huge amounts of data, and then act on it. We’re finally taking that last item seriously. Such a simple change saves thousands of hours in a year. One distributor I know of installed Vertical Lift Modules (VLMs for short) and saw an increase in productivity and accuracy of their warehouse staff by almost 50% in a matter of days. Able to pick orders more accurately and more quickly meant they were able to grow their business and make more money, which in turn meant their customers were making more money, working faster and more efficiently.
Managing how we get product to where it needs to be when it needs to be is a massively complex undertaking requiring vast quantities of data and time to interpret it, implement and manage changes and monitor outcomes. The logistics — how items are delivered, stored, tracked, moved from warehouse to job site or retail — are hugely important and small differences can disrupt the supply process. Success requires fluidity, flexibility, vast quantities of information and ongoing, open lines of communication.
Distributors and distribution networks
I have the good fortune of working for a world class distributor.
Earlier, I described the supply chain as a set of interlocking networks. Distributors are a key node in the network.
Each distributor is a network within the larger network.
It’s easy to get lost in the jargon so I’m going to do my best to avoid it, but some is unavoidable. B2B is jargon for business to business (my employer’s primary model), B2C is business to consumer. CDC means “Central Distribution Center,” while RDC is “Regional Distribution Center.” WalMart has a massive CDC in Southern Utah; it’s god knows how many square feet and on a regular basis sends truckloads of material in every direction while also receiving truckloads of material from every direction. To describe it as awe-inspiring is an understatement. (I found this stock image of their CDC; trust me, it’s more impressive in person.) The core challenge of distribution is how to get the right product to the right place, at the right time, in the right quantities.
A distribution company is, in its own right, a network; each physical location is a node in the network. To be very clear, a physical location might be a massive CDC with tens of thousands of products, or a small store front with a small warehouse with 100 of the most frequently purchased products. Even a fully automated CDC can still employ hundreds of people. A small storefront might have as few as 3 employees.
Within these single company networks, the flow of products can be incredibly complex.
Products might arrive at a CDC on a third party carrier (USPS, Fedex, UPS, etc.), be received (a whole process unto itself), loaded onto one of the company’s delivery vehicles and driven to one of their locations, unloaded and received, then picked and transferred to a customer’s vehicle, onto a company local delivery truck or a third party carrier and sent to the customer. Or, and this a favorite, the product may go cross dock — sent from the CDC to the local location’s delivery dock and transferred directly to the customer.
On a daily basis, customer relationship professionals within distributors check inventory levels and have products moved from location to location. A customer who normally purchases 100 units might need 300 for a special project; keeping 300 units in the warehouse is costly and inefficient. The distributor might have all 300 in stock but dispersed over six locations. The customer relationship person can have them delivered from those locations to the customer; or they can transfer them from the various local warehouses to the warehouse nearest the customer. A frequent scenario has the distributor’s staff find out when the customers needs the product and order them from the manufacturer, who builds or assembles the product and ships direct from their factory to the customer warehouse or job site. If a project requires 50 units per week for six weeks, the distributor will arrange for those 50 units to be delivered weekly to the customer; they may never physically be within the distributor’s possession.
Distributors have entire teams of procurement professionals whose jobs are to track inventory levels, lead times, and sale quantities to keep minimum on hand levels of specified products. These procurement teams (if they’re working optimally), track the market for availability and pricing. The biggest challenge is insuring that prime real estate in the warehouse is used wisely. In almost every market and every category, there are multiple distributors competing for business.
Managing inventory is complex, data intensive work; getting it wrong can be disastrous. Getting it right is essential to the economy. As with logistics, small efforts can create cumulatively massive positive (or negative) outcomes.
Supply Chain and COVID-World
In mid-2020, we had to close one of our locations; it is a smaller location in a rural area. Enough staff had COVID and/or were quarantined while awaiting test results that we had to shut down that site.
We routed phone calls to the nearest locations; we were able to run deliveries from those locations; part of the staff were able to work remotely so they maintained communication with customers as much as possible. When we were able to safely reopen the worksite, we did so. The shut down lasted for about ten business days.
The effects of that relatively short disruption lasted for at least 8 weeks after we reopened.
Why?
Product that was in the warehouse waiting to be delivered was delivered from other warehouses, which meant purchasing routed newly purchased inventory items to those warehouses. Items that had to be purchased were shipped to other warehouses before going to customers. The usual flow of products to and from that site were (more or less) successfully diverted to other warehouses and locations. Orders en route to the location when we shut down had to be rerouted in transit, not always successfully which meant product was returned to manufacturers and to be procured again.
Reactivating this node in the network wasn’t a matter of flipping a switch. Startup (more accurately, re-starting) is complicated. Take a garden hose; if you attach it to your spigot and turn on the spigot, the water doesn’t instantly start flowing; it has to make it’s way through the hose first; you get air bubbles and the hose spits several times before the smooth flow of water begins.
Let me share this example. When we closed this location for the ten days, customers were talking with reps in other locations. One customer placed an order and was told “It will be here (in this other location) on such and such a day if you want to pick it up or we can deliver to you the next day.” Customer said, “I’ll be in your town that day and pick it up.” Due to various forces, the customer sent an employee who was unaware the product would not be at the usual location. We had just reopened that location so the employee walked in to get his product; our employees there didn’t have stock on hand, as the product was sitting at our location 50 miles away; we had to transfer it which meant the customer got it a day late. It was no one’s fault but the delay meant our customer’s project was delayed which meant their customer was delayed.
The lived reality was even worse and more chaotic than the stories make it sound. With absences for COVID in every worksite, there was little if any margin to take on extra customers and work, even for interim periods. Layoffs in many areas left far smaller workforces; ramping up to full production is significantly harder than before; new hires have been to be onboarded and trained, which can require months. We’ve lost lots of practical knowledge and experience. Disruption in family life have robbed employees of energy and resilience to cover longer shifts or work weekends. The collective trauma of COVID (and the Trump presidency) have sapped our personal and collective resilience.
The networks that constitute our supply chain have been badly impaired by the impact of COVID. Inflation, extended lead times, loss of skilled workers, closures at every point within the interlocking networks have left us with a badly disrupted supply chain.
Don’t kid yourself. Our grocery store shelves may be full but the store rooms in back aren’t. Manufacturers are making commodities as fast as they can but many aren’t operating at full capacity; everyone is trying to fill backlogs. Items that we consider commodities are facing painful backlogs and supply chain shortages. Too many nodes in too many networks went down at once; the supply chain has been pushed to its breaking limit. It may not have broken down but it is badly strained and restoring it to full health won’t happen in days or weeks, maybe not even in years.