July 1, 2022

Re-Working Supply Chains Requires Thinking Differently

“What is obvious is that a one-size-fits-all approach will not work – it doesn’t work for marketing, it doesn’t work for management, it doesn’t work for industries and risk mitigation, and it certainly doesn’t work for supply chain management.” ~ Kimberlee Josephson

Marketers, manufacturers and even the media have been keeping tabs on all things related to logistics like never before. Coverage of supply chain matters practically doubled in 2020, and media messaging for 2021 spiked towards the end of the year, referring to both bottlenecks and backlogs that created a supply chain crisis that hampered holiday shopping sprees.

The hashtag #emptyshelvesJoe trended on Twitter while Amazon, Target, and Walmart rolled out the holiday deals early to curtail any looming delays.

Now, at the start of 2022, it seems concerns are heightened as new problems and new political pressures are bubbling to the surface. Businesses are realizing now more than ever just how dependent they are on ensuring supplies and shipments in addition to making sales.

In 2020 and 2021, the concept of just-in-case inventory replaced adherence to the just-in-time mentality, which was popular prior to the pandemic. Just-in-time inventory aimed to limit holding costs while just-in-case approaches promote stockpiling to ensure future access to basic supplies. However, for 2022 and beyond, the approach should perhaps be “just-because” – whereas those in the supply chain do what they can, when they can, for who they can, and by whatever means that they can. And here are a few examples to illustrate this point.

Do what you can –

The ultimate value of a product should never be dependent on an external source. And for those organizations reliant on resources and networks outside their control, it may be worth vertically integrating. When producers take on ownership of the supply chain through vertical integration, by becoming their own suppliers and distributors, they shoulder a significant cost at the outset but greater control may be required for ensuring future profitability. This is why Walmart is hiring its own ships and why Amazon hired its own drivers (and much more).

Integration and pursuing infrastructure development is part of America’s history regarding business growth models. Henry Ford put this mindset on the map when he purchased acres of timberland, miles of railroad, fleets of freight, rubber plantations, and more. “From Mine to Finished Car; One Organization” was an ambitious motto and the transportation sector actually helps demonstrate the next point…

When you can –

The demand for air cargo carriers attracted the services of both American and United Airlines as the Covid-19 lockdowns and subsequent variants left people landed (and sometimes stranded). The transporting of products instead of passengers has proved profitable and while the world awaits a travel and tourism rebound, a whole slew of innovative techniques are being tried in the meantime.

Leveraging economies of scope, whereas a firm spreads its fixed costs over a variety of production or operations methods, can improve organizational agility and offer creative solutions for new audiences. This is why McDonald’s puts more than just fries in its fryers and why Dyson uses its technology for both fans and vacuums. By diversifying options and outputs, a company can increase market share and access new market segments, which relates to the next point…

For who you can –

When production or shipment is halted for a certain offering, organizations should look to how operations and existing inventory can be repurposed or repackaged for a new audience. Since it is likely other organizations are facing supply shortages, it is best to explore all options for who could benefit from what you’ve got. For instance, if a glass jar shortage makes it difficult for packaging pasta sauce (as highlighted in an NPR interview), perhaps that sauce could be sold in batch quantities to area restaurants or to meal kit subscription companies instead.

Prior to the pandemic, the shifting of an offering to different outlets might have created a rift between producers and retailers with existing relationships and contracts. However, these days most understand that such moves are not being opportunistic but rather realistic due to resource restraints. Moreover, given that the marketplace is intrinsically linked, the success of a related or supporting industry can aid other sectors to stay afloat – and as the saying goes, “A rising tide lifts all boats,” and so it is best to stay in the water if you can. 

By whatever means you can –

Now not every business has the capacity to make quick adjustments or institute new processes, like Walmart, but new tactics must be tried to help curtail stockouts and cater to cost conscious consumers (especially given the rising rates of consumer price inflation). Indeed, production and operation activities that were previously taken for granted have become a top concern as labor shortages exacerbate stocking suspensions and delays raise demurrage fees – thereby making creativity and contingency planning crucial for suppliers and producers alike.

And while some may be concerned that big business will win out in the end (given the ability to deal with higher levels of uncertainty or the capacity to establish their own supply chain networks for increasing inventory levels), it is important to remember that their new methods, and their financial expenditures spent pursuing new ideas and processes, can be leveraged. Truly, the success of larger organizations can have a positive impact on small businesses. For example, Walmart now sells its e-commerce software to small retailers looking to tap into that realm of expertise and who are unable to develop such systems in-house. Additionally, several small firms have found success using Amazon as an added sales channel as well as a means for obtaining needed supplies.

In the end, what is obvious is that a one-size-fits-all approach will not work – it doesn’t work for marketing, it doesn’t work for management, it doesn’t work for industries and risk mitigation, and it certainly doesn’t work for supply chain management.

A shift in the status quo is needed and although the struggle is real right now, the hardship being faced will prompt exploration for improved processes with greater flexibility, and this will eventually lead to better service and more opportunities. 

But until those updates and innovations are launched, the business world must (in the words of Murray Rothbard) determine how best to “relieve the scarcity of scarce factors of production” while crafting new recipes “to produce the desired goods” — to be sure, the most important factor of production right now is the application and integration of knowledge.

This article, Re-Working Supply Chains Requires Thinking Differently, was originally published by the American Institute for Economic Research and appears here with permission. Please support their efforts.