As the global economy slowly recovers from the impact of the COVID-19 pandemic, the worldwide supply crunch is intensifying, spreading from one country to another and from one industry to another.
Breaking Down the Supply Crunch
When the pandemic spread in the spring of 2020, there was a lot of panic buying by consumers who were led to believe there would be shortages in things like toilet paper, hand sanitizer, and disinfectant wipes. Fast forward 15 months, and it’s companies that are stockpiling, buying more raw materials than they need in an attempt to keep up with rapidly recovering demand. This panic buying is causing a shortage in raw materials, including copper, iron ore, steel, wood, semiconductors, plastics, cardboard, etc. As a result, there is a “supply crunch” in nearly every industry, with inventories of seemingly every raw material around the world running low.
What The Experts Are Saying
Economists and business executives say those supply-chain disruptions, key labor shortages, and resurgent demand will persist through the end of 2021, if not longer.
“Supply shortages are affecting almost every industry,” said Michael Pearce, Senior U.S. Economist at Capital Economics. “What started out as a shortage of semiconductors affecting mostly the auto industry is now a shortage of basically everything, including lumber, metals, and plastics.”
According to Reuters, “U.S. factory activity gathered speed in early May amid strong domestic demand, but backlogs of uncompleted work are piling up as manufacturers struggle to find raw materials and labor, boosting costs for both businesses and consumers.”
Suffice to say that with all of the raw material and supply shortages in North America, it is hardly “business as usual” in manufacturing. According to the Wall Street Journal, the squeeze on U.S. businesses shows little sign of letting up, particularly in the manufacturing sector.
“It turns out it’s a heck of a lot easier to create demand than it is to—you know, to bring supply back up to snuff, Fed Chairman Jerome Powell said in June. So what we know is that there are global supply shortages that are impacting manufacturing and that the supply crunch will have medium- and long-term impacts.
Work With Your Manufacturer
Yes, the pipelines are seeing logjams; there’s no way around that. Understanding that issue, smart businesses will work with their manufacturing partners to make the best of their situation.
- Maintain Regular Communication—nobody likes surprises, especially when they negatively impact their workflow. More communication with your supplier helps to limit surprises. Remember that everyone is facing a supply crunch. The more your supplier knows exactly what you’re looking for and you understand their capabilities, the less you’ll be hit with surprises. This doesn’t exactly mean that the squeaky wheel gets the grease. Your supplier loves having your business, but they don’t want to hear from you 20 times a day. Be respectful of their situation—remember that your supplier is getting dozens of emails and phone calls every day. Be concise, don’t send a 15-paragraph email when five sentences will do. If your orders are consistent, it’s easier for your supplier to manage your supply.
- Collaboration and Preparation—Try to establish weekly or bi-weekly meetings to troubleshoot the problems you face because of the supply chain crunch. Be as resourceful as possible and always be respectful of your supplier. Tight collaboration enables organizations to better avoid risks, identify problems early and resolve issues quickly. Many companies, for example, proactively alert suppliers immediately when demand and production changes are likely.
- Maintain Flexibility—The pandemic crunch is very real when it comes to the supply chain. Companies having success are learning to become innovative, developing recovery plans, and looking at possible workarounds in terms of substituting materials (if and when it makes sense). Supply chain and procurement teams have been faced with a delicate but decisive balancing act. They must plot a route through the immediate and future challenges that draw on meaningful insight based on high-quality data. This will enable them to build flexibility into their cost base and transform costs – rather than simply cut them – to come back fighting when the time is right. Those who have already started to invest in new technologies to drive insight and action in the supply chain have a head start over the competition.
Maintain regular communication with your supplier so that it’s not a surprise to either side when changes in orders occur. Collaborate with your dealer and troubleshoot problems caused by the supply crunch before they can have a big impact. Recovery plans and workarounds are crucial to keeping your workflow flexible and agile.
Contact us at Cass Precision Machining.