Supply Chain Disruptions All Around Us
A little over a week ago 60 Minutes ran a segment highlighting some of the supply issues at the ports that have been in the news lately.
The segment highlighted a number of issues from structural constraints to things as simple as a breakdown in communication and coordination. It’s hard to understand the issues without having a deeper knowledge of bottle neck constraints and the bullwhip effect, among many other supply chain principles and phenomenon. What is certainly true is that the systems we operate in, including the ports, have a low degree of fault tolerance.
“Fault tolerance is the property that enables a system to continue operating properly in the event of the failure of one or more faults within some of its components.” >Wikipedia
Clearly the fault tolerance in many systems were impacted by the pandemic related to changes in demand and changes in supply. Arguably most of the supply disruptions can be traced back to shifts and/or changes in demand. Demand was highly impacted by changes in human behavior due to the pandemic, i.e., less overseas travels, shutdowns, and remote work. Building a more agile supply chain or said another way, building a supply chain with a high tolerance for faults will result in a more resilient system.
It does not take much for some of our current systems to experience a fault resulting in a disruption. A few examples come to mind, due to the coronavirus more Americans are working remote. The goods that Americans consume at home require more packaging and often more units per transaction versus a similar offering for immediate consumption goods. A shift of a few percentage points in the population staying at home can have a more dramatic affect on consumption of packaging materials. Or another example, The Great Resignation — a few percentage points of people exiting the workforce for any number of reasons can have a much varying affect certainly impacting labor. Folks who leave the workforce will have a different consumption pattern versus those who stay in the workforce. A few hot spot outbreaks or disruptions in manufacturing in places like China or Italy can create lost capacity and ultimately constrain downstream flow points. When a number of factories shut down due to coronavirus outbreak or electricity availability it can create a disruption in the flow of goods. As those facilities come back online their activities, such as consumption of raw materials or outflows of goods, can overwhelm other points and nodes in a network. It is evident that some parts of the systems, including those like the Port of Los Angeles, have been impacted by some of these percentage points swings that are causing massive shifts and a misalignment of supply and demand.
There are many strategies employed to achieve a supply chain with a higher tolerance for fault:
- Inventory buy-ahead/storage for greater buffer
- Demand shaping
- Supplier diversification
- Forecast improvement
- Distributed versus centralized network design decisions
May of the above strategies offer trade-offs, often with a financial penalty. One thing is very clear — our supply chain is fraught with faults that are leading to disruptions.
