The Lab | First Things First - Episode 4: Adjustments to the Supply Chain Are Needed

First Things First: The Fastest Five Recap – May 2022 Edition

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First Things First

The Fastest Five Recap - May Edition

May 11th, 2022   ·   By Callum Berry

If you tuned in yesterday for the May edition of the hottest supply chain live show “First Things First,”, you will have heard Mercado CEO Rob Garrison cover some of the top supply chain news stories from the past month in a segment called the “Fastest Five.”

If you missed out on the show, don’t worry – you can catch up here.

Below you can also read up on the topics and articles that Rob touched upon and get his expert insight and thoughts on what this means for the global supply chain.

So let’s dive in.

Even the Amish

To say that the global supply chain is in a bad state would be an understatement. Even the communities thought to be the most far removed from modern society are feeling the strain. Furniture manufacturer Simply Amish, known for its clean, simple lines and old-fashioned sturdiness, has seen costs drastically increase as volatility in lumber markets has significantly raised the prices of wood.

Despite the company sourcing the maple, cherry, and other woods from within five-hundred miles of its plant in central Illinois, lead times for the company’s deliveries to dealers have increased tenfold—resulting in furniture now taking nine months to be produced, compared to three months this time last year.

“Even domestic operations rely on overseas materials,” said Simply Amish owner Kevin Kauffman. “The supply chain, it’s really a world-wide problem and it’s one you won’t fix overnight.”

Rob’s perspective

Wow, that really is crazy! A 10-12% drop in demand overnight isn’t something any business leader wants to see. Economists are really struggling to predict what’s in store for businesses and our consumers from an inflation point of view—some view it as a near-term consequence of high government stimulus injection alongside shortages driving prices higher and making the cost of living more expensive; whilst others see it as something that’s been building for a long, long time. Whatever the case, we are all going to have to figure out and prepare for this added layer of complexity in an already struggling industry.

On a positive note…

Despite the persistence of backlogs in some ports (alongside the effects of the COVID-19 related restrictions impacting Shanghai, the world’s largest container port), schedule reliability for containerships is starting to see glimmers of improvement in 2022. The data shows that slightly more than a third (35.9%) of all containerships across the 34 different trade lanes tracked by the analysts were on schedule bringing the average for the first quarter of 2022 up to 33.5%. “Despite being the highest 2022 reliability figure so far, the March 2022 score is still slightly below the 2021 level,” notes Alan Murphy, CEO of Sea-Intelligence. The average for the first quarter of 2021 was 36.5%. Delays are still averaging just over two weeks, both to the west coast and the east coast, so in terms of an average, it could be far less than two weeks or far more than two weeks. So from an unpredictability standpoint (both in terms of when the products are going to be ready and when the carriers are able to get products off the port and to the dock), there are still some wild swings.

Due to recent lockdowns in dozens of cities resulting in factories shutting down and pummeling consumer spending, Chinese factory and service-sector activity worsened dramatically in April—falling to their lowest levels since the early days of the COVID-19 outbreak.

China’s National Bureau of Statistics said on Saturday that its official manufacturing purchasing managers index dropped to 47.4 in April, from 49.5 in March, its lowest level since February 2020. The result fell short of the median forecast of 48.0 among economists polled by The Wall Street Journal, and well below the 50 mark that separates expansion from contraction.

Even then, it’s not just the factories that are affected; it’s also raw materials, logistics and more. All of which contributes to a very unpredictable supply chain. To make things worse, a sharp rebound like the one we saw in 2020 is not anticipated by researchers.

Rob’s perspective

As supply chain professionals, we are now dealing with a completely different situation where we’re going from managing container-by-container and having to call people at three in the morning to see if things are going to move, to a situation where we’re having to shift our attention to price.

In terms of management, both are difficult challenges, but when you’re dealing with a recessionary type of situation on the supply chain, and there’s less demand, the pressure on your company's profit increases, and therefore there’s pressure on the supply chain to reduce cost. You go from basically borrowing and stealing to get containers, (paying really massive prices as you go), to potentially having to negotiate harder for everything.

Inflation peaks

Unless you’ve been living under a rock, you’ll no doubt have seen that inflation accelerated to its fastest pace since 1982 in March as measured by the Federal Reserve’s preferred gauge. Russia’s war on Ukraine and strong consumer demand has pushed up energy prices causing supply problems.

Consumer prices rose 6.6% in March from a year before, up from February’s revised 6.3% increase, as measured by the Commerce Department’s personal consumption expenditures price index, which it reported Friday. The March rise was the fastest since January 1982.

Amazon stalling

Tech giant Amazon reported its slowest sales growth on Thursday in roughly two decades as its market share grew by just 2%.

Product sales have flatlined, and revenue at its main online-shopping business segment has stagnated for six months—one of the worst periods of anemic growth in Amazon’s history. Company executives are citing that overall sales might slow down even more over the course of the year.

The company’s multibillion-dollar hiring spree and logistics build-out, which have been necessary to keep up with demand during the pandemic, have yielded painful results during a period of inflation and economic contraction in America.

Catch-up on the live show

To watch the full episode of First Things First, head over here.
To subscribe to the podcast (available wherever you listen to yours), click here.
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