Global sourcing experts weigh in and provide strategies for navigating the disruption.
Below are highlights from the story by Christopher Ruvo
The supply chain disruption that’s affecting the promotional products industry and virtually the entire global sourcing network probably isn’t going to relent anytime soon.
Still, there are strategies and practices that suppliers, like other importers and product sellers, are implementing that will help mitigate issues to the extent possible. That’s the message from global sourcing experts outside promo who work on supply chain issues.
“The supply chain crisis is one which is going to take a while to sort out, but there are many ways of doing so, and combining a number of techniques may help us to sort it out sooner rather than later,” says Teri Shern, co-founder of ConexBoxes, a provider of steel storage container solutions.
Relief in 2021 Is Unlikely
By now, most promo pros are familiar with the impact of supply chain upheaval on the industry. Fueled by issues tied to COVID-19 like societal shutdowns, labor shortages and a gigantic global bounce-back in demand for all manner of products following the economic lows experienced in the coronavirus’ early waves in 2020, the supply chain troubles have led to stock shortages, higher product prices, increased delivery/transport costs, longer production times and delays in delivery of orders, among other headaches.
New fiascos for promo are emerging too, with apparel decorators now reporting shortages of key materials like screen-printing ink.
The big question in promo – and in all industries affected by the upheaval – is when will things get better?
Supply chain professionals believe troubles will persist into 2022 and potentially beyond. “There’s a lot of fundamental restructuring going on as a result of the pandemic-induced demand shifts and geopolitics that we are probably 12 to 18 months away from being in a new steady state,” says Aaron Alpeter, founder of Izba Consulting, a supply chain consulting, outsourcing and technology firm.
Similarly, Patrick Penfield believes it will be at least the end of 2022 before global supply chains can settle into something like a new normalized stability.
“You have the delta variant causing issues for supply chains now and you could have intermittent disruptions like that throughout next year,” says Penfield, a professor of practice in supply chain management and director of executive education at the Syracuse University Whitman School. “Those interruptions make it difficult for supply chains that are already overwhelmed to catch up.”
The problems could intensify in the fourth quarter, according to sourcing pros.
As just one example of how that might look, retailers could be scrambling to get products that were produced overseas out of shipping containers that have been delayed in delivery/unloading and into their distribution centers and then onto shelves. That could lump considerable extra weight on already overstressed domestic transport providers – a pressure that ripples throughout markets, including the promotional products industry, contributing to backlogs and delivery delays.
“Getting timely deliveries will be a challenge,” Penfield predicts. Transport services are likely to be more expensive too, given planned surcharges from carriers like FedEx and the Postal Service.
Speaking broadly about the global supply chain, some sourcing pros think there’ll be bellwethers to look for that signal the return of stability and relative normality.
“Right now, the secondary market for parts is very hot, which only happens when there’s a supply imbalance and poor planning on a macro level,” shares Alpeter. “You’ll know that we’re in a new steady state when the arbitrage opportunity for parts and components begins to evaporate.”
Even when that happens, though, prices for things like air and ocean freight may remain well above their pre-pandemic costs – a potential reality that could mean higher product prices in promo and other industries are here to stay as such expenses factor into what promo suppliers are obligated to charge per product to remain viable.
“I think you’ll see prices for air and ocean stabilize, but they could stay elevated long term,” Alpeter says. “Going back to 2018 – I don’t see that happening.”
There’s no magic spell to cast to cure the supply chain ills. Even so, there are things companies that import and ship product can do to cut paths through the jungle of complications. Penfield recommends working closely with freight forwarders to maximize supply chain efficiency. “They can help you minimize your costs,” Penfield says. “They can also provide advice on things like which ports to use given conditions. You have to engage with them to leverage their expertise.”
Another smart tactic for suppliers would be to beef up inventory levels, ordering in advance and carrying more stock than would normally be the case. Leading proactive promo suppliers like Polyconcept North America, Gemline and others have already been executing this strategy for months. “You want to have enough inventory to protect against disruption,” Penfield says.
As companies build inventory, they should do so strategically, stocking up on best-selling SKUs rather than wasting time, expense and precious cargo space on items that generate relatively marginal sales. “It’s a good time to look at what’s selling and what’s not selling and make decisions accordingly,” Penfield says.
The strategizing should also include proactive planning and making potentially difficult purchasing decisions based on marketplace realities, supply chain constraints and costs.
Alpeter gives an example. He’s working with a brand whose factory has said that it will only be able to support a portion of the requested amount with the current component commitments it has from vendors. The factory feels it can produce a higher portion of the requested amount but would need to increase the bill of materials dramatically to secure components on the secondary market.
“By evaluating this in advance in the summer, the brand can evaluate the trade-off between reduced sales and lower margin, as well as come up with a broader business plan, as opposed to having things hit all at the same time and potentially making emotional and unsound business decisions,” Alpeter says.
Meanwhile, Penfield and others say that reducing the amount of packaging used to ship product from overseas is a smart way to get greater quantities of products to domestic shores faster. “Shipping full container loads can help immensely,” he says.
Longer term, promo suppliers should be working to automate processes to reduce reliance on labor. More automation makes companies less susceptible to labor shortages that can slow down production and fulfillment when there’s simply not enough staff. Suppliers in promo are making steps in this regard.
They’re also executing another long-term improvement strategy recommended by global sourcing experts, and that’s diversifying the countries and regions from which they source products, which makes supply chains more resilient and less vulnerable to disruptions that can come from natural disasters, COVID shutdowns, labor strikes, and societal unrest that may occur in any one area and cripple operations at key factories.
Penfield notes that geographic sourcing diversification will include companies increasingly looking to source closer to home, such as within their own hemisphere. More could – and should – look for domestic sourcing options where possible too, advice that promo distributors could also take. “Look locally and find domestic providers at least as an alternative,” Penfield says.
“While the current supply chain challenges are severe, they’re also about exposing inefficiencies in different areas,” says Mario Veraldo, a 25-year veteran of the global shipping and logistics business who is CEO of MTM Logix, a supply chain and logistics company. “So, while there is no silver bullet answer to the disruption, you can start improving things now by focusing on specific areas that feed into the supply chain.”
Source: PROMOGRAM on August 20, 2021