Back in November 2021, we explored the supply chain crisis and how small- and medium-sized suppliers could best cope. We thought we’d take a look at developments since that time.
On the positive side, the Infrastructure Investment and Jobs Act was passed by the U.S. Congress with bipartisan support on November 5, 2021. This $1.2 trillion bill provides $550 billion in the next five years on critical infrastructure improvements. As part of the overall funding package, $16.6 billion has been earmarked for ports and waterways, $110 billion for roads and bridges, and $66 billion for freight and passenger rail.
There seems to be a consensus among planners, engineers and shipping professionals that there has been a long-term lack of sufficient investment in infrastructure in the U.S. which, in part, has contributed to the supply chain crisis. Current bottlenecks in the system reduce profitability whether for suppliers, haulers, or handlers. If the Infrastructure Act can address the logjams, it may spur private reinvestment by firms across the logistics spectrum resulting in a stronger transportation system overall.
While the funding from the Infrastructure Act may ease some pain points in the U.S. supply chain, these large infrastructure projects will take some time to put into place and will only address domestic issues. Yet, the pandemic has shined a light on how interdependent the global supply chain really is. While the pandemic restrictions have eased in many places around the globe, areas still facing challenges can impact the entire chain. Most recently, due to China’s “zero-Covid” strategy and a lockdown of Shanghai, activity at the world’s largest container port in Shanghai has become congested rippling out to other ports in China and causing delays across the global logistics system.
Other factors have also developed since last fall such as global inflation, brought about in part by the pandemic, causing soaring food and fuel prices worldwide. The war in Ukraine has caused shortages and higher prices for sunflower oil and wheat worldwide as both Russia and Ukraine are major producers and exporters of these commodities. As manufacturers search for alternatives for sunflower oil, supplies of other edible oils have tightened. Most recently, Indonesia, the world's largest supplier of palm oil recently halted exports of refined oil so as to preserve stock for local manufacturing.
These examples demonstrate how U.S. food manufacturers are highly vulnerable to the constantly shifting availability and prices of their raw materials, packaging and shipping like never before. What is a manufacturer to do? We spoke again to industry veteran Peter Brown, Director of International Sales at First Choice Ingredients in Germantown, Wisconsin to get his take on the situation and some strategies to continue weathering the storm.
Peter reminded us that the roots of the current crisis go back in time to just-in-time, or lean manufacturing. For ingredient suppliers, major consumer packaged goods (CPG) firms provided detailed specifications to their suppliers with little or no flexibility for delays or component substitutions. When the pandemic came, it brought a fracturing to the supply chain that has not yet recovered. On top of a broken supply chain, the war in Ukraine has brought pressure on edible oils and wheat – key ingredients for many processed foods and daily staples. He noted that food retailers have had to become comfortable with some level of empty shelves, which was once unacceptable. Peter described it as “a dynamic I’ve never seen in my entire career.”
One positive outcome of these experiences that Peter observed has been recognition from First Choice Ingredient’s CPG customers of their suppliers’ critical role in helping them find a solution to the severe challenges facing the industry. First Choice has continued to reach out proactively to share historical purchase data and help develop forecasts with their customers. By developing those forecasts, they can organize their production and have the best chance of meeting their customers’ needs. They have moved to forecasting out on a much longer time schedule than before.
They have also proactively addressed with customers when a particular specification needed to be adapted due to lack of availability of raw materials. While before the pandemic, this may have been cause for removal as a supplier, there is an acknowledgement by manufacturers of the need for flexibility amid the current climate. Peter sees less rigidity, better planning and more dialogue as some good outcomes of the crisis for the long term.
Peter predicts that the industry may never fully revert to lean manufacturing, that this difficult period has left an imprint that will change sourcing strategies for the immediate future. Whether it’s a pandemic, severe weather impacts of climate change or war, the only thing certain is more uncertainty ahead. While that is not a comforting thought, it does create some avenues where small- and medium-sized U.S. suppliers have distinct advantages – in agility, innovation, shorter chains for decision-making and strong relationships with customers. Small and medium-sized suppliers should recall and utilize these unique value propositions to help them adapt to ever-changing global and industry conditions.