For supply chain professionals everywhere, the year 2021 was one for the books. And not in a good way. Shipping disruptions, port delays, and supply hiccups created shortages of everything from pet food and computer chips to new cars and construction materials, giving the industry something of a black eye in the process.
But 2021 is now in the rear-view mirror. Today, the question on everybody’s mind is, How will 2022 play out? Will the economy stabilize and inflation be reined in? Will the supply chain bottlenecks ease? Can we collectively find solutions to our labor woes?
To get some insight into these and other questions, we turned to someone who’s uniquely qualified to weigh in on such matters. Gary Master, publisher of DC Velocity and COO of Agile Business Media, has an extensive background in business economics and more than 30 years’ experience in supply chain/logistics. As an executive at a supply chain-centered media company, he keeps close tabs on the economy in general and the supply chain/logistics market in particular.
As 2021 drew to a close, Group Editorial Director David Maloney sat down with Gary to get his take on what lies ahead. Here’s what he had to say:
Dave: A year ago at this time, we talked about what might be in store for us in 2021. We were looking at an economy that was quite different from what we have today. Although the nation remains in the grip of a lethal pandemic, we are no longer in a recession—in fact, we’re now struggling with an economy that has come roaring back in a way nobody expected.
Gary: Yes, 2021 was an interesting year. We all saw the front-page stories about supply chain issues in 2021, and most of them were not terribly flattering. We had a fast recovery, for sure, and unfortunately, the supply chain has had a hard time catching up for a variety of reasons. We had Covid outbreaks in Asia, some sourcing issues, and a shortage of key minerals and materials.
Economically, we had inflation. I felt like a voice crying in the wilderness saying that inflation was not going to be temporary. Everyone else was assuring us that inflation and supply chain shortages were short-term challenges, but unfortunately, neither has proved to be temporary. As a matter of fact, inflation is getting even worse, and the supply chain crisis is still with us. They will look different in 2022, but these concerns are still going to be with us throughout the year. [Editor’s note: Two days after this interview was recorded, the Labor Department reported that inflation rose 6.8% on a year-over-year basis in November, the biggest jump in nearly 40 years.]
Dave: What are some of the underlying reasons for why inflation and the supply chain delays will continue to haunt us?
Gary: We had a quick V-shaped recovery at the end of 2020 and through 2021 that drove up demand across various industries. That was number one. Number two was labor, labor, labor. Usually, when we have supply chain challenges and unforeseen spikes in demand, we just throw labor at the problem. We can’t do that now. The nation is struggling with an unprecedented labor shortage—we have a lot of job openings with no one to fill them.
On top of that, every time there’s an outbreak of Covid somewhere in the world, or a new variant emerges, it impacts the supply chain. When you’re already facing problems like backups and labor shortages, and then these new issues crop up, it just creates the perfect storm. And those things unfortunately are still with us.
Dave: Why are we having so much difficulty finding workers to fill supply chain jobs?
Gary: It’s not just the supply chain. It is an issue of worker shortages across the board. It is a problem when you’ve got Target offering $19 an hour to get labor here on the island where I live in Hawaii. We also have the graying of America, right? We knew that was coming, and we knew that was going to mean worker shortages as more people reached retirement age.
We also have a situation in the Covid era where a lot of people have said, “You know what? I don’t need to work the hours I do. I’d like a simpler life. I’d like to stay home. I just don’t want to work anymore.” If you have 2% to 5% of the population leaving the workforce on top of the graying of America—plus people leaving their jobs rather than comply with vaccine mandates—it all leads to a perfect storm. We have a labor shortage, whether it’s in fast food, retail, or the supply chain. It just is what it is.
Dave: Are these challenges of our own making? Are the problems we’re seeing now a result of the “lean” processes we instituted to make supply chains more efficient, only to find that they left us vulnerable to shortages and supply disruptions?
Gary: That is a great question, Dave. I am glad you asked that one. We all know what “lean” is and how it drives cost out of the supply chain through just-in-time deliveries of materials and goods. It reduces inventory, and it puts you in a world where, when all things are going well, your operation can be a lean, mean fighting machine. It is wonderful and beautiful to watch.
You now enter the world that we’re in today, where we have a supply chain crisis because not one thing, not two things, not three things, but almost everything that could go wrong with the supply chain has gone wrong—from increased demand that wasn’t foreseen to a labor shortage to Covid outbreaks that result in plant or port closures. The leanness of today’s supply chains has really caused some fundamental problems with respect to shortages.
So, who does lean manufacturing well? The automotive industry is usually great at lean. But what do we have right now? On the island where I live, used-car and used-truck prices are up 46% from last year. The demand for used vehicles is driven by a shortage of chips for new cars. And chip shortages start with the raw materials. It starts with plants that have been intermittently shut down because of Covid outbreaks. But if you had built up more inventory of those chips and had invested more money into it, it could have eased that crisis somewhat.
Dave: Of course, few saw the huge spikes in demand coming in time to adjust their supply. So here we sit in 2022. What do you think will happen this year, and will it get any better for our supply chains?
Gary: I think it will get better for supply chains. I tell everybody that supply chain is like a pendulum, right? We go from driving cost from the operation and going lean to “Wait a minute, maybe we’ve overshot the mark,” where we’ve got to go back, invest in the supply chain, and ramp up operations so we can meet the demand for higher throughput.
We now have a situation where inflation is close to being out of control, and we are going to see that throughout 2022. Dealing with inflation means you’ve got to start looking at cost controls.
I think the supply chain is going to start swinging back, like the pendulum. I heard a gentleman speak at the CSCMP [Council of Supply Chain Management Professionals] Edge conference in September who said he was already worried about overcapacity. And what is the supply chain going to do with the capacity we built to handle the deluge of business we’re seeing right now? What are we going to do to rectify overcapacity when it comes? Because it will come.
I think we’ll start to see some normalization of supply chain operations midyear, maybe in the third quarter, when everybody starts to say, “What the heck? Look at our balance sheet and look at how it is being impacted by what we’ve had to do with Covid restrictions and all the associated expenses.” I think we’re going to be talking a lot about expense reductions in supply chains—and how we can do things more efficiently—at the end of 2022.
Dave: Despite all the headlines about today’s stressed supply chains, consumers haven’t eased up on their demands. How do we manage their sometimes-unrealistic expectations?
Gary: That is another great question. I think if you’ve done an open and honest risk assessment of your global supply chain and you understand where your risks lie, you have a better indication of what you can and can’t do as far as the “leaning” of your supply chain, the sourcing options you have, and the flexibility you have within your supply chain. I think global risk analysis right now is really key.
The second thing is real-time data. More than in the past, making business decisions based on real-time data is going to be critical because you have to turn on a dime in today’s supply chains. There is more pressure to be agile and able to pivot quickly.
Dave: How important is it for us to just get back to basics in running our supply chains?
Gary: We’ve got to get back to some kind of balance with respect to our supply chains—to a place where we have adequate inventories but we’re also as lean and efficient as we can be. That is really hard to achieve, but we need to get back to that because I think the pendulum will begin to swing back by, say, the third or fourth quarter of this year.
Dave: So, a lot of our efforts should be focused on just blocking and tackling and simply getting through the challenges we face right now?
Gary: We need to focus on the blocking and tackling to solve our current challenges but also avoid building out too much supply chain capacity. We don’t want to build supply chains that are so big we end up having to shut down all those new DCs and lay off workers when things finally settle down. It is a delicate balance.
Dave: So as the old saying goes, we can’t build the church for Easter Sunday. The current conditions will not last forever.
Gary: Yes. Or to put it another way, you can’t build the raceway for that one race each year. The same applies to our supply chains.