Supply Chain Challenges, Remedies and Leadership with the SAC Supply Chain Special Interest Group

Patrick Daly:

Hello, this is Patrick Daly and welcome to Interlinks. Interlinks is a program about connections, international business, supply chains, and globalization, and the effects these have had on our life, our work and our travel over recent times. Today on Interlinks, we’re going to have a look at several specific sectors to see how they have been reacting to the succession of external shocks over recent years, and how they’re looking to the future and facing up to the challenges so that they can adapt and thrive into the future.

Patrick Daly:

So the sectors we’re going to be looking at broadly are manufacturing, construction, and distribution, and logistic services. So to discuss these topics, I’m delighted to be joined by two of my colleagues from the supply chain special interest group at the Society for the Advancement of Consulting, Lisa Anderson, president of LMA Consulting Group from the Los Angeles metro area. Welcome, Lisa.

Lisa Anderson:

Great, glad to be here.

Patrick Daly:

Very welcome. And Karen Wilson-Starks, president and CEO Of Transleadership, Incorporated from Colorado Springs, also in the US. Welcome, Karen.

Karen Wilson-Starks:

Great to be here, Patrick.

Patrick Daly:

So Lisa, I’ll go to you first. What are you seeing in terms of the top two or three challenges currently being experienced in the manufacturing sector in 2022 in the wake, say, of COVID unfolding consequences of this war in Ukraine and the prospect of more inflation and higher interest rates ahead? So what are you seeing as the major challenges?

Lisa Anderson:

Well, one is definitely inflation. There’s been a spike in the cost of the materials and components and depends on which manufacturing industry, but basically they’ve had significant amount of inflation happening, which certainly has driven costs up and made them a concern. A second key problem is labor. They still have issues with labor. They cannot find enough people to produce all the product that they should in order to meet their upcoming demand. So they’re having to prioritize which customers get the product, or they are extending lead times or they’re looking at their customer profitability and choosing. They’re doing all sorts of things, but in essence, labor is another critical shortage just trying to find… Typically speaking, I mean, across the board, but definitely when it comes to the people who needed to run the lines, high-skilled resources to run the lines is they’re really in short supply.

Lisa Anderson:

And then I would say the third issue that’s coming up more recently is that because they’re getting concerned about deflationary pressures as well, now they’re starting to panic about having too much inventory. Or if they have too much inventory because, well, they placed orders. Manufacturing went from ordering just in time, although they weren’t really doing the just in time the way that I would recommend it, but they were literally trying to do just in time. And then they went to just in case. And now they’re just worried, I guess, you could say, because they don’t know what to do with inventory, and they’re just concerned about having too much for the cash flow needs because they have to… Well, it’s obvious that they need cash to continue to grow and navigate these volatile times.

Patrick Daly:

Yeah. So we’ve got too much [inaudible 00:03:43] work in capital tied up in inventory. Is that their concern?

Lisa Anderson:

Well, that’s their concern. I mean, they don’t always have too much. I mean, I guess too much in quotes. Right? Because what’s too much? But from my perspective, sometimes they have more than they should and other times I think they’re just panicking. But they’re concerned that they have too much and they could be right. It depends of course on what cash flow they have planned and how many loans they have in place and those kinds of things.

Patrick Daly:

Yeah. I’ve seen the unfortunate situation where they have too much of what they don’t need and not enough of what they do need, which is-

Lisa Anderson:

Well, that they definitely have, because I mean, if you could think about it, they… I mean, without the right people on board, they don’t necessarily order the right supplies. You don’t necessarily have a SIOP program in place. You don’t necessarily know what to order in the first place. So there’s a lot of reasons why they could have the wrong inventory. But they definitely, largely speaking, have not… Not the ideal amount of inventory of what they need where they need it.

Patrick Daly:

Yeah. And does this driving a lot of pressure on warehousing in your area? And pressure-

Lisa Anderson:

The warehouses are full. We’re maxed out in terms of warehouse capacity and that’s an issue because there’s very little room for folks to expand their storage capacity. And in some cases they need to, and it depends on who has what storage space. But it’s definitely causing problems in terms of warehouse storage or lack thereof, really.

Patrick Daly:

Okay. So this is both in-house and with logistic service providers all around?

Lisa Anderson:

Well, I was thinking about outside warehousing. So logistics providers or outside of their facility in one way or another. With that said, within the facility, yes. Actually several of my clients are having challenges fitting within their facilities as well. It became actually like a big conflict because we were trying to figure out… We needed to purchase, or I should say we needed to produce certain product in order to meet the sales forecast and then we couldn’t do that because of the lack of warehouse space. So it was a constant battle.

Patrick Daly:

Gotcha. What’s the pipeline for bringing on more warehouse space? The developer is saying, oh, there’s more opportunity here. Let’s build warehouses.

Lisa Anderson:

Well, it’s certainly in California, Inland, Southern California. It’s not that easy. It takes a lot of time to bring on any sort of building. So that part, no, not necessarily. They’ve been moving further east, I guess you could say from the ports. I really see people moving out of California as well because we just have so many business unfriendly policies. But nevertheless here, it’s just that we’re full. But in other places like I have a client that was completely full in their Atlanta area facility and they found additional space, but it’s always this way. It’s more expensive.

Lisa Anderson:

And then they were saying, “Well, I don’t think that would be really be worth it. I’m not sure that having the extra space is worth the loss in margins.” So then they were negotiating and they did actually work out something eventually so that they could get the space, but it took months where we were producing to the space, not producing to what our customers needed. We were producing to the space and then prioritizing based on customers.

Patrick Daly:

What’s going on with the labor shortage. Have the people disappeared, thrown in the towel, gone to different industries or not enough young people coming through or what’s what’s going on there?

Lisa Anderson:

Well, like probably all of the above, but generally speaking, there’s been a significant that the great resignation has been proven true in manufacturing circles. So really a lot of people are retiring. I mean, it, generally speaking, is probably an older workforce, regardless. I don’t have the stats, but generally speaking, that’s true. People are retiring early. They’re also moving to other careers and just generally speaking, there’s a lot of people leaving.

Lisa Anderson:

However, in addition to that, it’s just challenging because in this area in California, the minimum wage is pretty high. So you don’t have to do manufacturing, you could just work anywhere with a lot less commitment and you could make the same amount of money or whatever. It depends on the manufacturer, but there’s fewer people wanting to fill the roles. But then again, there’s just fewer people out there. So it’s just… I don’t know. It appears to be a variety of factors between retirements, people changing careers, less people coming into the profession and it’s just the wages continue to go up and so…

Patrick Daly:

Yeah, which is feeding into the inflation. Again, it’s another [inaudible 00:08:58] of the inflation.

Lisa Anderson:

Yeah, exactly. And there’s certain skills you need for these types of manufacturers because most of my manufacturing clients are throughout the US and global actually. Even though I’m familiar with the challenges here and I’m familiar with what’s happening where they are, but I would say, because between Kansas city, they actually… Outside of Kansas City, they actually decided to, just to outsource certain products instead of increase their production because they couldn’t do it. They just can’t find enough people even if they were to move them in. And then in North Carolina, another client, they literally just have been prioritizing customers because they can’t find the people.

Patrick Daly:

Yeah. It’s interesting-

Lisa Anderson:

It has something to do with what you pay as well. But they both pay. They don’t pay badly either. One of them is just compared to what I guess.

Patrick Daly:

It seems to be a generalized problem. We’re seeing it here as well. And I noticed lots of projects with client companies that need to be done and they’re not getting done because they don’t have the people to lead the projects. And so it’s not a lack of funds or a lack of opportunity or lack of intent. You just don’t have the people to do it.

Lisa Anderson:

Right. That’s true. How about you Patrick? Or go ahead.

Patrick Daly:

Yeah. I was going to go to Karen and then maybe you can ask me about okay distribution. So Karen, in terms of areas of concern in the industry that you tend to provide a lot of your leadership input to the construction sector, what kind of challenges are you seeing after these shocks that we’ve been experiencing over recent times?

Karen Wilson-Starks:

Yes. Patrick, let me talk about the personnel shortage because that’s really what’s affecting construction significantly. Most of my clients still have work to do. They’re still getting orders for new builds or for remodels. And particularly this is on the commercial side. My clients are commercial providers in construction. However, the personnel shortages are getting worse and they are continuing.

Karen Wilson-Starks:

So I want to talk a little bit about what’s the impact from a leadership point of view of the personnel shortages and then maybe I’ll talk also a little… Just make a brief comment about warehousing too since that came up, Lisa, when you were talking, and I’ll mention something about that. So on the personnel end, when there aren’t enough people at the various levels in an organization, several things get hit.

Karen Wilson-Starks:

One is just the bandwidth to do the long-term strategic thinking and planning in the organization. So the people who should be doing the strategic thinking that at the executive level very often are caught up in some firefighting and the day to day operations, because you need all hands on deck to get everything done.

Karen Wilson-Starks:

So when this is happening, it’s a problem because as things may be changing in the landscape, when you think about supply chain issues and so on, you really need the time to attend to how do you address those changes? How do you walk through that landscape and plan for the future? But if your head is down too far to the ground, you’re seeing things from a tunnel vision perspective or a myopic perspective and aren’t able to do that long range planning.

Karen Wilson-Starks:

So I think that’s one of the things that certainly affects the executive level as far as leadership. I also think that when organizations are understaffed at the operational level, especially it’s very difficult to pivot and to do something different. And so even though they can see that there’s a change and it may require a new or different response, they don’t have time to get off the hamster wheel in order to craft a new response and figure out how to move forward because there’s not enough support for the day to day operations.

Karen Wilson-Starks:

So they end up hanging by their fingernails and kind of doing what they know to do from the past, which may not be what’s best or what fits for now. And then that leads to another piece of the leadership equation, which is delegation. Usually it’s great to delegate in a way that you delegate and you stay in touch so that you can follow up and know what’s going on. And instead of that… When you got personnel crunches, two things happen. You’re either going to abdicate instead of delegate. So you’re not in touch because you don’t have time to be in touch and follow up and figure out what’s going on.

Karen Wilson-Starks:

Or some of the upper levels will try to retain too much of the decision-making authority and create bottlenecks in the organization, so they get stuck, they get stymied and they can’t move forward. And that becomes a problem.

Karen Wilson-Starks:

So those are some of the big things I’m seeing on the leadership end. I would also say that as far as day to day operations, including the supply chain issues, you need people who’ve got relationships with those key partners. And if personnel are coming and going and you’re losing institutional knowledge because of people leaving, the new people coming in may not have the relationships. They may not have been introduced properly to the people to even be able to do the future planning or figure out what’s the best way to navigate and to move forward. So I think that is also an issue.

Karen Wilson-Starks:

Lisa also mentioned this whole thing about warehousing. Now, my clients tend to use their own facilities or to lease something real close by for warehousing purposes. And as they got concerned about the lag times and ordering materials and whether things would be there at the right time, they were considering things like, “Well, should we lease this space?” And what I think what they were concerned about in construction is if we lease this space and incur all this extra cost, what if down the road, we don’t have the orders and now we’ve got all of this extra expense?

Karen Wilson-Starks:

Because it’s still a very volatile economy. And though it hasn’t quite decreased and gone away yet, people aren’t sure that it’s really secure. So I think that’s an issue. So some of my clients have opted not to lease the space, which means that therefore they have to be even more conscious of what they really are ordering and are they ordering the right thing at the right time. And again, if you lose your institutional wisdom and talent, the new people may not know what to order and how to order in a way that’s beneficial to the business. So it’s a daily recalibration and adjustment, and very hard when you have personnel shortages.

Patrick Daly:

Are they having to communicate to their clients, to their customers and disappoint them by saying things like our construction lead times are now instead of 20 weeks, it’s 40 weeks or the price we quoted last month is now not valid. Is that kind of thing happening in the construction industry?

Karen Wilson-Starks:

Well, what’s really happening is the lead times certainly are moving and changing. And some of it is not because of my clients, but in construction you have many partners who are doing different pieces of the work. And sometimes the people I work with, they can’t get in to do their part until some other groups have done their part first. And if those groups are behind, it pushes the schedule. So it’s not always the client’s fault, it’s something that could be going on at the GC level, the general contractor and with all the other players that are involved in construction.

Karen Wilson-Starks:

Here’s what I could say about that. It’s hard because if you miss dates, the contracts are written now in a more, I would say difficult way for the smaller player. Back in the day, there was a bit more flexibility and collaboration.

Karen Wilson-Starks:

Now, if one of my clients is running late, even if it’s not their fault, there are clauses in there such that they have to pay damages, liquidated damages and all this sort of thing. And that’s a real, real issue. And these companies in certain areas of construction have slim margins. They can’t afford to pay those liquidated damages. And so it becomes quite a dance to figure out how do they get all this done and with less people? And they often are having to work seven days a week and long hours in order to make it happen. So that part is hard. Now, you had a part two to your question. What was the part two?

Patrick Daly:

Price inflation. Having to renegotiate the prices?

Karen Wilson-Starks:

Well, actually a lot of my clients, they don’t get to renegotiate the prices once the contract is out, unless the client that they’re working for does something that causes the price to change. And if that doesn’t happen, even if they’re running late on their own and even if they incur extra cost, they cannot charge it back to the client.

Speaker 4:

93.9, Dublin South FM.

Patrick Daly:

So I imagine then we’re going to see… And I’ve experienced this and in the middle of it, actually at the moment. The negotiations for contracts of supply, whether for say, automated equipment for warehouse operations or for the building itself are becoming then a bit more fraught and a bit more contentious, and therefore taking longer. I’m in a situation at the moment where the supplier is saying, “Listen, we need to get the contract signed off. So we need to get the legal people working on this, because otherwise we can’t hold the prices and we can’t confirm the prices until the contract is signed.”

Patrick Daly:

And that’s becoming a problem. So the contractors wanting to take longer because they want to make sure they’re not going to get caught out. And at the same time the prices are rising and if they don’t get the contract done, the price is going to be a different price. So we have all of that going on at the moment.

Karen Wilson-Starks:

Let me add one thing in on that, Patrick. The contentious part, that’s definitely happening. I’m definitely seeing that in the past where customer and client might have been more collaborative. It almost seems like some people are taking advantage of this current climate to stick it to the ones who have been their partners in the past, which is quite unfortunate. So it becomes a harder way to work.

Patrick Daly:

The ranker and the resentment for past slights is coming out, huh?

Karen Wilson-Starks:

Well, I’m not even sure that’s true. I just think that some people… Because I have clients, for example, that have excellent reputation in the business. They have worked well with clients in the past. It’s not really about having poor service, poor performance or even poor relationships. It’s just that, “Oh, it’s almost like what we’ve discussed before about, let’s say, those companies that ship containers or whatever, or store containers or whatever at ports, they can charge more. So they do. It’s almost more like taking advantage in that sense.

Patrick Daly:

Maybe I’ll go back around with you and maybe start with Karen this time. In terms of what people are doing about some of the issues that you highlighted, so what kind of developments are you seeing that they’re putting in place to adapt to overcome or even to seek advantage in some of the challenges that they’re facing?

Karen Wilson-Starks:

Well, let me say what I’ll recommend that they do.

Patrick Daly:

Okay. Whether they do it or not, it’s another thing.

Karen Wilson-Starks:

Yeah. Some are stepping into that faster than other people are. I think it’s important when you’re in a personnel shortage situation to do several things. One, you’ve got to relentlessly focus on developing your people even if you feel like you don’t have time because you’ve got to build a capacity within the organization for those who are in there to do what they can do. And sometimes to also operate a bit more in a redundancy area. Maybe something that’s not their primary task, but maybe it’s the secondary task or you have more than one person or persons or groups of people doing something.

Karen Wilson-Starks:

So that’s important, which also relates to another function feature, which I would say pushing decision making down. In other words, if the people aren’t prepared, they can’t make the proper decisions, but you need them making the decisions because everything cannot come from the top. Everything can’t come from the bosses. The people on the down on the ground level have got to be able to operate and decide day to day. That has to be a priority if you want to have success going forward. And then the third thing I would add, would be this. Be willing to bring in even short term help in areas that are more administrative or supportive in nature, not necessarily in the skilled labor, because that’s a harder thing to do in the skilled labor area, which a lot of my clients are dealing with.

Karen Wilson-Starks:

The lead time to train somebody up to get them… So you want people who are going to stay for a while. But some companies running lean on even something as simple as administrative support. They might need to crank that up because people do not have time to do a whole lot of unnecessary paperwork that somebody else could do for them.,And this could even be done remotely.

Karen Wilson-Starks:

Some functions in HR could be outsourced and done remotely. So I think they need to think more about how to bring in resources to support the operation that way.

Patrick Daly:

Interesting. Yeah. The evolution of decision-making, I think is really important and very culturally difficult for some companies and some regions, some parts of the world, if you like, are more suited to that than others it seems. And some companies also within those parts of the world. It’s interesting that redundancy is kind of an element of resilience. So people like talking about resilience, but you don’t particularly like talking about having the redundancy to provide the resilience. Particularly the accountants don’t like talking about redundancy because it means capital investment in something or money tied up in something that they think could be used more productively.

Patrick Daly:

So likewise for you, Lisa, what are you seeing in terms of remedies to some of these challenges that people are facing?

Lisa Anderson:

Well, I definitely would say… I agree with Karen, first of all, because clients are looking at how they can best support their people because they have so few of them. So I definitely would agree with everything that Karen said, including they need to bring in additional support for their people. In addition to that, they’re looking at reshoring. So they’re definitely bringing production back to where… You could say back home, but it’s really not that. It’s closer to their customers.

Lisa Anderson:

So reshoring, nearshoring, whatever you want to call it. In the US, they’re bringing production back to the US and they’re bringing it to Mexico and Latin America. My clients that are in Europe, Patrick, I don’t know if you’re seeing the same, but they’re bringing them closer to where their customers are in Europe.

Lisa Anderson:

So basically reshoring is definitely on the rise because they’ve realized they need to take better control over their supply chain because they cannot control their future currently. And then in addition to reshoring, they’re also looking at implementing sales and operations planning or some also called sales inventory operations planning.

Lisa Anderson:

That’s really been proven effective to being able to get a better handle on what’s happening in the future. So you’re predicting your customer demand and then figuring out how you can best… What types of manufacturing capabilities do you need? What people do you need? How do you get those pieces in place ahead of time? So you can be successful and in delivering what your customers need, but in a profitable way with the least amount of inventory tied up unnecessarily.

Lisa Anderson:

So SIOP is another piece. And then the last thing I would say is technology. So automation and technology, they need fewer people if they can automate tasks and it’s… They still need people. They’re there’s still a shortage of people, but they need fewer people who can do redundant tasks, if they can automate it. Unfortunately, they still need several high skilled people and they’re very hard to find. But nevertheless, they are still looking at technology because it’s not just about automating, it’s also about how do you deliver what the customer needs.

Lisa Anderson:

Same thing that you’re seeing in distribution, Patrick. There’s quite a bit of new options from a technology standpoint that will help to handle eCommerce both in terms of taking orders and then how do you fulfill those orders? There’s 3D and additive manufacturing, 3D printing. So there’s a lot of pieces of technology that they’re looking at in addition to just how do we upgrade to have an ERP system that supports their growth and allows them to find ways to be more profitable. So just simply upgrading their ERP system is another priority in terms of technology.

Patrick Daly:

Yeah. So it’s interesting. This automation equation is taking shape. So for example, I’m involved in a project where they’re automating a large part of their order picking, which is both picking for high street stores and also picking for eCommerce business to consumer. And there’ll be an automated order picking system at the heart of the new distribution center, which is run by a WCS, a warehouse control system, which integrates with their WMS, warehouse management system, which in turn integrates with their ERP system.

Patrick Daly:

So they have that integration along the line. And they’ll probably end up investing something in the ballpark of four and a half million dollars in the new solution. But their labor requirement will drop from about 55 to 25. So that’s the payback. And that’s the kind of thing that people are biting the bullet on that I’m beginning to see that they were reticent about in the past.

Patrick Daly:

Another point is that these systems are never going to be probably affordable as they are now because the prices are rising, right? So if if you have the funds and you can get that investment done now, probably better to go sooner rather than later. And also the solutions providers have a bottleneck of demand as well because lots of companies are thinking the same thing and making decisions to go automated. So therefore the suppliers of the cranes and the shuttle systems and the conveyors and the robots and so on, their order books are quite full.

Patrick Daly:

So the lead times are beginning to go out. The prices are going up. So I’d be encouraging people if they’re thinking about it to move sooner rather than later. So as always, my friends were beaten by the clock. We have to bring things to a close. So it’s been a pleasure as always. Thank you very much to both of you. I wish you continued success personally and professionally, and hopefully we’ll be back here next month talking about some other aspects of supply chain and whatever’s hot at that time. So thanks again.

Karen Wilson-Starks:

Thank you, Patrick.

Lisa Anderson:

Yeah. No, I enjoyed it. And I think we’ll have many topics to come. It’s been very volatile lately in the supply chain.

Patrick Daly:

It certainly has. So thanks also to our listeners for tuning in. And you can find the Interlinks Podcast on iTunes, on Spotify, Acast and most other podcast platforms. Any comments or questions, just drop me a line on PDALY, P-D-A-L-Y at Alba Logistics. That’s A-L-B-Alogistics.com. So thank you very much. And in the meantime, keep well and stay safe. Until next time.