Consultant Insight: Shippers look to supplier diversification to reduce delivery delays

U.S. retailers learned the value of supplier diversification when Chinese manufacturing facilities temporarily closed due to COVID-19 just months before the virus spread globally in 2020. Though production is difficult to relocate amid the pandemic, retailers are doing just that as a means of shoring up supply to meet growing demand for goods. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] Once the virus turned global, retailers around the world temporarily closed stores and for some, canceled or delayed manufacturing orders due to a drop in retail sales as the industry readjusted to a new environment. However, as existing inventories were drawn down, the need to replenish came quickly as retailers struggled to keep up with the sudden demand for goods that began last year and continues into this year. Alongside the strong demand for goods, lockdowns, shortages of raw materials, lack of labor, cash flow issues, and transportation capacity shortages have all emerged as issues still affecting supply chains today. Random outbreaks of the virus at Asian manufacturing facilities, ports and airports have also added to the delivery delays. Vietnam, hit hard by the virus over the past few months, has experienced several facility shutdowns and delays . Apparel company Nike, for example, noted in its recent earnings call with analysts that 80% of its footwear factories are in Vietnam. However, because of COVID-related manufacturing closures, Nike lost ten weeks of production, which will result in a slower flow of inventory delivery beginning in mid-October. As a result, Nike is maximizing its footwear production capacity in other countries by shifting apparel production out of Vietnam to other countries like Indonesia and China and leveraging airfreight for faster delivery. Meanwhile, retailer Chico’s told analysts that it had been successful in moving 9% of its overall production out of Vietnam into other countries. Supplier diversification is important, no doubt, allowing retailers to balance risk, cost and flexibility, as noted in a recent McKinsey survey. “We have deliberately and strategically built a geographically diverse supply chain with manufacturing in Malaysia, in Vietnam, along with China and Indonesia as well as the U.S. to create redundancies that we view as critical to ensure short lead times and strong in stock positions,” Shawn Nelson, CEO of furniture retailer Lovesac, told analysts. Indeed, 80% of all manufactured furniture is imported from Asia. Since the pandemic hit, furniture sales have been strong and delivery times have been long, due to raw material shortages and transportation capacity issues. However, some manufacturers, such as stationary upholstery business Kuka Home, are shifting some production to Mexico. The company built a 250,000 square foot mattress facility to make mattresses for its North American customers. As a result, the company can ship special orders with four weeks’ lead time versus lead times of up to 6 months or longer from Asia. McKinsey’s survey of sourcing managers found that almost half, or 46%, planned to look closer to home to fill the demand. Meanwhile, the 2022 Third-Party Logistics Study, released at the CSCMP conference in September, found that a majority of shippers, 68%, believe that supply chains have become too global and need to be rebalanced toward more regional and local or domestic ecosystems. Furthermore, 83% of shippers surveyed said they plan to adjust sources of supply as a direct result of efforts to rebalance towards regional and local or domestic sources. Factors contributing toward global rebalancing include increased need for supply chain resilience, increased awareness of supply chain vulnerabilities and more restrictive trade policies. However, rebalancing supply chains takes time. For now, shippers are likely to continue facing disruptive supply chains well into 2022, at least.

Consultant Insight: Shippers look to supplier diversification to reduce delivery delays

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