Supply Chain Tribulations

nathanlphipps

Nathan L. Phipps
Consultant, Wiglaf Pricing

Published March 19, 2021

Earlier this month, I decided to pursue wellness and purchase a bicycle of my very own. (Yes, yes, I hear those of you in Supply Chain sniggering in the back.)

It was all going so well. The week before, I had gone into the bike shop to pick out a suitable model for myself. They had received some extra-large bikes that would fit my 6-foot-4 frame, and they just had to assemble them. They contacted me after a few days to come in for a test ride.

Unfortunately, I did not immediately drop everything to go buy that bike. I hit the snooze button for a few days due to schedule conflicts and then some snow and sleet, which I reasoned would complicate my test ride. Oh folly, thy name is Nathan…

I finally reached out to the bike shop, and they confirmed that there was EXACTLY ONE model left in my size. I told them that I would be there within 2 hours.

Unfortunately, another freakishly tall man showed up about 1 hour and 30 minutes later, interested in the exact same model and exact same size that I was. There was an understandable case of mistaken identity, and I arrived just in time to see the other gentleman wheel his new, silver, shiny bike out the front door. Luckily, I had plenty of time to consider my life decisions on the bus ride back home.

“But, Nathan,” you ask, “why don’t you just order the bike you want, and you can get it in the next shipment?”

(I assume this is where the Supply Chain sniggering turns into guffawing, if not full-blown howls of laughter.)

The shop owner explained that they can no longer order bikes and receive them in 2 weeks. Instead, they find out what bikes they get after they receive the shipment. They get what they get, and they have no say over it. The bike I want could be in 2 weeks from now, or it could be 3 months from now. There is no telling. So, they took my info and will contact me if they get anything in.

I have only just begun further investigating bike shops, but the news is not promising. A major Chicago bike shop told me that they currently have 7,000 bikes on order. Some of the models have such a backlog that they may not be available until April… of 2022.

So, I am experiencing just a tiny bit of supply-chain heartache. However, it appears as though I am not alone. Far from it. The supply chain problems are extending to everything from cars to clothing to home siding and medical needle containers.

And don’t think that you’ll get any relief by switching to another form of human-powered locomotion. Even roller skate manufacturers have been affected by supply chain chaos.

COVID-19 has created massive supply chain interruption causing delays in materials, production, shipping and delivery.

Roller skates are affected too

Riedell Shoes Inc. is a manufacturer of ice and roller skates based in Red Wing, Minnesota. The coronavirus pandemic caused Riedell to shut down its production plant in March of last year. Lockdowns caused Riedell to lose over 40% of its business selling shoes to roller rinks. Things were not looking good.

Fortunately, Riedell was able to benefit from unexpected attention for its products on social media platforms like Instagram and TikTok. Bored consumers stuck at home distracted themselves with a bit of e-commerce. Riedell celebrated its success for a time, but they had no idea how large the demand would grow.

By the time that Riedell’s workers returned to the production plant in May, they had overshot their capacity by about 50,000 units. They had received the highest number of skate orders since the 1980s. And they have been playing catch-up since their plant reopened. Riedell stopped taking orders for U.S.-produced goods last September so that they can catch up on their backlog.

And there is no relief in sight: Riedell is currently facing a three-to-five-month delay before they can even get wheels from their suppliers in California and Texas. Parts manufactured in China and Taiwan and assembled in the U.S. now take 8 months to arrive instead of 4. Holdups at ports and other freight bottlenecks have resulted in significant delays. Riedell’s supply chain manager, Danny Johnson, reported that they had unloaded some skate parts from containers located close to their plant. All the railyards are full, so the containers were on a railcar next to a highway.

And Riedell is not alone. Most businesses have struggled with production shutdowns due to the Coronavirus. There has been both an increase in e-commerce and increased demand for many products, including tech products and products related to exercise and leisure. These trends have been playing out since the start of the pandemic.

New supply chain challenge #1 (with ripple effects)

As if things were not already bad enough, supply chains have experienced further challenges related to severe winter weather in Texas and problems at ports. First, last month’s freeze in Texas caused widespread blackouts that halted production at factories. Texas houses the world’s largest petrochemical complex, which produces plastics from oil and gas. Dow had to shut down several petrochemical plants, which has led to a shortage of plastics.

Howard Ungerleider, Dow’s CFO, stated that plastic prices in Asia and Europe were already increasing due to the shortage, and he estimates that it could take more than 6 months before the market recovers from the freeze. Until the market recovers, the disruptions will continue to ripple through the economy, affecting all business that use plastic. This will affect the manufacturing of countless products, everything from tents to medical face shields to smartphones.

In addition to plastics, the freeze in Texas also placed pressure on semiconductor production. Samsung, one of the largest chip and smartphone manufacturers, had to shut down two chip factories in Austin, which accounted for 28% of their global production. Samsung has warned investors that the damage to profits will continue into at least next quarter.

Between chip shortages and plastic shortages, auto makers are being forced to shut down factories while they wait on components. But the pain is spreading to all manufacturers of consumer electronics. Expect supply problems for smartphones, PCs, tablets, and televisions.

New supply chain challenge #2 (also with ripple effects)

The second major new challenge for supply chains is snarled ports. To be clear, traffic at ports began to pick up late in 2020 as companies began restocking their inventories. But that trend has really accelerated this year.

Over a third of imported shipping containers come through the ports of Los Angeles and Long Beach. Currently ships are waiting around a week to dock when they were waiting 2 weeks in January. Earlier this year, there were around 40 container ships waiting offshore to dock. That queue has been reduced to around 20 ships. The Port of Los Angeles expects the delays could continue into early summer.

Some container ships are being rerouted to other ports, like Oakland, to avoid the bottleneck in southern California. Other businesses are relying on air freight to meet their needs, but this comes at a hefty premium. Many businesses have seen their freight costs double. And some of these cost increases will be passed on to customers in the form of higher prices.

Sluggish supply chains can cause cascading problems that ripple through the system. One bottleneck can lead to another, which can lead to another, which can lead to yet another. Delays can cause loss of production and increase costs. And these delays and costs keep stacking up on top of each other. The end result is empty store shelves, and empty bike shops.

There is a lot of uncertainty in the system right now. Things are improving, but global supply chains are fragile. And it is quite possible that the most recent stimulus bill will create even more e-commerce demand, which will send even more products into this already scrambled supply chain. There are opportunities for any company that can adjust to the present environment.

But adjustment takes time. In the meantime, the ride looks like it could be bumpy.


References

Henderson, Brooke. “Supply-Chain Turmoil Knocks Roller Skaters Off Balance.” The Wall Street Journal. Dow Jones & Company, March 9, 2021. https://www.wsj.com/articles/supply-chain-turmoil-knocks-roller-skaters-off-balance-11615308190.

Matthews, Christopher M., Austen Hufford, and Collin Eaton. “Texas Freeze Triggers Global Plastics Shortage.” The Wall Street Journal. Dow Jones & Company, March 17, 2021. https://www.wsj.com/articles/one-week-texas-freeze-seen-triggering-monthslong-plastics-shortage-11615973401.

McLain, Sean, Christopher M. Matthews, and Costas Paris. “Everywhere You Look, the Global Supply Chain Is a Mess.” The Wall Street Journal. Dow Jones & Company, March 17, 2021. https://www.wsj.com/articles/everywhere-you-look-the-global-supply-chain-is-a-mess-11616019081.

Paris, Costas. “Shipping Logjams Spread on Crush of Imports.” The Wall Street Journal. Dow Jones & Company, March 18, 2021. https://www.wsj.com/articles/shipping-logjams-spread-on-crush-of-imports-11616089979.

About The Author

nathanlphipps
Nathan L. Phipps is a Consultant at Wiglaf Pricing. His areas of focus include pricing transformations, marketing analysis, conjoint analysis, and commercial policy. Before joining Wiglaf Pricing, Nathan worked as a pricing analyst at Intermatic Inc. (a manufacturer of energy control products) where he dealt with market pricing and the creation of price variance and minimum advertised price policies. His prior experience includes time in aerosol valve manufacturing and online education. Nathan holds an MBA with distinction in Marketing Strategy and Planning & Entrepreneurship from the Kellstadt Graduate School of Business at DePaul University and a BA in Biology & Philosophy from Greenville College. He is based in Chicago, Illinois.