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John A. Frank, P.E., FSFPE, CFPS

John A. Frank, P.E., FSFPE, CFPSLoss Prevention Center of Excellence Leader, Risk Consulting, AXA XL

April 8, 2022

Supply chain reaction

While shortages continue, companies can manage this risk to make their businesses more than the sum of their parts

Original Content: AXA XL

Everyone gets blindsided occasionally by supply and demand. The parent who waits too long to shop for the year’s must-have video game console. The wannabe early tech adopter who didn’t see the need to camp out in the parking lot the night before the new mobile phone hit the stores.

Still, no one could have predicted that in mid-2020, national grocery and drug store chains would face months of empty shelves where their stock of toilet paper ought to be. As 2021 drew to a close, problems persisted. New York City bagel shops would struggle to serve up a “schmear” because cream cheese was a scarce commodity. Small size turkeys for holiday dinners were in short supply. A new sofa might take eight plus months to find its way to your living room. New cars lots would be empty.

There are a number of reasons for our recent supply chain struggles. For one, stuck at home for a while during the pandemic, we were buying more stuff. According to the U.S. Bureau of Economic Analysis, spending on durable goods was $1.5 trillion in February 2020 before the pandemic; however, it reached a record-high of $2.1 trillion and remained at high levels through at last November.

At the start of 2022, we are still seeing some supply chain snags. Demand is continuing to tax supply.

Stay ahead or risk falling behind

We’re living in a time of supply chain peculiarities — shortages that sneak up on us and catch us off-guard. At best, they’re an inconvenience. But at worst, they can send businesses into a tailspin for want of needed materials and parts. Scarcity is causing prices to spike and repair times to become more drawn out, with the result that more businesses are seeing an increase in down time. Supply chain glitches are becoming one of the risk challenges of our time.

To manage that risk, companies are venturing outside their ordinary business parameters and getting creative about finding — and in some cases, making — new solutions and opportunities.

Worried about storage and transporter shortages, companies are buying their own warehouses, cargo containers or even cargo vessels. Big retailers like Target, Costco, Home Depot and Walmart all announced that they chartered cargo ships to help keep their supplies moving before the holidays.

I follow a Facebook group from a former Air Force Base where I was trained. One of its hangars was just occupied as a new business. The comments talked about people looking to use these buildings for business because they are already there. Even though they might need renovation, they don’t have to start from scratch.

Shippers turned to less crowded ports. For one, Dole, which owns a fleet of ten refrigerated container carriers and six pallet friendly conventional refrigerated ships and own or lease approximately 16,800 refrigerated containers and 740 dry containers, recently opened a route at Port Tampa Bay.

In addition to transporting its own bananas and pineapples there, Dole’s commercial cargo division will offer third parties container service to and from Central America. It’s catering to a variety of shippers outside of Dole’s own business of fresh produce, and according to their announcement, provide another competitive avenue for refrigerated cargo, automobiles, general cargo, and other similar commodities to get to their markets faster and more competitively. Dole having its own fleet not only helped them avoid substantial logistics issues but is now assuring that the company fleet is used to full capacity and in turn, is helping others take advantage of a new port of entry.

Rethinking business strategies

Companies that relied on offshore markets for supplies or manufacturing shifted some of their production back to the US. Peloton announced in May 2021 that after manufacturing its exercise equipment in Taiwan, is investing $400 million in a factory outside of Toledo, OH.

When vessels carrying shipping containers arrive in port, their inventory has to be taken off-board via a trailer base called a chassis that’s designed just for that purpose. A chassis shortage at overcrowded ports kept those shipping containers from making the short trek from dock to land and so kept the merchandise in those containers from reaching the businesses left waiting for them. Many companies, now, want to sidestep this problem in the future by investing in their own chassis fleets.

In other industries, companies are taking a closer look at their inventory strategy. Many tend to rely on lean inventories as not to tie up too much capital, space, and other resources. However, given issues with getting needed parts and supplies, some believe we will be seeing many companies shift strategy and maintain larger inventories.

Scarcity is causing prices to spike and repair times to become more drawn out, with the result that more businesses are seeing an increase in down time.

Separating the victims from the victors

Decisions like these are spelling the difference between being sidelined by supply chain woes and discovering new ways to thrive in an uncertain business landscape. There is certainly heightened awareness of the need to evaluate risk from a new perspective and develop a strategic plan for weathering the supply chain storm.

The alternative is really no alternative at all because it leaves companies in danger of having to compromise on parts quality, pay more than they expected for less than they wanted, and seek access to materials from vendors with whom they have no relationship.

There’s also the danger that some solutions, chosen for lack of better alternatives, could present hazards unto themselves. No company wants to blindly adopt a substitute product without conducting a loss prevention evaluation. They may be able to get by in isolated cases but operating that way will not support optimal business performance or customer satisfaction and loyalty.

Plan now to take action later

It’s not just a question of being aware of immediate supply levels used in day-to-day operations. It’s thinking ahead to what will happen if a key piece of equipment or machinery breaks down and can’t be repaired quickly enough to allow production to continue uninterrupted.

What happens when an always-reliable vendor can’t come through because of transportation slowdowns? Or when the replacement for the damaged component is available, but no installation technician is available until the middle of next month? How does the company act when it finds an alternative to its usual vendor but knows that company has a less-than-perfect record on quality control, responsible sourcing, or environmental practice?

More companies are looking through the lens of their Environmental, Social, and Corporate Governance (ESG) strategies when making supply chain decisions. They are performing due diligence across their supply chain so that they can pinpoint any potential ESG risks that need their attention.

These are the kinds of issues that have become routine in business today, but companies have not always done their best to formulate plans for responding as efficiently and productively as possible. Being able to do that is becoming the new definition of corporate agility.

An ally and strategic partner in risk management

It doesn’t hurt to have another set of eyes or a risk management sounding board. At AXA XL Risk Consulting, we regularly working with clients to make sure they’ve thought through these risks. While we can’t devise solutions for them, we can work in collaboration with them, walk through the loss prevention concerns, and brainstorm on how to see the business from a fresh perspective that may bring new strategies or opportunities to light. We’ve also developed tools, such as Risk Scanning, which helps clients with a large portfolio assess risk across multiple sites and compare exposures to better understand them and implement risk management and transfer according to their needs.

With more than 400 risk consultants worldwide, our team can walk you through the key issues, highlight what companies facing similar stress points have done, and explore alternatives so there’s a plan in place and ready to respond to whatever is coming.

If the game plan is changing —if you need to execute a pivot — we are here to help advise on the impact that any change has the potential to have on risk management. We’re schooled in change procedures and formal change management programs and can offer an outsider perspective that may help the executive team to arrive at solution that’s customized, comprehensive and includes a mix of compensatory measures and revised business strategies.

This is no time to rely on improvisation skills, no matter how well they’ve served in the past. It’s essential to take the initiative to get ahead of potential problems, because by the time the need for action is clear, it may be too late to respond productively.

Global Asset Protection Services, LLC, and its affiliates (“AXA XL Risk Consulting”) provides risk assessment reports and other loss prevention services, as requested. This document shall not be construed as indicating the existence or availability under any policy of coverage for any particular type of loss or damage. AXA XL Risk. We specifically disclaim any warranty or representation that compliance with any advice or recommendation in any publication will make a facility or operation safe or healthful, or put it in compliance with any standard, code, law, rule or regulation. Save where expressly agreed in writing, AXA XL Risk Consulting and its related and affiliated companies disclaim all liability for loss or damage suffered by any party arising out of or in connection with this publication, including indirect or consequential loss or damage, howsoever arising. Any party who chooses to rely in any way on the contents of this document does so at their own risk.
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