By Kate Klimesh,
“When you’re missing a piece, nothing moves. It only takes one part to create an empty shelf at the store.”
Just a year ago, the nation’s truck drivers were hailed as essential workers, and their determination to continue their routes ensured stores and businesses continued to have products to sell. No one can forget the toilet paper supply crisis when the pandemic hit. The U.S. sanctions on some countries’ imported goods and restrictions on travel due to the COVID pandemic can make supply chains more unreliable. Having a healthy workforce is also a driving factor to reliability, and the nation is still in a pandemic.
The supply chain is what allows raw materials and end products from manufacturers to get to businesses, and finally on store shelves as goods available to consumers. Supply chains can be short, with only a few suppliers necessary to produce sellable product, or much longer if many suppliers are needed in sequence to provide a sellable good.
Having a local supply chain means critical materials for manufacturing or retail are sourced as close to home as possible. However, many supply chains are reliant on shipping from far away, even overseas, for the critical materials and parts needed to produce or sell goods as a business.
Supply chains drive or limit production capacity for manufacturers and factories, impact profitability for many businesses, including retail, and even hold sway over the labor force. Prior to the pandemic, many of the lowest cost supplies were imported from overseas or using a long supply chain.
Long-chain suppliers are more likely to see supply disruptions through to the end customer. Now, that material can be sourced in the states as well as overseas, offering options for producers.
Deco Products manufacturing company in Decorah has been navigating the changing world of supply chains for months as they adapt to the changing economic landscape through the pandemic. Deco CEO Chris Storlie noted, “a large portion of our supply chain is U.S. or North America-based. As long as suppliers stay in business, we benefit from paying a bit more for domestic products. What seemed to be an old-fashioned way to do business prior to the pandemic has now benefited us. Most of the tooling for our casting are local, Minnesota, Iowa and even as close as Freeport. Office furniture is a big product for our customers,” Storlie offered, “that takes foam, plastic, and fabric. When you’re missing a piece, nothing moves. It only takes one part to create an empty shelf at the store.”
When manufacturers have limited supply of raw materials, they may quit making items that are more periphery to their business, as they need those raw materials for their largest demand items. Even for resources sourced in the United States, extreme weather events can have a large impact on the supply chain as well. Local business sources say latex products are backordered recently due to the unusual winter freeze that affected Texas and many southern states in February of this year, causing months’ worth of the raw latex used in latex paint to freeze, becoming unusable.
Today, many businesses still face supply shortages and are looking to find new sources of raw materials, hopefully in a shorter, more local supply chain. However, that doesn’t mean supply shortage worries are over. Those that have experienced a disruption may have had to lay off part of their workforce and may not be able to resupply their labor force when supplies are once more available.
The supply chain is already disrupted, and consumers can feel the effects, for cars, computers and computer chips, paint, many parts for vehicles (including boats as experienced by Capt. Ted Peck in his Aug. 10 article), large storage batteries and some food items. Not only are these items harder to find in stock, but due to increased demand and lower availability, their prices have gone up.
The cost of gasoline has gone up 41.8 percent since last July, and fuel oil has increased 39.1 percent according to the Federal Consumer Price Index. Some supplies have gone up in a short-term price shock (when lumber prices jumped so high this summer), while others will see long-term inflation of pricing due to continued increased costs of the workforce, increased cost per unit for supplies, increased shipping or trucking costs, lack of access to a stable supply locally (like the gas prices mentioned above). This leads to an increased final cost with fewer choices and options for the end consumer.
Storlie added, “I have been very taken by how understanding our customers are right now. They have been very tolerant – more than they ever have – because we are all in this situation together.”
The trucking industry has faced a shortage of qualified drivers for a few years, which was compounded during the pandemic. Long-haul drivers transporting across state lines are in the highest demand currently. It seems that having so many job opportunities to choose from, there are fewer young people pursuing a career in long-haul trucking due to the long hours, even days, away from home. Even when companies book trucking time in advance, they can be outbid and lose their trucking without notice, which means the products in demand sit idle.
When supply chains become unreliable, companies face uncertainty and may increase their orders – increasing demand – for key supplies to ensure continuity of their production lines. When companies run out of supplies, production can be halted, meaning labor force hours are either reduced or a lay-off occurs- not good for employee retention in a current labor shortage.
The company may simply discontinue products that are not sure sellers or slow down order fulfillment to vendors, which impacts their bottom line as well. This can create a lack of options for the customer but ensures that there will at least be something to consistently offer the end consumer.
Doug Hamilton, Deco Products’ Director of Supply Chain, shared his insight into the supply chain problem saying, “So far, we have seen several vendors find themselves in shortages, and we have developed a dual-source program to ensure Deco can acquire materials and parts from more than one source to minimize the effects of these supply chain disruptions.” Ordering fewer parts from two or more vendors may cost a bit more with fewer volume discounts but can help eliminate disruptions from only one source.
“A 100 percent increase on the cost of parts available more consistently is still better than having no parts and shutting a line down,” noted Storlie. Hamilton added,” this business to business price increase momentum has been building for several months, but we haven’t seen the highest prices passed on to the end customer yet.” Contracts held prior to any short-term price shock are generally honored, meaning the company absorbs that price difference, taking a loss on any products produced with sky-high prices.
Because the supply chains – especially long supply chains – have so much uncertainty in their ability to reliably supply materials, this can also cause an increase in prices and demand as companies try to stockpile supplies that have been in short supply.
“Employees are absolutely critical to everything,” noted Storlie, “We have many employees that have stepped up in some pretty big ways – it’s incredible.”
Uncertainty in the supply chain may remain a factor for manufacturers, retailers and consumers for the foreseeable future. It may be a good time to look at how to shorten the supply chain a little closer to home. Paying a little more for more locally-produced quality goods might just pay off in consistency, sustainability and availability.
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