As Volkswagen and Toyota face production cuts due to a global computer chip shortage, the University of Sunderland’s Associate Professor in Cultural Management, Dr Derek Watson, discusses the impact he thinks Covid-19 and Brexit is having on supply chains.
We now live in a world, in which many of us, are conditioned by what can be best described as the ‘Amazon Effect’, in which there is a high expectation that goods and services are readily accessible or within two days. One needs only to reflect on consumer behaviour in response to the 2018 KFC supply chain delays and more recently, shortages in loo rolls and Nando’s chicken. A stark reality is when a shortage of £2 microchips can force Toyota to cut production next month by 40%, demonstrates our dependency on resilient supply chains. The CEO of Intel, Pat Gelsinger, has stated ‘the worst of the global shortages is yet to come’.
Such disruptions to supply chains can be traced back to the 2018 US and China trade disputes, which fuelled economic uncertainty in terms of inventories and new capacity planning. One also need to be mindful that supply chains have many layers of distribution sub-components, which results in the multiple and constantly moving supplier agreements. Moving forward, the 2020 global pandemic pushed global economies into supply chain chaos whereby many manufacturers slashed production and cut orders for components which created a negative domino effect in their supply chains. Furthermore, the new Brexit trading complexities and the blockage of the Suez Canal has certainly caused friction in supply chains.
A clear example of the structural vulnerability in supply chains is evidenced in shipping containers. The current short supply can be traced back to the 2008 global recession and the fact that 90% of the supply chain is sourced from China. To compensate the reduction in exports, 24-hour container production lines were downsized to accommodate supply and demand. As the global economy slowly opens up, the demand for shipping contains has force the unit price up to 700%. The problem is further compounded as it is uneconomic to load empty containers as ports are operating at 100% capacity to unload full containers. The quagmire creates the perfect storm as the shortage of shipping containers results in a shortage of shipping capacity, thus, resulting in a shortage of port capacity which, then, leads to a shortage of shipping containers, and in turn, results in a shortage of products.
The so-called Pingdemic’s primary aim is to reduce C19 transmission. However, the initiative is preventing key staff in logistics and the national grocery chains in ensuring products reach the food and drinks sector, along with vital components and equipment to drive the supply chains industry. Road hauliers are under significant pressure, as Logistics UK estimate there is a shortfall of 90,000 HGV drivers, which was compounded in the exodus of approximately 25,000 EU drivers. In response, key retailers are actively offering cash incentives of up to £5,000 to attract new and pacify existing drivers. There is also an aggressive marketing campaign to attract more female divers, who only represent 1.2% of all UK drivers.
The fulcrum in supply chain management is the ‘Just in Time’ (JIT) system also known as the Toyota Production System (TPS). Its philosophy is to reduce inventory and to increase efficiency. This is achieved when each step in the process should end when the next is ready to start. The reduction of excess inventory equates to waste reduction, and in turn, product efficiency. Its success is dependent on management commitment, anticipated production, fault free processes, high quality workforce and dependable suppliers.
As evidenced in the current scarcity of components and products, such as microchips and drumsticks, the core causes are fundamentally associated in the fact that organisations have incrementally superseded the purist application of the supply chain and JIT philosophy with 10 core myopic and continuing follies:
- Failing to embed Supply Chain and JIY vision
- Underappreciating the importance of company culture
- Depleting levels of management commitment
- Conceding to a group rather than a cross functional team dynamic
- A reliance on international suppliers
- Knee jerk response to short term changes in reduced demand
- Factoring out all inventory as opposed to ‘excess’ inventory
- Reluctance to pursue a right first-time concept
- Prioritising short term gains to reassure share holders
10. Failing to listen and act on employee opinions