Solid supplier relationships, healthy operations keep direct sellers afloat amid continued supply chain disruptions
By: Stephanie Ramirez
Forecasting and planning for supply chain distributions isn’t anything new for logisticians, including those working for or servicing the direct selling channel. It’s their job to have a plan in place for when a weather event strikes near a distribution warehouse or a storm in the Atlantic sinks a cargo ship full of product parts or ingredients.
As COVID-19 forced many companies to shut down temporarily, manufacturers and shipping companies assumed that demand would experience a sharp drop. However, the pandemic merely shifted the demand.
Instead of dining out and traveling, consumers increased their online shopping. Consumers across the globe spent $900 billion more at online retailers in 2020 compared to the prior two years, according to a report from the Mastercard Economics Institute.
The pandemic simply accelerated a trend that had been advancing for years. Still, that hasn’t come without its challenges. The global supply chain is a fragile ecosystem bound by many tiny moving parts. Individually they seem insignificant, but when one is disabled it can cause a major disruption in a company’s value chain. What determines a company’s resilience is how it responds and adjusts to these disruptions.
Materials Scarcity
Gene Tipps, president of global operations for Plexus, a provider of health and wellness products, quickly found out early on in the pandemic just how fragile that system was when his company found itself competing for everything from packaging components to vegetable capsules.
“We’re not the only health and wellness company out there, and we’re certainly not the only health and wellness company in direct sales,” says Tipps. “We started hearing that things that normally had a 7-to-10-business-day lead time were being rolled out to 52 weeks.”
As a turnkey manufacturer that sources and supplies most of its raw materials and packaging from other vendors, Tipps says Plexus’ suppliers began warning him near the beginning of the pandemic about the potential slow down.
“Our specification process is such that we actually qualify the vendors that our contract manufacturers can use, so we are pretty into the weeds with the process,” adds Tipps. “In the middle of the pandemic, we were already well down the road of all of these relationships that we had established with component suppliers and raw material suppliers and found out early on that some of our materials were going to cause a problem as they come from overseas.”
As a company, Plexus doubled-down, says Tipps, as it began to secure raw materials outside of its finished purchase orders, putting them on the hook for those raw materials.
“We purchased and kept in our inventory many components, so should our manufacturers need them, we could start doling it out to them,” he adds. “Thank goodness we did because we had multiple manufacturers that were coming back to us needing [specific materials].”
Tipps says that while the company had a number of redundancies in place, executives realized in hindsight there was room for further improvement.
“It’s no longer a best practice to not have multiple redundant suppliers; you need a backup to the backup to ensure no disruptions,” adds Tipps.
One of the other things Tipps says the company has done is to take a look at its product formulas. He asked his suppliers what some of the ingredients were that kept them up at night, in terms of high demand or short supply. Executives began to review whether some of those ingredients were really adding value to the products. They also considered regulatory concerns and whether something on the back end could be problematic in the future.
“The pandemic forced us to really be more deliberate as an organization, and it’s helped us quite a bit,” Tipps says.
Something else Plexus experienced, just as many companies had, was labor shortage, especially in its packing facilities. The company realized that it didn’t have quite the right technology in place to manage this disruption with ease.
“The pandemic and supply chain issues weren’t the only factor we were dealing with, orders were coming in the front end exponentially.”
Tipps says Plexus is now future-proofing using new technologies and bringing in more digitalization into its facilities. That way it can scale up or scale back at any given time.
Evan Brengman, director of global supply chain for Michigan-based Total Life Changes (TLC), says his company experienced many of the same issues. As soon as it started to learn about possible slowdowns, TLC made a rush, as did many others, to procure as much inventory as possible.
“As many manufacturers are, we are currently in an over-procurement status, but really the biggest challenge for us and many industries has been an employee shortage across our supply chain partners,” says Brengman. “I do believe we are on the uptick of stabilizing from an employment standpoint, however, but the last two years have been challenging.”
Shipping Delays and Cost Increases
Some of the biggest impacts to the supply chain of most companies were shipping delays and increased demand and costs. According to a U.S. International Trade Commission report, the pandemic disrupted maritime shipping and air freight services, leading to canceled sailings and flights, port delays, and container shortages. The most significant impact was a sharp decrease in capacity to transport freight in the cargo holds of passenger aircraft (“belly cargo”) due to canceled flights. This resulted in steep increases in air freight compared to previous years.
When international and cross-border logistics supplier Global Access learned that there would be no more passenger planes going to countries such as Australia for the foreseeable future it had to pivot quickly to meet customer needs.
“We use a lot of passenger planes for the cheapest shipping rates to some international markets, and so when all of a sudden 90 percent of international passenger flights were grounded, we had to quickly shift and go to booking cargo-only flights to certain countries,” says Michael McClellan, vice president of sales at Global Access. “This caused some delays as we encountered custom clearances.”
Some of the biggest challenges for maritime shipping for many companies was their products being left on boats due to ports being crowded or a lack of port staff to manage moving shipping containers.
“For us, having the ability to shift gears and ship {products} directly from the U.S. to some of those markets was very advantageous for our clients versus being on the ground in some of those markets where things were getting shut down,” adds McClellan.
Global Access along with other final-mile carriers are shipping partners of Total Life Changes, and Brengman shares that while there were some delays in transit times to overseas destinations, TLC executives are thankful that they had those partnerships in place and have always shipped directly to consumers from the U.S.
Maritime and air freight hasn’t been the only shipping challenge, according to Tanner Carlson, general manager and vice president of operations for Global Access. “The challenges have occurred across the board, he says. “Pretty much every step of the supply chain down to delivering a small parcel internationally has been affected.”
When Canada took a hard-line approach to combat COVID-19, it created a number of delays for Global Access’s customers shipping products into that country.
“There were not only custom delays, but there was a reduction in staff for packing facilities,” adds Carlson. “In some cases, if there was a COVID outbreak, entire facilities were shut down for days to disinfect.”
On top of all the continued pandemic supply chain challenges, Carlson shares that his company is experiencing significant challenges in Canada due to the trucker strike as well as a recent weather event that virtually blocked access from Eastern Canada to Western Canada.
Strong Supplier Relationships
No company has been spared in this unprecedented world event. In 2021, supply chain disruptions cost the world an average of $184 million, with the United States topping the list with an average of $228 million. According to Sophary Ly, CFO and executive vice president of Le-Vel, having solid, strong relationships with all its suppliers and vendors has been key to the company weathering the pandemic’s relentless supply chain challenges.
Ly says Le-Vel has seen price increases as much as four times more than usual. The port congestion and shortage of raw ingredients around the globe is affecting all of its partners. She adds that the company had to make significant adjustments internally as it absorbed those increases so as not to pass those along to customers.
“We invest a lot of time and energy into developing solid supplier relationships,” Ly says. “As our trusted partners, many of our suppliers have extended their own cash flow, buying raw ingredients and storing them for six months to eight months just in case we hit hyper-growth.”
Working with contract manufacturers, she shares that there were times when Le-Vel needed to source certain ingredients on behalf of its manufacturers because they simply were not able to get it themselves.
“The pandemic really gave rise to increased cooperation and collaboration with all our suppliers,” Ly says. “Everyone has been understanding and supportive, and we got through it together.”
Supply chain concerns will continue to be top-of-mind for many manufacturing executives for the near term. As these executives have learned, they are certainly more keenly aware of all the work behind the scenes to get products from their manufacturing facilities to the end consumer. Many will continue to implement internal processes and bring in new technologies to verify supply chain quality, adherence and stability.
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