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Now is a good time to find new ways to make supply chains not only more resilient but also more adaptable to change. Call it an agile supply chain.
Just about everything that could have gone wrong has gone wrong in global supply chains over the past few years, ranging from pandemic-driven disruptions to labor disputes at major ports, stubbornly high inflation, and rising trade tensions with China. The cascade of bad news has also included truck driver shortages, sky-high warehouse prices, and ocean shipping costs that have experienced significant fluctuations.
All this has supply chain leaders fretting about when we will get back to normal, but perhaps normal shouldn't be the goal. In the spirit of Sir Winston Churchill's quote, "Never let a good crisis go to waste," now is a good time to re-examine our assumptions about supply chains and find new ways to make them resilient and adaptable to change. Call it an agile supply chain.
The last few years have spotlighted the shortcomings of the just-in-time (JIT) inventory management practices that manufacturers, logistics providers, and retailers have pursued for the past 30 years. The goal of JIT is to time deliveries of materials to arrive at precisely the moment they are needed. It's a laudable objective but one that requires reliable and predictable supply chains. As the earliest months of the pandemic dramatized, JIT practices can lead to crushing shortages when logistics networks are disrupted.
One link in the supply chain that deserves special attention is logistics. There are only a handful of logistics companies that can serve the entire United States, and the number with global reach is even smaller. Contracts can take months to negotiate while third-party logistics (3PL) companies secure the necessary warehouse space, labor, and other resources.
Clients are then expected to sign multiyear contracts that commit them to space and resources regardless of the nature of their business.
That can be a particular burden on developing companies with an unknown future growth trajectory or those in seasonal industries who may pay for months of empty space and unused resources just so they have inventory on hand during busy times.
While warehouse space shortages have started to ease, finding space and resources in some markets remains difficult. US warehouse vacancy rates have risen off all-time lows experienced in 2022, however even in the face of record warehouse building deliveries, vacancies are only expected to rise slightly before falling back to the mid-3% range in 2024. In key markets, such as the Inland Empire and New Jersey, space remains scarce and expensive with vacancy rates remaining below 3%.
The past few years have also seen systemic changes in both buying practices and customer expectations. Deprived of vacations and restaurants during pandemic-driven lockdowns, consumers poured money into furniture, electronics, exercise gear, cookware, and home improvements. Much of this was bought online, leading to US e-commerce growth of around 10 years in just 3 months' time. While buying habits continue to evolve, impacted by inflation and changing economic conditions, e-commerce sales are still expected to almost double between 2022 and 2027.
Buyer expectations around e-commerce have been influenced by major online retailers like Amazon, which promise nearly everything delivered within a day. This puts pressure on retailers that don’t have the scale or network of Amazon: quickly deliver items to markets around the country despite unpredictable inventories and logistics.
Ongoing disruptions have sparked a lot of talk about supply chain resilience. Manufacturers and retailers are buying protection by doubling up on suppliers, sourcing closer to home, and even investing in their own logistics networks. This comes at the expense of higher costs that are contributing to some of the highest US inflation rates in 40 years.
Achieving supply chain resilience shouldn't mean sacrificing the virtues of JIT inventory. The focus should not be solely on making supply chains more resilient, but also more agile.
Gartner has noted that 89% of supply chain professionals plan to invest in making their supply chains more agile over the next couple of years, which holds the potential to create self-healing supply chains with logistics networks that are as adaptable as the businesses that use them.
McKinsey defines agile organizations as those that embrace uncertainty while flexibly and swiftly allocating resources where they are needed most. Rigid, fixed logistics networks, multi-year contracts, and long decision cycles are the enemies of agility. Organizations are best served by 3PLs who can drive network diversity by providing the needed storage and fulfillment programs in a matter of weeks, with facilities in key markets throughout the country, technology-enabled system integrations, and contract terms measured in months instead of years.
Making supply chains more resilient doesn’t go far enough. The goal shouldn’t be to return to normal but to build new agility into the supply chain and to drive logistics partners to do the same. Faster, more responsive organizations will respond to volatility more effectively while managing costs and pivoting to meet changing customer expectations.
If you need a logistics partner to help overcome ongoing disruptions, diversify your network, and build a more agile supply chain, look no further than Iron Mountain Warehousing and Logistics. With facilities and resources throughout the country, flexible service agreements, and quick setup and onboarding, Iron Mountain is your agile 3PL partner with a legacy of trust. Visit our page to learn more about how we can help you build a more agile supply chain.
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