Last Updated on August 9, 2024
While the specifics of supply chain operations have previously been the concern of businesses and manufacturers, recent world events have forced laypeople the world over (i.e. you and I) to pay closer attention to supply chain concerns.
Impressive feats of logistics have made it possible for companies like Amazon, DHL, and various shipping carriers to deliver a huge range of commodities extremely quickly, but every system has its vulnerabilities, and COVID-19 brought with it a host of long-term changes to the specifics of supply chain operations, and these changes have had a ripple effect, leading, for example, to increased inflation.
In order to cover the subject in detail, we contacted Mr. Viraj Lele, a supply chain expert who has authored multiple research papers on the topic and who currently works with DHL, optimizing processes and operations for the sake of improvement and financial savings.
Lele officially began his career while the pandemic was still raging, which instilled in him a dedication to finding as many solutions as possible to reduce the negative impact of supply chain challenges and, ideally, create a more stable supply chain for the future.
The interview that follows is packed with professional insights and an educated look at how the US in particular is looking to bolster its supply chain.
InspirationFeed (IF): What’s one of the most important things the average person needs to understand about current supply chain issues?
Viraj Lele (VL): In general terms, supply chain is the flow of goods and services and sometimes information from the transformation of raw materials to finished goods, to the point when it’s delivered to the customer.
Considering the current supply chain scenario, one of the most important factors in supply chain issues is the creation of the Bull-Whip effect. To explain this in simple terms, it is the inadequacy in the demand for a product that creates larger fluctuations as one moves to the top of the supply chain.
Consider a retail store selling 50 cakes every day that observes a 20% increase in demand. Considering this increase, the manager orders materials for 70 cakes from his distributor or supplier. As a result, the distributor/supplier sees an increase in demand for materials, and instead of ordering materials for 70 cakes, they inflate their orders from manufacturers for 80 cakes.
This pattern moves upwards wherein the manufacturer inflates its manufacturing in anticipation of higher requests. This increase creates a whip-like effect as one moves up the supply chain stream.
Here are some of the other reasons related to the current supply chain issues.
Labor shortages: these are affecting almost every market and one of the challenges identified was limited engagement from young populations and an aging workforce. With the onset of COVID, there’s an increase in e-commerce demand, and as a result, physical labor-oriented operations are getting tighter for businesses.
Geopolitical tensions: the ongoing war and invasion of Ukraine by Russia has had repercussions on the rise in energy and food prices all over Europe and North America, especially the US. It threw supply chains off-track for these economies.
IF: Are there specific industries suffering more seriously from supply chain challenges than others?
VL: The manufacturing sector suffered the most compared to other sectors due to the pandemic, and this had an impact on the supply chains.
Data also shows how the construction industry has been affected due to a shortage of key materials such as appliances, framing lumber, plywood, doors, windows, etc. According to the Housing Market Index (HMI) 90% of builders expressed shortages of the above key materials.
A primary reason for the sharp fall in manufacturing, especially motor vehicles, is that automakers underestimated the demand for products. Anticipating a low demand, they canceled orders for crucial parts such as semiconductors, an item with a larger lead time and which saw an increase in demand from other industries. This made it difficult for automakers as parts of the vehicle are manufactured by different vendors and assembled together to make the vehicle.
In some cases, neither the automaker nor the individual part manufacturer could trace the missing links in the chain. As manufacturing is one of the prominent industries affecting the price of multiple components, this affects the total price of the car. According to US Wealth Management news, another factor relating to supply chain issues was the shortage of semiconductor components. These chips have a pivotal role in the functioning of numerous products. Due to the supply chain crises, orders for chips have been backlogged, causing a delay in production, which in turn has affected auto manufacturing.
With delayed production of automobiles due to a lack of chips, the supply of vehicles dropped and prices surged. Higher costs for new and used cars are another major contributor to a rapid increase in the inflation rate.
Manufacturing issues disrupt the supply chain, and my focus has been to close this gap by making contributions in this field. One of my contributions was while working for ThermoFisher Scientific, a Biotech and Pharmaceutical company and a leading supplier of scientific instruments, reagents, and consumables.
My role in this company was critical as it was the onset of COVID-19 at the time, and medicines and PPEs were in demand. I performed many time study projects for their facility in Millersburg, PA for their Primary, Secondary, and Tertiary packaging of medical device instruments. Their processes involved extra time in the packaging of the components, which delayed the shipments on our shift.
I was assigned the role of performing time studies to understand the problem and to fix our delivery supply chain. With the help of root cause analysis from my previous experience, I identified issues with the packaging machines that operators used during the night shift. The packaging machines required a lot of manual inputs and physical intervention to wrap the produced devices on the floor. I introduced an automated foam wrapping technology that wrapped the plastic under two beds just with a gentle leg press.
This project eliminated our delays in manufacturing and shipping of critical medical instruments which were shipped to J&J, Moderna, Pfizer, and other pharma companies, thereby alleviating any supply chain disruptions caused due to manufacturing delays.
(Reference: https://www.whitehouse.gov/cea/written-materials/2021/06/17/why-the-pandemic-has-disrupted- supply-chains/)
IF: Do you also see supply chain challenges as contributing to widespread inflation?
VL: The increase in inflation was seen right from the onset of 2021 due to the pandemic disrupting the supply chain, which went on for the rest of the year. December 2021 saw consumer prices increasing by 5.4% as compared to December 2020.
Pricing of goods varies by industry, but most costs come from paying wages to laborers, the raw materials, machinery costs, technology, and logistics. If any of these costs spike, there’s a subsequent increase in the cost of goods. When the inputs which are common to most firms go up, more sectors increase prices, raising the costs for the sectors they supply. This in itself is supply chain Inflation.
IF: What aspects of supply chain logistics have you personally researched?
VL: From my personal insight, having graduated during the pandemic era, I started investigating and doing my research in the medical and pharmaceutical sector of the supply chain along with the food industry and FMCG, or Fast Moving Consumer Goods.
When all the other industries were laying off their employees, medicine supply and food were in total demand as food services and life-saving drugs had to be managed both nationally and internationally, which was done by companies like Amazon, DHL, Lineage Logistics, XPO, etc. in delivering goods and services right to one’s doorstep.
The rise of the pandemic made it imperative for me to dive into this field, as food is always an essential commodity. I dived in to see the applications of supply chain in inventory systems, predictive analysis, and new methods for forecasting in FMCG and supply chain risk management.
Some of my accomplishments are in developing a point-of-sale system, and dropping shipping methods, which helped our company save significantly on their operational costs. My current work also focuses on managing the supply chain for one of the world’s most prominent supply chain companies, DHL, dealing with consumer goods.
IF: What are some supply chain solutions/optimizations you’ve explored?
VL: One of the supply chain solutions which I have explored and implemented during my academic and professional career has been the use of the drop shipping method, especially to avoid inventory holding costs at the client site.
The client was a retail grocery business in the New Jersey area. The primary objective was to have the storage area set up with minimal resources and cost. Since most of the food items stored were perishable, it was imperative for us to design a solution that keeps the freshness of the goods and prompt delivery to the customer. The IT team supported our project by creating a POS system and building an e-shopping site for the store.
The plan was to drop ship all the orders which we received for perishable items. Perishable items had to be stored in a temperature-controlled atmosphere, which involved buying a refrigeration system for the store. Since the goal was to design a cost-effective inventory model, my inquisitive mind went across the solution of drop shipping such items directly to the customer from our suppliers. This had multiple major advantages.
This project positively impacted the operations of our client, helping him thrive in his business.
IF: Do you feel that current supply chain issues will be resolved in the near future, say, within the next three years?
VL: A lot of factors contribute to the streamlining of the supply chain. With no concrete solution yet to the Ukraine-Russia conflict, it is expected that fuel costs will rise, putting pressure on the economy for the remainder of the year.
A recent report by CNBC gave key points illustrating the presence of supply chain issues until mid-2023. According to SAP, 51% of US companies are expecting the supply chain to remain challenging into 2023. The global leader in supply chain software predicts approximately 23% market share will remain in rapid flux for the US economy.
US companies are now moving towards a “just in case” model from “just in time” for carrying more inventory and using suppliers closer to the US as opposed to China.
More US companies are turning to technology and emphasizing the need for sustainability. Incorporation of the drop shipping method, optimizing of the routes, working on packaging technologies, and other time study analyses, which I have performed throughout my career, has helped companies mitigate their supply chain issues, which has an overall impact in saving millions of dollars, cumulatively.
That’s why I think the use of strategies like the ones highlighted above will help alleviate tensions, at least in the transportation industry.
