Experts analyze supply chain ‘mess’

Blackford Capital and ACG host panel discussion on causes of and solutions for the crisis.
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Panelists said federal subsidies to trucking companies to hire more drivers and adding more warehouse space at the ports in which to put containers would be helpful. Courtesy iStock

A group of experts came together recently to target action steps companies can take in response to the supply chain crisis.

Grand Rapids-based private equity firm Blackford Capital and the Association for Corporate Growth (ACG) Western Michigan chapter on Dec. 15 hosted a webinar on the supply chain crisis called “What the H*** Is Going on with the Global Supply Chain? Will It Ever Go Back to Normal?”

Martin Stein. Courtesy Blackford Capital

Martin Stein, founder and managing director of Blackford Capital, moderated the discussion. The panel included international and local experts analyzing the issues that led to the current supply chain crisis and predicting what the next few months might look like.

Speakers included Steve Feniger, Hong Kong-based operating partner for Blackford Capital and chair of 55 Consulting; Benjamin Gordon, founder of BG Strategic Advisors (BGSA) investment bank and founder, managing partner and CEO of Cambridge Capital, which invests in supply chain logistics solutions; and Dennis Hawver, director of engineering and business development for EBW Electronics in Holland and a 30-year veteran of the tier one automotive industry.

Steve Feniger. Courtesy Blackford Capital

The panel was designed to share strategies for lower middle market companies to survive and thrive in the current environment. Key topics included:

  • The causes of the ongoing supply chain issues and what the long-term impact and repercussions of the crisis might be.
  • Actions to take for companies currently sourcing in Asia.
  • Who is benefiting from the current situation and what are they doing to keep things from returning to normal?
  • The roles sourcing, logistics and technology will play in solving the supply chain crisis.

The Business Journal previously reported on root causes of the supply chain crisis that a Commerce Bank panel identified, and this group added a few more factors exacerbating the problem.

Feniger cited problems including worker shortages, rising wages and electrical grid nightmares in China; the deterioration of U.S.-China relations and continued high tariffs; the price of raw materials, particularly of plastics, stemming from the spike in oil prices; the Chinese government’s “radical” approach to COVID-19 lockdowns; freight forwarding problems out of China due to U.S. ports being backed up; the pulling forward of production timetables as U.S. retailers see a spike in demand; and the fact China’s ability to deal with problems quickly is causing major brands to pull out of other Asian countries and shift production back to China, overloading its capacity.

Dennis Hawver. Courtesy EBW Electronics

Hawver identified the pandemic-induced consumer buying pattern changes, as well as the rapid technology shift toward electronics, both of which underpin the shortage economy, as key reasons for the supply chain “mess” the world is facing.

Gordon said the U.S.’s inventory-to-sales ratio is at an all-time low, because with the rise of containerization and the U.S. increasing overseas production and imports on a global scale over the past 50 years, the country has become more and more dependent on the global network, hampering its ability to recover when the supply chain is threatened.

Additionally, he said the U.S. has been held back by the powerful International Longshore and Warehouse Union, which, through collective bargaining, has prevented a shift to further automation at the ports — an advantage many countries now have — in addition to blocking increases in the number of hours they can work to clear out the port backlogs.

Benjamin Gordon. Courtesy BG Strategic Advisors

Gordon also criticized public policy decisions such as the $5 trillion worth of federal stimulus, which fueled a spike in demand for consumer goods; and the Biden administration’s failure to force the Los Angeles/Long Beach ports to stay open or divert traffic to other ports — or bring in the National Guard to help clear blockages — as well as its failure so far to act on other ideas, such as subsidies to trucking companies to hire more drivers and adding more warehouse space at the ports in which to put containers.

When asked to share what actions they are taking in response to supply chain constraints, the panelists shared numerous ideas.

Hawver said EBW Electronics is requesting price increases, negotiating new terms with suppliers, increasing lead times and inventory, and redesigning product with a design-for-availability, rather than design-for-assembly, philosophy.

“We’ve actually had to re-engineer product based on what’s available in the market,” he said. “So, you go out and scour for semiconductors or capacitors or the like, and we’re having to compromise the design integrity by simply using what’s available.”

He said if any lessons can be taken from the current crisis, it’s that, in hindsight, automakers in North America should have developed deeper and more positive relationships with semiconductor manufacturers instead of being overconfident in their leverage during the former buyer’s market. Semiconductors are used extensively in electronic circuits, or chips, and the chip shortage has hamstrung global auto production since 2020.

“I’ve been on conference calls with (original equipment manufacturers) and Toyota semiconductor manufacturing companies, and it’s very clear that the North American Detroit Three were late to the show compared to the European and Asian OEMs, who invested themselves much earlier in relationships with this very deep and complex semiconductor supply chain,” Hawver said.

He also said companies that can increase their flexibility in inventory management after pivoting too far toward the global just-in-time/lean manufacturing model popularized by Toyota in the ’90s will be able to weather the continued supply chain crisis.

Gordon said private investment dollars are going to companies that have managed to meet the moment and step into the world of e-commerce fulfillment, becoming “unicorns” in the process — the term for a private startup valued at over $1 billion. His investment companies Cambridge Capital and BGSA have poured funding into companies that innovate in e-commerce fulfillment; last-mile logistics software; reverse logistics, or software that manages e-commerce returns; and tracking, or e-commerce visibility software.

One way companies have been able to improve their competitiveness is through vertical integration of their logistics and supply chain through mergers and acquisitions, Gordon said. He pointed to four recent deals that illustrate the trend: 1) The transportation company Ryder recently acquired Whiplash, an e-commerce fulfillment company with a national network; 2) the Port of Singapore Authority acquired the Philadelphia-based freight forwarder BDP International; 3) Uber Freight acquired contractual transportation management company Transplace; and 4) the retailer American Eagle bought Quiet Logistics.

“The logistics and supply chain world is a fantastic opportunity for investment, whether software services or other productivity enhancements,” Gordon said.

Feniger said his team has been able to achieve 99% on-time deliveries for its American customers by having boots on the ground in Asia, where employees are demanding priority, during a time when American manufacturers have not been able to visit China in person for nearly two years due to the pandemic.

“Every week, I’ve got people in the factories saying, ‘Show me your raw materials, show me how many workers you’ve got, show me that you’ve organized the packing and the packaging that’s necessary in order to achieve the on-time, in-full delivery,’” he said.

To help clients achieve better success, Feniger tells them to “Go to B.E.D.”

“B.E.D. stands for ‘become a better customer,’ ‘eliminate the middleman’ and ‘diversify for resilience,’” he said.

On the first point, he said with it now being a seller’s market in the supply chain, “You’ve got to change your attitude, and you’ve got to actually consider how to woo the best vendor to come on board and supply you, because they can pick and choose.”

On eliminating the go-betweens, he said customers should work on the assumption that every link in the supply chain costs about 10%. “Don’t use trading companies. Don’t use buying agencies. Go direct to factories,” he said.

On the diversification point, Feniger said clients should “diversify your country of origin and your service providers and make sure you’ve got three quotes on every product, and you should see a dramatic improvement.”

The panelists agreed the supply chain issues are so complex they will continue at least through 2023.

“Nothing is going to get better until 2023, because that’s when more ships will come online,” Feniger said. “So, in the meantime, where there isn’t enough capacity to make what everybody wants to buy, get in there, get in the factories’ face, demand priority and be a better partner.”

The full Blackford and ACG supply chain discussion is available to view at bit.ly/vimeosupplychainwebinar.

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