The Struggling Supply Chains

I thought you might find some of the observations in Costas Paris and Jennifer Smith’s Wall Street Journal article on the ongoing issues in our supply chains interesting:

Participants in each link in the U.S. chain—shipping lines, port workers, truckers, warehouse operators, railways and retailers—blame others for the imbalances and disagree on whether 24/7 operations will help them catch up. All of them are struggling with a shortage of workers.

The ports of Los Angeles and Long Beach are managed separately and operate 13 private container terminals. Long Beach officials said last week they would try operating 24 hours a day from Monday to Thursday. Gene Seroka, executive director of the larger Port of Los Angeles, said his port will step more cautiously, keeping existing hours while waiting for truckers and warehouse operators to extend their hours.

with this particularly telling:

Union Pacific Corp. , one of two main railroads moving freight from the West Coast into the country, is primarily seeing delays, or dwell, when it picks up cargo from ports and hands it off to trucks at destinations, Chief Executive Lance Fritz said in a recent interview. “Where we see dwell is on either end,” he said.

Nike executives said Thursday that the amount of time it takes to move a cargo container from Asian factories to North America is now about 80 days, or twice as long as it was before the pandemic. Moving items such as paper towels or furniture within the U.S. is also a challenge, with Costco executives saying it can be difficult to find trucks or drivers on short notice.

The “dwell time” refers to how long a container sits waiting to be unloaded from transport or loaded into transport for the next stage in its journey. A doubling of dwell time is a lot.

Interpretations of all of this may vary but mine is that “just-in-time” inventory (JIT) has come back to bite us in the butt. JIT requires predictable and, indeed, short dwell times. A doubling of dwell time means that factories are idled or store shelves empty.

JIT enables both manufacturing and retail to operate smoothly with a lot less warehousing and, consequently, significantly lower capital investment. If JIT no longer works or can’t be made to function acceptably it will have grave repercussions that echo through the economy. This is just about the worst time to be increasing corporate income taxes or increasing the cost and risk of capital investment.

4 comments… add one
  • steve Link

    In the medical world it is the combination of JIT PLUS the consolidation of vendors. Many products at the end of price competition are made by only 2 or 3 companies. If one of those companies has problems we run into shortages. Add in the current problems with transport and it gets worse. Approving substitute products has become a way of life for me. As a result we often end up in the middle of a critical procedure like a trauma case using equipment we have never seen before.

    Steve

  • Many products at the end of price competition are made by only 2 or 3 companies.

    Many products are presently made by just one company but being sold under 2, 3, or more names.

  • Drew Link

    “JIT enables both manufacturing and retail to operate smoothly with a lot less warehousing and, consequently, significantly lower capital investment.”

    As I’m sure you are aware, JIT and Kanban were designed to expose flaws in work processes and force their correction. They forced out the crutch of inventory as guard band. However, it doesn’t allow for rare events, although it has worked just fine for decades. Just another cost to our hysterical reaction to covid. Costs that very few wanted to acknowledge would inevitably be born.

  • Costs that very few wanted to acknowledge would inevitably be born.

    That’s pretty much another way of phrasing my point. Policymakers do not understand the run-on effects of the policies they have been and are putting into place.

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