Supply Chain Mayhem

It used to be simple. You made a small number of products to stock, put them into your warehouse, and shipped these products to customers from your warehouse.

When needed, you scheduled another production run and ordered the needed raw materials, which you kept in the stock room until needed.

You always had plenty of inventory in stock, with lead times for making more products or ordering more raw materials typically being several months.

Then along came China, joining the WTO (World Trade Organization) in 2001, and the “Amazon Effect”.

In order to compete with China’s low wage cost (under $1/hour in 2001but now over $5/Hour) many US Manufacturers either shifted their make-to-stock production to China or switched to make-to-order semi-custom manufacturing in the USA.

The ability to deliver semi-custom orders quickly gave US manufacturers a distinct competitive advantage (at least for big and heavy products that cannot economically be air-freighted) as it takes about 6 weeks for delivery of such parts by Ocean Freight container from China to the USA.

Then along came Amazon, offering a wide variety of products delivered in a few days. Initially this was for consumer products but the Amazon Effect quickly spread to industrial products.

US manufacturers were well positioned for this shift but now had to offer a much wider array of semi-custom products, which required a much larger variety of raw materials and parts, many of which were sourced from China.

In order to follow “Lean” inventory practices, with limited quantities of each component on hand, and to keep costs down, manufacturers in the USA came to rely on industrial distributors to stock the products they needed, with only a small amount of “safety” stock (if any) on hand for needed components to meet an ever more complex flow of incoming customer orders.

Also, production planning and scheduling time horizons had shrank from what were weeks or months, using a classic MRP (ERP Materials Requirements Planning) approach, to now a few days with materials planning mostly done using Excel spreadsheets.

This worked OK, with finely tuned and very lean supply chains, until along came the Covid19 pandemic and start of the breakdown of global supply chains. Then protectionism reared its ugly head and tariffs (on all sides) and other protectionist trade policies completed the supply chain breakdown and, as a result suplly-chain mayhem ensued.

Please click here to learn more about "How Intelligent Agents can Solve these Supply Chain Problems".