I read an article in The Wall Street Journal that said: “After two years of disruption, supply chains are almost back to normal.”
The reason for this pronouncement? The store shelves were all full and “widespread stockouts are largely absent.” Then at a recent logistics event I heard a CFO say, “My supply chain people are doing a great job this year.” When an audience member asked the CFO why he thought they were doing a great job, his response was: “They have got transportation costs down and in fact are below budget.”
My response to both stories was, “OH MY, MY!!!”
Let me be clear here: Supply chains are not back to normal. In fact, the new normal is perpetual disruption.
Full shelves are not necessarily a good thing. They are not necessarily a bad thing, either. CFOs and other C-suite people – you know, the ones who only started to pay attention to supply chain in the last couple years – should consider the following scenarios:
- What if you have too much inventory with low margins? Either you will be forced to sell at a discount, resulting in negative margins, or you be forced to hold until next year.
- What if you do not have enough inventory of your high margin items? You will lose sales.
- What if you do not have enough inventory of items your customers expect you to have? Therefore, you lose both short-term and long-term market share.
Similarly, having less transportation cost this year when compared to last year does not mean you are doing a good job. The average costs per container moved from Asia to Los Angeles is down as much as 276% for 2022 compared to 2021, and full truckload costs are down up to 36% when comparing 2022 to 2021. Just because transportation rates – something out of your control – have declined does not mean you are doing a better job than you did the year before.
The good news is that supply chain has gained a lot of visibility. The bad news is that all of this visibility has not resulted in increased understanding of supply chain. Instead, supply chain either gets blamed or praised for outcomes that are naïve, inaccurate and misguided. To which I respond: “OH MY MY!!!”
— Jim Tompkins