Apr 28 Top Three Bottlenecks Facing the Supply Chain
As we slowly return to normalcy (if such a thing even exists anymore), it is important to identify where your supply chain may be lacking and where potential opportunities may exist. It comes as no surprise that aspects of the supply chain have been drastically affected by the pandemic.
We hope that supply chain issues aren’t impacting your business as hard as some others, but if they are – we might have ways to ease some of the pain on the financial side. Contact us at www.saxllp.com to learn more.
Below we will identify three bottlenecks that could be sources of constraints for your business’s supply chain.
Shortage of Skilled Labor
This may be one of the most widely discussed topics in the past two years across numerous industries, but it is still one of the most significant areas that need attention. The aging population of the skilled workforce has led to a mass exit, but there are not enough skilled workers that are able to replace them. The cost of labor is going up drastically, yet the skill level and experience do not always equate. Therefore, more time is needed for training and taking time away from the actual work.
Two of the most in-demand roles are skilled workers working on the manufacturing floor and truck drivers delivering freight. Lead times continue to remain an issue, and if the labor shortage continues, there may be no end in sight within the near future.
Shortage of Warehouse Space
With lead times that were once six months now taking up to eighteen months, manufacturers are overbuying to compensate for the increased wait time. Manufacturers are purchasing increased inventory quantities, yet there is no designated place to store them. Now, many have to invest in space to store additional inventory, whether it means adding other facilities to the warehouse or outsourcing storage space.
Potential Financial Constraints
You now have all of this extra inventory, but where do you put it? Are you going to outsource the storage or take this expense on internally? If you are going to store the excess stock in existing warehouses, some costs may include additional racks or equipment to retrieve this inventory later on. Relating to our previous section, if you were to purchase this extra equipment, you would need skilled laborers actually to use the equipment and move inventory when needed.
If you are financing these expenditures, you will also need to factor in the interest and debt related to the purchase. The question then becomes, are customers still going to remain in business to purchase this additional inventory, or will the demand decrease and this inventory collects dust?
Delay of Raw Materials and Finished Goods
Freight ships line up the California coast to deliver freight, yet the backup of vessels affects lead times even more. Once these ships can actually enter the desired port, there is nowhere to put the inventory carried. Not only is there nowhere to put the stock, but there are also not enough skilled longshoremen to assist in removing the freight from the ship. Does anyone want to pick up a new skill?
With the cost of freight increasing by nearly three to four times, it is harder for manufacturers and distributors to receive raw materials and finished goods from their suppliers. And once you find the parts or raw materials, it comes with a price as the current demand far exceeds the supply. Since this issue occurs throughout multiple industries, the prices of goods have increased across nearly all. That home renovation you’re looking to do? Better estimate about two to three months lead time and place your order now for your new patio furniture and appliances.
The pandemic has had a tremendous impact on the factory’s ability to staff and produce the goods needed for ongoing production. With the recent spike, factories were experiencing shutdowns, enhancing the issue when we thought we were reaching the end.
About the Author
Joshua is a Partner with Sax and Leader of the firm’s Manufacturing and Distribution Practice, concentrating on advising clients on the key areas critical to their success.
With more than 15 years of experience, Josh specializes in distribution and inventory management, shareholders agreements, profitability, succession planning, financial strategy, operational efficiencies, risk management, and tax challenges.