Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
For years, many companies have given their supply chain little thought. They had their suppliers, they had the product they needed and if they needed it more quickly, they might just have to pay a little bit more to get it fast.
The COVID-19 pandemic blew up the reliability of those shipments, however, making it harder for everyone to get what they needed. Global strife in China and Ukraine followed by heavy inflation and a potential recession has furthered the strife to a point where many companies have closed and others have struggled.
Nearly two-thirds of respondents to a study conducted jointly by the Association for Supply Chain Management (ASCM) Twin Cities Chapter and Grow Minnesota, the economic development arm of the Minnesota Chamber of Commerce, indicated that bottlenecks or delays and cost increases were among their three biggest challenges — one manufacturing company waited nearly a full year for a shipping container that got delayed in China — and 59 percent said lack of inventory or product availability was among their three top worries.
But even though these challenges appear to be sticking around a while, not all is lost. There are no silver bullets, says Rob Kress, founder of Waypost Advisors LLC, which advises companies on these issues. But for those who have made it this far, there are steps they can take to at least alleviate some of the supply chain strain.
“The companies where it is too late I don’t think are around anymore, we’ve been dealing with this for a while,” he says. “But there are still a number of companies struggling with this and limping along, putting up with the pain.”
To solve those problems, he says, businesses need to be more proactive about planning further in advance for their inventory needs than they have in the past. Talk to your customers and suppliers. Get a clearer understanding of what you will need and when.
“We’re seeing a lot of instances where companies haven’t taken the time to understand these things,” he says. “If you’re dependent on trucking freight, it behooves you to understand the freight market so you can plan. The companies that are weathering the storm are thinking ahead.”
While planning ahead is important, it’s also vital to not panic and overcorrect, he adds, as having too much inventory on hand during a recession — which many experts are predicting will happen in the months ahead — can tie up your cash flow, as big a problem or bigger than not having product on time.
“It’s a puzzle,” Kress says. “This is not going away. We’re seeing a fundamental shift in many industries. The [companies] who adapt and make these changes are going to be the ones out front in a year or two.”
One thing that would help businesses lacking expertise in supply chain management is hiring someone to help them plan, whether that’s bringing on an internal hire or a consultant. That’s especially important for companies reliant on specialized products, Kress and others say.
“If your supplier makes some super special unique art, that’s going to be a lot harder than if you are buying lumber,” Kress says. “What it comes down to is companies need to put more of an effort, more of a focus into their supply chain.”
Sarah Sengupta, associate professor of operations and supply chain management in the Herberger Business School at St. Cloud State University, referenced the alumni program at her school or the robust educational programs available through the Twin Cities Chapter of the ASCM as places companies could go for training and assistance on the basics of logistics.
“Education is a great place to start,” she says.
Sean O’Neil, director of economic development and research at the Minnesota Chamber of Commerce agrees companies need to go from simply purchasing and procuring product to building more of a supply chain strategy.
“That’s one simple suggestion is think about what expertise is out there that can help walk through the business at that deeper level,” he says.
The ASCM/Grow Minnesota study sought information from 40 supply chain leaders statewide. It indicated that businesses have started planning, but altering such activities takes time. In the meantime they are increasing inventories and restructuring supply chains, with more than one-third looking to do more business with Minnesota suppliers.
They’re not just looking to work with local companies, but trying to make sure they add one or more backup suppliers in case things go haywire.
“A lot of companies were single source,” O’Neil says. “The pandemic hit and they realized that was a risk factor.”
One resource the Chamber makes available to all businesses trying to diversify there is Minnesota Supplier Match, a database created by the Grow Minnesota program aimed at helping businesses make connections and grow. It lists 1,200 companies in different industries across the state.
“It’s a tool for companies to learn about other suppliers close to home that they may not know about,” O’Neil says. “Businesses are looking at ‘who are my backup suppliers. Can I have some additional vendors in place to mitigate some of those risks.’ To the extent that it’s possible we encourage them to look locally.”
Working with local companies, he adds, can shorten lead times. And the Chamber staff can help run customized searches of the match database and other resources to provide businesses with a list of potential partners as a starting point “and try to get them a little closer to finding out who can help them here locally.”
“A lot of companies are viewing their suppliers as key partners rather than just vendors,” O’Neil says.
Building stronger relationships with potential supply chain partners could go a long way, particularly for small business owners who, studies have shown, feel at a disadvantage to larger competitors in their ability to keep up with supply chains, Sengupta says. She cited a study by Software Advice earlier this year indicating 91 percent of small- and medium-sized business owners feel at a disadvantage to larger companies during the supply chain crisis. Nearly half of those say they’ve had at least one vendor drop them for reasons relating to them being a small business — including lack of vendor status and inability to meet minimum order sizes or pay premium prices.
The study indicates — and Sengupta agrees — that small business owners need to work harder to establish and strengthen relationships with their suppliers, something SMBs typically have not focused on doing well.
“That negotiating power that small businesses maybe lack from larger enterprises is what they need to be careful of,” she says. “Being honest and being transparent with their own customers is going to be key to their success in getting through. There is a lot to be said for relationship building in the supply chain.”
While it might not be possible in every case, Sengupta indicated small business owners might also want to consider getting creative and seeing if they can rework some designs to reduce the number of components necessary to complete a build.
“There is not a lot of certainty on what’s coming in and how fast you’re going to get it,” she says. “Depending on the time frame of how long the uncertainty is going to last, some small businesses might want to think about some redesign.”
Luckily, she adds, there may be at least a few signs of some relief coming. Ocean shipping container costs have come down significantly in recent months. Over purchasing by big box retailers might be helping stabilize prices, as well, as they try to off-load some of their inventory, which could help small businesses.
“There has to be some equilibrium coming back,” Sengupta says.
Even if that is the case, businesses should take this crisis as a sign they need to fix their supply chain strategies for the long-term. While building a strategy around supply chain management and finding more suppliers are good short-term steps companies can take to improve their supply chain performance, John Melbye says there also are longer-term issues at play.
“The way we’ve been doing things is part of the problem,” says Melbye, president of the Twin Cities ASCM chapter and owner of Become Demand Driven consultancy.
Traditionally, he says, supply chain relies upon precision estimates on exactly when companies are going to need each part. Just-in-time management is the ultimate level, he says, of attempting to know precisely when to have product shipped so it arrives when needed. The problem is these strategies haven’t been working for a while and, he adds, the pandemic shed an extreme light on the shortcomings.
“Everything we do is based on thinking we can use precision to calculate exactly when we need something,” he says. “Maybe at some point that worked. But over time, our lead times have gotten longer and longer. And our forecasts have gotten less and less accurate.”
He recommends transitioning to a demand driven material requirements planning. “We need to strategically place inventory such that the parts we leave to precision can actually work,” he says, comparing it to someone who uses three eggs in baking or cooking every day. If you don’t have eggs on hand, running to the store to get more adds time to whatever you’re making. So, you keep a few extra on hand in case one breaks or a neighbor needs to borrow one.
“It’s no different in manufacturing,” he says. “If you have the product in your facility, then you can say it’s going to take me three days to get it from here to here and it’s in my control and I can manage that,” he says. “If you don’t have it, some items will take you six months, some will take you two months, some will take you three days and that’s where you’ve got chaos introduced into the whole path.”
Melbye’s consulting company works to educate businesses on Demand Driven Material Requirement Planning, which he says is designed to focus on systemic flow rather than cost, figuring that if incoming widgets and outgoing products improve flow, cost will follow.
“Cost is an outcome,” he says. “If my flow is good, if I buy what I need, costs will be minimized.”
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