Marc Janssen, Cordstrap’s VP Global Operations discusses the challenges businesses have faced over the last 2 years, the approaches that Cordstrap has taken to mitigate the damaging effects and what lies ahead.
The last 2 years have tested supply chains like never before. They will have challenged your business’ responsiveness to dramatic changes in both supply and demand. Those companies that reacted most swiftly to COVID with coordinated action across their supply chain were the ones that suffered least from economies locking down and reductions in trade.
Subsequently, it was those companies that foresaw the bull whip effect, and retained staff, that were best able to exploit the rapid recoveries in trade volumes. That foresight also enabled them to secure affordable commodity and freight capacities.
The million-dollar question now is, what lies ahead for 2022 and how best to prepare for the challenges ahead?
The volatility we experienced in the last 2 years has created a bullwhip effect. This is where repeated changes in demand magnify the effect of fluctuation through each tier of the supply chain as each supplier adds an extra buffer to their order to be on the safe side. This magnification leads to small changes in customer demand resulting in massive extra demand for upstream raw materials. Effectively, the supply chain behaves exactly like a bullwhip where a small flick of the wrist at one end is magnified to create a huge whip crack at the other.
In recent decades, we had become acclimatized to relatively stable demand which was easily forecastable. Supply chains had been optimized on that basis with centralized production assets allowing high utilization and operational efficiencies and inventories could be reduced in line with just-in-time principles. Safety stocks could be set at low levels and procurement tactics were based on constant availability with ample upstream production capacities.
The pandemic changed all that. Production and supply chain responsiveness to sudden change is now critical. Production capacity must become more adaptable. Working conditions across supply chains must be more attractive to retain the staff in manufacturing and logistics who are the engine of physical supply chains. Procurement tactics must now focus on onshoring, to reduce freight burdens and improve flexibility while diversifying vendor landscapes. And finally, we must adjust inventory levels to ensure sustained customer product availability levels in future phases of change in supply and/or demand. This will set you apart from competitors who fail to prioritize customer experience and increase your chances of retaining and growing market share.
Apart from doubling down on hygiene measures and segregation of production cells across our plants to address Covid-19 related risks, we have increased the number of vendors for strategic products and built inventory in certain Distribution Centers to deal with disruptions to transportation. As a global market leader, we also face specific challenges of ocean freight capacity and prices. To address these, we undertook a full review of our carrier and 4PL network. Keen to ensure maximum availability and reliability of transport while safeguarding competitive pricing, we made significant changes to our 4PL mix for each lane. We continue to measure service and price performance each month to optimize our service/cost balance for customers.
With accelerating demand and escalating freight prices, both at sea and on land, the safety of shipments is more important than ever. The financial and customer experience implications of incidents have increased dramatically. As a result, the ROI on high quality cargo protection is now higher than at any other time in history. This is compounded by the pressures and risks of over-stressed supply chains.
To win, companies must be vigilant, especially where employees are being asked to increase output to catch up on outstanding customer orders. You must step up safety and quality inductions to new and inexperienced staff who may have been recruited to deliver increasing volumes across logistics and manufacturing. Those with safety and quality built into their corporate culture, with employees from all areas of the business involved in risk assessment, will sustain productivity and growth. They will limit exposure to quality and safety risks and improve production and transport efficiencies.
Throughout COVID we increased our internal hygiene disciplines including physical separation of various groups of employees. This minimized the risk of infections impacting employee health and allowed us to maintain excellent product availability to our customers. To tackle a surge in demand for dunnage bags, we segregated various production cells in our own plant and with external providers, to minimize infection risks, while increasing inventories to healthy levels. We’re proactively supporting employees facing challenges and investing in further improvements to safety and quality standards across our supply chain.
As well as the challenges facing upstream supply chains, we also experienced imbalances in the cost of energy needed to sustain the supply chain. While 195 countries may have adopted the first-ever universal, legally binding global climate deal, geopolitical tensions remain. As countries transition to more sustainable energy sources, we are encountering supply imbalances fueled by huge price increases for natural gas and electricity.
Those companies that continue to reduce their impact on the environment can really drive down costs and mitigate against further rises. The process starts with assessment of the full supply chain and reviewing your network of vendors, production, and logistics. With ocean freight rates overheating, onshoring becomes a more viable alternative. Depending on what modality you shift to, you may be able to lower your freight cost and your carbon footprint.
Redesigning products could enable the use of less raw materials and improve recyclability. Optimizing packaging can also reduce demand on raw materials and the amount of space needed when shipping. Waste space comes at a very high premium when rates are high. Packaging design can often be optimized when engineered in conjunction with enhanced cargo protection.
Once you have analyzed energy use and potential waste across your supply chain, you can explore renewable energies and technologies such as solar panels, LED lighting and electric vehicles.
Cordstrap is committed to driving Environmental, Social, and Governance (ESG) criteria across our operations and manufacturing output. Our CSR team are leading a number of ESG programs and initiatives and one of the key areas we have been focused on is getting the basics of sustainability right. We have reduced production waste by 50% to just 1.5% through a strategy of improved employee awareness coupled with investments in equipment and data analytics
Each waste stream is now fully accounted for in terms of mass and cost, and we have been able to divert over 95% of our raw material scrap from landfill to a useful second life. All our strapping scrap is now re-used in furniture manufacturing or to construct animal enclosures.
We’re measuring and reducing energy usage across all our facilities and using solar panels to generate renewable energy at the largest of these.
We’re investing in innovation and research to redesign our products to ensure they are fully recyclable, and we are exploring use of recycled materials to replace virgin materials. This will enhance the potential for closed-loop recycling as we move towards a circular economy and reduce our carbon footprint.