Supply chain challenges are nothing new, but they are newly in the spotlight as massive consumer delays and shortages affect the shopping public. Impacted by everything from container shortages to port congestion to loss of labor and COVID-related shutdowns, supply chains everywhere are facing disruptions exacerbated by the bullwhip effect: the amplified response to atypical demand that creates ripples throughout the chain.
The Bullwhip Effect
Many brands were out of stock and out of luck during the 2020 holiday season. In order to prevent lost sales opportunities again this year, many companies placed bigger orders with manufacturers, setting the bullwhip effect in motion and producing an incredible volume of goods that are now sitting on the water, stuck in a bottleneck of container vessels waiting more than 14 days to enter the Long Beach and Los Angeles ports — approximately the same amount of time it takes the fastest carriers to cross the Pacific.
Once goods make it off a ship, the next slowdown comes as dozens of entities with conflicts of their own work to accommodate their quick transport. Trucking and drayage from the port is complicated by varying operating hours, load capacities and labor constraints. Warehouses, particularly those outside major port cities like Los Angeles, are running out of space, further impeding brands that just want to deliver their products to consumers — and generate revenues — in time for the holidays.
There is no quick fix for the supply chain snarls facing brands, and the problems won’t miraculously resolve on December 31. There are, however, three things brands can do now to soften the bullwhip effect at various stages, setting themselves up for a less disruptive 2022.
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1. Diversify channels to sidestep disruptions.
Diversification can begin as early in the chain as manufacturing. Companies like Samsung, Nintendo and GoPro have all shifted reliance away from factories in China in moves to make their supply chains more resilient. Brands can also choose to reduce the amount of prep like packaging and labeling performed at the point of origin, ultimately reducing lead time ahead of shipment.
It’s not possible for many brands to completely avoid China as a manufacturing location, and when that’s the case, consider moving one step further down the supply chain funnel, diversifying destination ports. Across the country, alternative ports are open and have the immediate capacity to receive goods. Some, like the Port of Savannah, are even working to create additional capacity to alleviate the current crunch.
2. Consolidate to optimize transportation time.
Brands that are able to optimally consolidate goods at the point of origin and enable less-than-container-load (LCL) capabilities will typically see faster freight times than those that don’t. Consolidated shipments are less often subject to demurrage, detention and other delays, and are less sensitive to chassis shortages.
Consolidation takes coordination, and the more fragmented a brand’s supply chain providers, the more difficult it becomes. Tech-enabled freight forwarders like Flexport allow for integration with partners and platforms throughout the supply chain, and are developing new solutions that further expedite transportation time by eliminating the need for deconsolidation at ports.
3. Flexible networks for uninterrupted operations.
Brands with fixed logistics networks that must ship into specific ports in order to access dedicated warehouses and fulfillment centers won’t be able to take advantage of this strategy. A flexible fulfillment network that provides options when it comes to storage and fulfillment is necessary to make diversion feasible, as is the technology layer that provides the real-time visibility and data that empower brands to make these critical decisions.
A distributed fulfillment network model can benefit brands beyond port congestion as well. As ecommerce continues to accelerate, so do consumer delivery expectations. Most organizations need at least three fulfillment centers to offer two-day shipping to their customers. To offer one-day shipping, approximately 14 fulfillment centers are needed. Amazon, for example, has more than 100 centers that serve its Prime customers. To keep pace with the speed of commerce, brands must enable multi-point fulfillment at scale, unlocking the capability to route orders to the most cost-effective warehouses, closest to end consumers.
Ongoing Strategies for Success
Shockwaves from recent shutdowns and supply chain clogs will be felt across the industry for months to come, and it’s impossible to predict where and when the next disruption will occur — recall the unexpected Texas ice storm in early 2021? Brands that have consolidated their supply chains aiming for efficiencies are not as well positioned for long-term success as those taking a diversified approach, which leads to stability and optionality in the face of bottlenecks or other unexpected roadblocks.
Those that will see real success in ecommerce will invest in the technology needed to make diversification possible. A central source of real-time data — including inventory, orders and customer insights — empowers brands to make decisions based on current trends, not last year’s numbers, and makes it possible to manage a distributed fulfillment network. Heading into 2022, those brands that optimize for the continued acceleration of ecommerce are the ones that will see scale and success.
As head of operations at Flowspace, Frank Garcia leads teams focused on scaling and managing the company’s distributed network of fulfillment centers, and those supporting customer success within them. He has a long career in logistics and operations: prior to joining Flowspace, Garcia led fulfillment services and client success and solutions for tech-forward 3PL OceanX. He also served as director of supply chain and operations at Lakeshore Learning Materials, and held several roles at McMaster Carr, a leading industrial supply distributor specializing in same-day delivery. Garcia earned his undergraduate degree from UC Berkeley and holds a CSCMP SCPro certification. He lives in Long Beach, Calif. with his family.
