REDWOOD LOGINREDWOOD PORTAL
Months before the 2021 holiday season began in earnest, product shortages and holiday shipping delays were being reported by news outlets across the nation. Many companies took to issuing notifications to their consumers that any gifts they ordered may not arrive in time for Christmas, advising them to order early. At the same time, consumers read headline after headline about how store shelves were likely to be bare throughout the holidays.
However, we witnessed a much different reality than had been predicted. Store shelves seemed to be as full as ever and most shoppers only had to make minor modifications in terms of their holiday meal prep and gift purchases. Retail shopping models such as BOPIS went a long way in helping ease congestion a bit as well.
Aside from giving customers new purchasing options, many stores were able to continue to keep their shelves stocked for their customers through the use of simple supplier diversification strategies...
Supplier diversification is the process of partnering with various suppliers and other businesses in order to avoid supply shortages. Doing so equips the retailer with backup suppliers, should one of their others be unable to fulfill their orders on time due to delays or product shortages.
Companies that rely heavily on only one supplier found themselves that this was simply not enough to keep their store shelves full for the 2021 holiday shopping season. Especially for those that use primarily overseas suppliers, filling orders in time for Christmas and keeping stores stocked became difficult.
Supply chain shortages play a rather large role in driving a company's decision to begin looking at diversifying their partners, suppliers, vendors, etc.
While materials shortages certainly were and still are of the utmost importance, there are a handful of other issues that arose in the past two years that complicated things further for the global supply chain. These issues each contributed to the need for better resiliency efforts in their own way, but each left a mark all the same.
So, what issues helped propel the need for diversification?
Truck driver shortages are plaguing most of the world at the moment. In the U.S., the ATA estimated in 2021 that we are more than 80,000 drivers short of what we currently need to support our economy.
But this problem is not limited to the United States. In March, Europe was set to experience a shortage of roughly 17% fewer drivers than are necessary to complete deliveries. Driver shortages have been linked with an aging workforce in this field, a lack of women and minority drivers, as well as the demanding nature of truck driving in general. This prediction turned out to be quite close to reality as 2021 progressed.
While port congestion has improved slightly over the past few months, some of the largest U.S. ports are still experiencing delays. These delays due to port congestion have been pushing companies to look at leveraging their regional ecosystems more than they may have in the past.
General Labor Shortages
According to the Bureau of Labor and Statistics, roughly 4.5 million workers left their jobs in November of 2021. This “Great Resignation”, sometimes referred to as the “Great Reshuffling” has created a difficult situation for many companies and their associated supply chains. When this happens to manufacturers and material suppliers, it can bring an entire industry to a halt.
Beyond the above consideration, there are many other industry-specific factors that drive the need for supplier diversification and diversification in general.
Companies such as La-Z-Boy and Williams-Sonoma are ramping up their diversification efforts in light of manufacturing delays with factories in Vietnam over the past year. Due to a massive backlog of orders that accrued during recent pandemic lockdowns, these factories are currently unable to fulfill orders quickly. For this reason, La-Z-Boy and Williams-Sonoma opted to focus on diversifying their supplier base outside of Vietnam.
This, coupled with increased production at their own facilities, will help the company pivot toward a more sustainable stance in the long run. This transition to a wider range of supplier options being made available will allow the company to keep their products flowing regardless of the ebbs and flows felt by suppliers in a different geographical region.
One of the trends we saw rise to popularity even more in 2021 is the use of regional ecosystems.
Bypassing oceanic shipping is one of the best ways to avoid the many issues related to delayed orders and supply chain disruptions. Intuitively, it’s much easier to handle a supply or delivery issue if it only has to travel a few hundred miles, and much harder to handle these issues if the order has to travel a few thousand miles by sea.
Not to mention, diversifying to include more local suppliers tends to create less environmental impact. The carbon footprint associated with frequent international deliveries can be quite large, especially if those shipments are stuck at a port for an extended period of time.
Furthermore, having access to more suppliers who are more local enables businesses to fulfill customer orders on time and leads to increased brand loyalty and customer satisfaction all around.