Timing is everything says Tony Hines when it comes to achieving supply chain advantage. Whether it is how long it takes to procure goods, process work-flows or transport goods (raw materials, work-in-progress or finished inventories) to the customer. Time endows advantage. Of course time can also be a problem if you do not manage it well. Managing time in supply chains is a risk. There are uncertainties beyond your control that give rise to risks that you may not have factored in. Even the most savvy supply chain professionals are subject to it.
Cargo
Take the current issues in global supply chains with ports experiencing delays in handling cargo. Satellite pictures of ports in California showed about seventy ships lining up waiting to discharge containers at Los Angeles. Long Beach too has delays. About 40 per cent of US Container traffic passes through these two ports. In the UK too at Felixstowe which handles about 36 per cent of the UK container traffic there are similar problems. In the US it has been taking up to 14 days to get ships into port and in the UK 6 days. There is also increased dwell time in turning around containers. It has raised form 4 days to 10 in the UK. The Biden Administration brought those involved in the US crisis to the table to discuss practical solutions and gain commitments. This is seen as a positive move and parties are keen to operate ports 24/7 to get the job done. In the UK the underlying problem is the shortage of 100,000 HGV drivers to clear the ports and get containers in the right places. Time is everything because these delays are costly for everyone the shippers, the ports, the hauliers, the customers and those managing the various operations. A number of large retailers have been agile in trying to manage the risk by hiring their own vessels to move goods. These are generally smaller ships to weave in between the larger ships and to drop cargo at smaller facilities to avoid the backlogs. Home Depot’s Sara Caliga said the idea started as a joke saying they would charter the ships themselves to get the job done but that’s exactly what they have done. Wal-Mart said their strategy was to hire smaller ships to move goods more quickly. IKEA, Target and Costco are all doing something similar. Coca Cola said it was using smaller vessels usually used for grain or coal to move their products around. In the UK the John Lewis Partnership runs 38 department stores, 12 at home stores and about 338 Waitrose Stores and it too committed to charter ships on 16th September to ensure they had supplies for the run up to Christmas. Hiring ships is not cheap. It is also not a skill expected of retailers to run the shipping operation so it will be interesting to see how they do. These retailers are looking to secure the high velocity inventories the goods that make them most profit. Listen to the podcast and find out more.
Electricity Shortages in China
Electricity shortages in China have impacted production capacity as factories in some of the biggest industrial areas have had to close. This is in addition to the problems experienced from the pandemic shutdowns that occur with China’s no tolerance policy to Covid. This will mean more disruptions to some goods. Recent closures in Vietnam have also seen some production move from there to China but Vietnam is now opening up again.
Driver Shortages
The UK is still impacted from the HGV driver shortage (100,000) meaning goods are not moving as quickly as they should. This is impacting the UK’s largest container ports. This week the reintroduction of cabotage by the UK Government means that EU drivers can do more pickups in the UK but this has not gone down well with UK hauliers who fear their work will be taken away by EU firms.
Planning and Control
Planning and control are two concepts to employ across supply chains if you want to deliver on time, every time. On time delivery is always important but with some categories it is not just important it is essential e.g. medicines, fresh food and ambient goods. To plan effectiveley you need systems, processes, technologies and people working seemlessly together across the supply chain. Visibility across the system for all parties that are partnering in that system is essential. Communicating information that is timely to take action to control the system is essetial.
Time is of the essence. It is about perspective. Time in supply chains is critical. The faster you can move goods from point of origin through to customers means you incur less cost, there is lower risk because you do not have to store goods longer than required. Goods in transit are always better than goods in storage. Warehouses are stuck in time. They are a place where goods travel at zero miles per hour.
Are you working on monochronic time? Put differently does everyone in your supply chain work to the same timescale? To be efficient everyone has to work to the same timescale. If your supply chain works on polychronic time you need to correct it. Time is of the essence. All goods have some type of time criticality. Of course not all goods are time critical in terms of perishability as food is but they all require management to deliver on time.
Political Time
Political time is often short. Governments are voted in to office for specific time periods usually 4 or 5 year terms of office. Decisions taken by government are not always in the interests of the population or indeed the state. Government’s are populated by people with different interests and priorities and they do not always act or behave in democratic ways even in a democracy. Factions emerge and sometimes they become dominant sometimes this can be good and other times not so. Governments in a democracy are supposed to represent the views of the people being governed. In a party system that is usually but not always limited to people who voted for the party in government. Time is of the essence. To get things done within their term of tenure governments have to act quickly. This often limits their time horizons on what to do, which means they will action what they can do within time. In this decision algorithm they will limit policy choices. Implementing only those they can within time, with maximum gain meaning they will have one eye on the impact this will have on attracting sufficient votes to stay in power for another term.
Just-In-Time
Just-in-Time is what it says something that arrives just-in-time and not too late. It is in the ‘nick of time’. For politicians it might be the introduction of a policy to correct some injustice or inequitable allocation and distribution of resources. It might be an action to prevent something from occurring which is harmful or undesirable. If it is just-in-time it may stand a chance of working when it is too late it does not.
In supply chains just-in-time (JiT) is a system to move goods from one point to another as they are required. An example might be a material planning requirement to get materials just when they are needed. This way inventory risks and the cost of holding stock just-in-case is minimized. It means that working capital requirements are significantly lowered. JiT supply lowers carbon footprints by reducing waste as well as time in production and distribution. Thus, increasing throughput in a shorter time. Just-in-time systems are efficient. You only produce what you need to. JiT supply systems can of course be disrupted in the same way that other supply chain systems are. When this happens they can appear less resilient than supply systems holding buffer inventories to mitigate risk but there is nothing stopping JiT system adjustments to mitigate some risk by holding a minimum risk level of inventories. This is the premium for resilient supply chains. This will work most effectively for non-perishable goods. After all there is a limited time to hold perishable goods in any supply system. The bland criticism in the press that JiT systems are to blame for supply chain problems is just not true. How well these JiT systems are managed is the issue. Any friction in the supply chain such as additional time delays at ports for any reason will impact JiT systems. If you know this is likely in your supply chain you can take steps to mitigate risks. JiT supply chains work most efficiently when friction is removed. Sometimes unforseen frictions occur causing disruptions e.g. volcano eruptions, floods, adverse weather conditions, cargo lost at sea or delays due to other causes that are not known in advance. In the case of goods disrupted at UK ports because of increased time taken with border checks and administration after leaving the EU (Brexit) then this is bad planning and preparation either on part of government or by businesses. Most examples I am aware of have been because government did not plan particularly well and was unclear about processes. Furthermore, processes were not only unclear but were not clearly communicated to those who were bound by them in time to prepare and act. It was a case of too little, too late.
Too Little, Too Late
Too little, too late, is a political malaise when governments either do too little or are too late to act. This type of malaise can occur when governments fail to recognise their responsibilities or decide that something is not their responsibility. Complacency or indecision is another reason for delays in taking action. It can affect business too. This malaise of too little, too late will be recognised by business leaders. In supply chains those that act fast are the one’s to succeed. Procrastination is not an option. ‘Procrastination is the thief of time’ meaning you will always be too late.
The list of supply issues in the UK grows ever longer: Labour shortages in food processing, shortage of butchers in abatoirs, shortage of C02 for stunning animals, putting fiz in drinks and in food packaging, fuel shortages because of a shortage of HGV drivers, Food shortages at supermarkets and retail stores because there is a shortage of 100,000 HGV drivers after many returned to their home EU countries after Brexit, Builders and other construction workers and materials, doctors and nurses, medicines, microchips, shipping and shipping containers, not enough farm labourers, flower pickers and crop pickers with daffodils left to rot, blueberries too, courgettes, lettuces, tomatoes and potatoes also left in the fields. The PM said he wants a high wage economy and we are going through a period of adjustment but this belies the facts. Many of the daffodil pickers for example earn £200 per day if they pick around 1600 bunches and many do, so that is already decent pay. Some sectors in which there are skill shortages are already by most standards highly paid such as doctors. Migrant workers have always travelled to pick crops so there is some fundamental misunderstanding by many, that people just sit and wait for the work to come to them, it doesn’t work like that. The impact of the pandemic is one issue but the elephant in the room is Brexit restrictions on the movement of labour and a failure to act quickly to issue work permits to allow skilled people to do the work when needed. Even when the UK government did act timely they were swallowed up in their own post Brexit red tape. Employment licenses were too slow to be enacted. There was said to be a shortage of 20,000 HGV drivers five years ago when the UK was in the EU. In China there is a reported shortage of HGV drivers – 20,000 – for a completely different reason – increasing demand for goods. In the UK prior to the pandemic this number of HGV drivers had swelled to around 60,000 a substantial number returning to their home countries prior to Brexit. After the UK left the EU on December 31st, 2020 it became impossible for many EU nationals to remain and a further 20,000 are said to have returned in the run up to that. Growing demand during the past few years accounts for the remainder.
At present the labour shortages in many supply chains have become critical. This despite the UK Government issuing 5,000 short term visas to attract HGV drivers – apparently only 27 people have applied so far. The time limits and restrictions on the visas were set too tightly to be of much use in encouraging people to apply. Also, in some quarters the loss of self-employed status for some contractors including HGV drivers (and IT professionals) has been blamed with HMRC pushing contractors to employed status through the IR35 rules. This moves those contractors to PAYE tax at source and an inability to claim expenses against income which some relied on. There are 5,500 visas available for food processing workers.
Supply Chain Disruptors
Time To Put Things Right
Who is responsible for putting things right? As with many things this answer is not straightforward. Government have a responsibilty to ensure that citizens have security. This security extends from personal safety through to other securities inter alia including, cyber, health, welfare, energy, food, financial and employment. So when it comes to managing the infrastructure to achieve such security the government has a clear responsibility. Government has a responsibility to take action, implement policies and put in place regulatory frameworks that ensure security in these matters. Governments are not responsible for disruptions due to matters beyond their control such as accidents or what insurance companies refer to as ‘Acts of God’. Labour shortages in an industry are caused by many factors including pay and conditions of work. It is up to government to ensure safe working conditions through legal protections and law enforcement. It is up to government to put in place arrangements that make it easy to employ people and minimise the impact of bureaucratic arrangements that impede employment opportunities. For example, if a government department is unable to issue driving licenses to HGV drivers in time then that is down to government to act. If a government is slow to carry out a responsibilty to test HGV drivers in order to license them through DVSA then that is down to government to take corrective action. Actioning work permits in a timely manner when necessary is a government responsibility. These are matters that firms have little control over but they can be badly impacted by too little, too late. Time is of the essence.
Time Enough
It was 2016 when the UK voted to leave the EU. More than five years have passed which you might think is a good length of time to plan and prepare effectively for a smooth exit to minimize the impact on businesses and people who have to adapt to different systems that affect their daily lives. Governments are responsible for conditions created by their actions or inaction. How come five years was not long enough? Well maybe because much of the available time to negotiate an exit deal was wasted and wasteful in negative rhetoric. Government did not really get on with it despite the rhetoric. The vote may have taken place but the fights were replayed in Parliament, in every newsbite, soundbite and political meeting. Without going into great detail not much was done in that period to secure a smooth exit to reduce risk and minimize the impact of all the necessary changes that would come into play after Brexit. The task was grossly underestimated and the detail was thin. Many of the claims and promises made to persuade people to vote to leave the European Union by the ‘Vote Leave Campaign Group’ melted away as positions on both sides of the vote became frozen, hardened in the passage of time. Not a great deal of thinking about what future arrangements between the UK and EU might look like was given mind space or indeed communicated to the nation who would have to pick up the pieces later. Signals of future disruptions were coming from industries who had benefited from frictionless trade with the UK’s biggest trading partner, the EU. Not enough time was set aside to deal with the detail of these real issues until it was too late to act and get a deal in the best interests of the UK. Despite all the rhetoric about ‘an oven ready deal’ the reality was different. The eleventh hour trade deal struck by the government in December 2020 with a few January tweaks did not give sufficient time to communicate with businesses about what they needed to do to prepare and plan by putting appropriate systems and procedures in place. Inevitably, the chaos emerged with hold ups at Dover and other ports and the fiasco to build a lorry park at Dover to store the delayed trucks waiting to move cargo to Europe. Many businesses incurred additional costs that they had not been able to budget for because of the failure to plan and prepare properly. Each transaction now had to contend with extra bureaucracy that added a minimum of £180 to a consignment. Some businesses rapidly began to seek out premises in the EU to move their operations outside the UK to lower their costs. There were ludicrous examples of small consignmnets perhaps worth only a few pounds having to pay a hundred pounds or more to export the low value item. Many smaller firms gave up. Others made big investments in facilities in the EU. Although initially this might cost substantially more by way of investment they were planning to reduce the cost of supply chain friction longer-term.
Covid Time
In the first quarter of 2020 it became clear that we were all entering a strange period threatened by a virus that had started in Wuhan, China, Covid 19. A virus that began to infect and kill people at scale. The whole world was caught short. Apparently back in 2016 the Government in the UK had simulated the impact of just such a threat to the environment and concluded the UK was not particularly well prepared to meet all the challenges. There were some damming reports about a lack of any follow-up regarding the simulation failures. How true this prophetic conclusion became as equipment shortages in the form of ventilators in Intensive Care Units (ICU) and Personal Protective Equipment (PPE) were all difficult to source and procure. There was also no antidote to the virus and epidemiologists, immunology experts and virology researchers started to cooperate to find one. This was done in double quick time. Within a year there were several vaccines including the Oxford Astra Zenica, Pfizer and Moderna vaccines. From March 2020 the UK Economy locked down under governmnet directives. The impact on businesses and people’s livelihoods were to some degree mitigated by government funding but not everyone was protected. As a vaccination programme was rolled out by the National Health Service (NHS) in the UK early in 2021 the worst of the pandemic began to ease and restrictions were slowly and painfully in many cases lifted. There were some false starts until pressure on the NHS were lowering. Non Covid Health Services during the pandemic had been badly impacted and many patient treatments were postponed. As with all bad news stories there were many other failures blamed on the pandemic to deflect attention away from the real cause of problems such as underinvestment in health and care services. Not enough was done quickly enough to protect the elderly in care homes and medical staff were at high risk on a daily basis because of a shortage of PPE. Time is always of the essence in these circumstances. Unfortunatley time had passed to invest in resources that might have achieved better outcomes in this pandemic. This week a joint report from the Commons Science and Technology and Health and Social Care Select Committees said government had “made big mistakes” in handling the pandemic. They cited ‘Group Think’ among ministers and scientific advisersers preventing lockdown sooner. Poor performance of Test and Trace and social care not prioritised. Maybe next time we can learn the lessons from this experience.
As people became ill with Covid 19 supply chains became disrupted. Ports in China were closed as outbreaks occurred sporadically and elsewhere in the world too. Factories had to close or reduce their output and materials were often late or difficult to procure due to Covid.
Businesses exist in a system that is subject to regulation by governments. Institutional arrangements determine how businesses behave and act within the system. It is not simply possible to trade freely with businesses either inside the system managed by a national government or to trade internationally without being subject to regulatory frameworks put in place by governments. Even trading groups such as the EU and NAFTA have regulation so called free trade areas. This regulation is a form of protectionism. Any free market is regulated. It is the degree of regulation that gives consideration to calling it free or not. Communist states were said to be planned economies which somehow suggests that market economies are not planned when in fact they are. Both types of economy are regulated and government control ranges from total to some point on a measuring scale that is less so. If markets were completely free a business would simply hire labour from anywhere at a price it was prepared to pay for that labour without any regulation or control from government. Taxation and public spending would not be necessary if markets were completely free. Clearly they are not free if the aim is to protect industry and to provide public goods because to do that we need government to generate taxes to fund the administrative structures, regulations and investment required. There is somehow a myth of time that once upon a time we had free markets without government regulation. In this polemic it is up to merchants to manage markets and for government to manage affairs of state and never the twain shall meet. The reality is very different there has been some degree of regulation in international trade since the emergence of nation states through quota restrictions and tariffs. All forms of economic activity – feudal, agrarian, industrial, service – were subject to regulation be it manorial, guild, community, state, national and international. The pre-industrial age relied much more on local arrangements than national and international regulation. The rise of nation states gave rise to international regulations. Regulations were designed to protect a nation state from other nation states; a means of security. In England it took the form of what came later to be described as ‘Mercantilism’. It is in these roots we find discussions of trade, health security, food security and security of other national interests. In 1563 the ‘Elizabethan Statute of Artificers’ ensured overseas trade was subject to State control. Today the World Trade Organization (WTO) administers the rules by which all nations trade with each other. This regulatory authority was set up by the Bretton Woods Agreement in 1944 setting out a General Agreement on Tariffs and Trade (GATT). Trading Blocs too like NAFTA and the EU have to abide by WTO rules.
Regulation of trade has given rise to wars between nation states. When Britain tried to impose taxes on the tea trade in Boston 1773 it caused the American Colonies to break away from British rule. It was said to be “Taxation without representation.” Quota restrictions and tariffs where there are imbalances seen as unjust by one party can escalate. Others have resulted in bitter trade wars between nation states such as the Smoot-Hawley Act 1930, The Chicken Tariff war in the 1960s, The US 1987 trade war with Japan related to cars, electronic goods and motorcycles, Canada-US lumber wars, the 1993 Banana Wars betwenn the US and Latin America and the current episode between the US imposing 19 per cent tariffs on China.
Time is Money
The one thing that most business people and governments would agree upon is that time is money. The faster business can produce outputs, supply goods to customers and get payment for their service means they will generate profits to invest. The shorter these cycles become the more money they accumulate. This is capitalism. Governments too know that time is money as they collect taxes within time periods to ensure they have sufficient funds to pay for public services and affairs of state. Given that time is money it is incumbent on government to act fast to solve problems that affect the business environment and the livelihoods of citizens. It is incumbent on businesses to act fast to solve their problems too. Agility, responsiveness and resilience is an investment required by government as well as businesses if we are to increase national income in a global economy and improve the wellbeing of citizens and maintain security. Put differently, businesses can only be as good as the systems and environments they operate in. Individul businesses cannot maintain the regulatory frameworks and the business environment in which they find themselves.
Out of Time…
Below you can play an audio transcript of this article TIME in the Tony Hines Blog
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