The Suez Canal incident offered retailers and brands a supply chain lesson
The world learned a tough physics lesson after the 1,312-foot-long container ship, Ever Given, ran aground in the Suez Canal, blocking a shipping lane that handles some 12 percent of the world’s global trade. The global supply chain may absorb some lessons as well.
Whether or not wind caused the problem, the six-day ordeal was blamed in part on poor adjustments to the arrival of ever-bigger ships to handle mass consumerism over the past several decades. The repercussions to global trade expected in the months ahead is being blamed on a scarcity of containers that is already an issue due to the congestion at West Coast ports in the U.S.
Peter Goodman, writing for The New York Times, said the incident showcases the risks of utilizing just-in-time manufacturing and lean inventory approaches when unseen events such as a pandemic, cyberattack or a stuck boat can overnight roil global supply chains.
Oliver Guy, senior director, industry solutions at Software AG and a RetailWire BrainTrust panelist, believes the incident highlighted the importance of supply chain visibility.
“Imagine having the ability to see where all your orders are now — but also being able to project the impact on your supply chain several weeks from now,” he wrote on Software AG’s blog. “This would mean you could undertake analysis of multiple what-if scenarios to understand the impact, depending on how long the problem lasts. You could evaluate the cost-versus-benefits of alternative routes for different types of merchandise. This requires elimination of not just internal silos but the ability to reach outside to incorporate data from your suppliers and their shipping partners into the picture.”
Paula Rosenblum, managing partner, RSR Research and a RetailWire BrainTrust panelist, called out the “really lousy coordination between shipbuilders and canal operators and designers” and believes better collaboration across parties would have elevated contingency planning. On RSR’s blog, she wrote, “When it comes to global trade, we’re just not being thoughtful and careful enough.”
- Suez Canal Blockage Pressures Global Container Supply – The Wall Street Journal
- What the Ever Given saga taught us about the world – The Washington Post
- Suez Canal Backlog Clears, and Maritime Traffic Returns to Normal – The Wall Street Journal
- In Suez Canal, Stuck Ship Is a Warning About Excessive Globalization – The New York Times
- A (Suez) crisis of supply chain visibility – Software AG
- What Can We Learn From The Suez Canal Mess? – RSR Research
- Lessons Learned: Getting To The Root Of The Suez Canal Crisis – Northeastern University
Discussion Questions
DISCUSSION QUESTIONS: What lessons should retailers take away from the Suez Canal blockage? Has the retail industry become overly reliant on the efficiency of global supply chains?
Poll
BrainTrust
Venky Ramesh
CPG/Retail enthusiast, blogger and a couch potato warrior
Doug Garnett
President, Protonik
The mishap in the Suez Canal recently, coupled with the number of factories that closed soon after the COVID-19 pandemic started, reminds me of the similarity between sourcing product with diversifying one’s investment portfolio. Early during the pandemic, the retail industry learned that it needs to diversify its manufacturing sources in order to stave off a total shutdown of the supply chain during unusual events. The “event” at the Suez Canal only re-enforces that strategy. Of course another option is to widen the Canal, ha! (The Suez Canal is 205 meters wide, or the size of two American football and international football fields placed end-to-end. One supertanker or container vessel at an angle can choke the canal.)
The capacity of any system is equal to the capacity of its bottlenecks. As we found out last week, if the bottleneck is down, the entire system is impacted. While retailers and manufacturers have little control over how the Suez Canal is managed, they should use scientific ways to calculate safety stocks taking into account lead time variability, service levels, and the cost of stock-outs. Meanwhile, the Suez Canal Authority should think about expanding the waterway further to allow higher a throughput of ships to flow through.
We seem to forget that this was not the first time the Suez Canal has been closed. I’m old enough to remember that it was completely shut down for almost eight years between 1967 and 1975. The lesson for suppliers is: stuff happens. Every supply chain in the world is vulnerable to something, somewhere. Visionary and strategic supply chain managers understand this and build resiliency plans to address and mitigate these situations as best they can. This is exactly where the concept of having a digital twin really resonates with me. The ability to create a digital version of a complex supply network allows managers to build scenarios to model conditions in which things might not go to plan. And when they do, and they will, they can build scenarios and try new tactics, evaluate risks and costs and do what needs to be done to mitigate the disruption virtually. The advantage to this is, of course, they can be far more confident about their decision when the time comes to invest resources to mitigate these problems. .
The last time the Suez Canal was blocked, ships were stranded for eight years. What this year’s incident reveals is that no matter how much time, planning and technology companies invest into creating a great fulfillment infrastructure, one small weak link can take everything down. Instead of speeding up distribution, companies are going to have to invest in developing a Plan B.
To mitigate risk, retailers can invest in global supply chain visibility and contingency plans. Retailers need collaborative data-sharing and proactive plans on how they could mobilize fast in response to urgent threats. Sourcing from domestic and foreign suppliers could lower risks through supply chain diversification.
The Suez Canal incident has exposed how fragile our global supply chain infrastructure is, especially when things go awry. There aren’t short-term contingency plans in place to keep the proverbial ships going. While the Suez and Panama Canals are truly engineering wonders and have provided more efficient ways for getting goods from one point to another, the sheer amount of cargo in the supply chain requires a continuous flow of goods.
This also demonstrates that near-sourcing and local manufacturing, while more costly, could help mitigate the dependency on the global supply chain. A diversified sourcing portfolio could ultimately help matters on so many levels, including availability, speed to market, and potentially sustainability measures.
This also does prove how critical the Suez Canal is, and we only discussed it when things went wrong.
Retailers have not yet begun to feel the full impact of this supply chain disruption. Out-of-stocks, price increases, and service levels will surely suffer.
Understanding and preparing contingencies to overcome the fragility of the supply chain has never been more important. Stemming from the ripple effect of the pandemic-caused shortages to this latest Suez Canal blockage, suppliers, distributors, retailers, technology providers, logistics companies, and anyone else working across the retail supply chain must prepare a Plan B, Plan C, and a Plan D.
Reliance on one path may be too limiting and dangerous. Consider this Turkish proverb: “No matter how far you have gone on the wrong road, turn back.”
The Suez Canal incident is a stark reminder that your supply chain is only as strong as its weakest link. More than ever, redundancy and diversity are absolutely critical to a healthy supply network.
In most cases the global supply chain is extremely efficient. There are systems in place that the companies know where and when to expect each component that they are sourcing. In this case, while the press highlighted the alternative of going around the tip of Africa, they failed to highlight the immediate adjustments in shipments that were planned to go west from Asia to go east and through the Panama Canal.
I am a bit surprised that this happened. I assumed that the Suez was making investments for mega-ships as the Panama Canal ($8 billion), Asian ports and European ports like Antwerp, Hamburg, Rotterdam and others.
The glass pipeline has been a dream of retailers for years but the reliance on siloed systems and out of date information has created the nightmare we now find ourselves in. The pandemic was a big eye opener as to why just in time can sometimes translate into just out of stock. We need to create resilient supply chains that are real time, rid ourselves of siloed systems and create alternative sources for products. Maybe bigger isn’t better for container shipping. We aren’t going to be building new canals anytime soon so why not work to develop a smaller fuel efficient fleet. Maybe we go full Luddite and leverage the wind.
The retail industry is heavily reliant on the efficiency of global supply chains. Now the past two years have shown us some of the risks involved — from a Canal block to the pandemic cutting off supply or sudden shifts in demand overwhelming a methodical system.
That said, I don’t expect any major changes. I read that ship capacity had expanded from a maximum of around 7,000 containers to a maximum of 25,000 containers between 2007 and 2021. That’s a huge jump — no one should be surprised that it creates problems.
It is clear that both new ways of operating these ships, along with new rules for ship size and width, are critical today.
Yes, the retail industry has become overly reliant on less-than-efficient supply chains because consumers want more and more goods at lower and lower prices, and that determines which production sites are available and, by extension, which routes goods have to travel to market. All supply chains are only as strong as their weakest links. So the obvious solutions are a.) more, smaller ships; and/or b.) modernizing global infrastructure choke points and/or diversification of production sites so all the traffic isn’t going through the same routes. All, by the way, easier said than done.
The Suez Canal blockage has shown that major supply chain interruptions are possible at any time. There is likely no warning and little to no time to react. And there can be a direct impact on the business’s consumers. This uncertainty can happen at anytime.
The retail industry typically expects the supply chain systems perfectly at all times. One of the reasons is that retailers have little visibility to inner workings of their supply chain systems so the indications of a problem only appear when the goods do not arrive as expected. Pressure will build from retailers on their supply chain vendors to give the retailers advanced warning of supply chain problems so alternative arrangements can be made to move the goods.
I think the lesson is to avoid “learning lessons” (from singular events); actually, let me rephrase that: avoid simplistic reactions. The event was actually pretty minor — it should be remembered the canal was once closed for years (decades?) — and foreseeable (not in the specific details, but in the general sense that there are a number of bottlenecks in world trade routes).
So a thoughtful strategy is to always be ready for shutdowns of a few days, and to have contingency plans for longer disruptions; but scrapping “best practice” on the premise that it might disable itself at some point in the future? That doesn’t seem sensible.
Lessons learned — there are a few but that doesn’t mean that retailers will learn anything from this incident. Retailers are driven by profits and global supply chains are cheaper than localizing suppliers, manufacturing and production. Following the money will show you that gross margins and profits drive companies to factories where they can negotiate the lowest cost, increase their production to drive more sales.
A disruption like this one is par for the course — an event in time that will pass. Consider that product delivery windows are 3 months for a reason. They give the supplier time to deliver in case of disruption.
Retailers need to decide what’s important to them and build out their supply chains accordingly.
The bottom line generally wins.
In times of crisis, it’s easy to say we should have taken the longer, safer routes to ship our retail products, but that’s simply not the best everyday solution. The lessons we’ve learned is that no one is immune to problems and the more nimble you are and the more options prepped and at your fingertips when the need arises, the better you’ll fair in the end.