supply chain disruptions – The OM Blog by Heizer, Render, & Munson

OM in the News: The Magnet Supply Chain and Auto Production Problems

In the auto industry, rare-earths are what allow electric-vehicle motors to function at high speed. They are also used in less exotic, though no less critical, functions performed by such parts as windshield wipers and headlights.

Ford shut down Explorer production at its Chicago plant in May because of a rare-earth shortage

China was supposed to have eased export controls on rare-earth magnets as part of a 90-day tariff truce agreement with the White House, but the country has slow walked license approvals for magnets. As exports of rare-earth magnets have virtually ground to a halt, carmakers face hard decisions about whether they can continue to keep some plants operating. Several production lines and plants across Europe have already closed, with more impacts expected in the coming weeks as inventories deplete, reports The Wall Street Journal (June 5, 2025). U.S., Japanese, and Indian vehicle production are also reducing or shutting down without more Chinese rare-earth components.

Car companies are looking at alternative sources for magnets in Europe and Asia, instead of purchasing them directly from Chinese factories as they do currently. But none of these sources would provide enough magnets to support the demand from the industry. And China controls almost all of the refining capability that transforms raw minerals into usable forms.

The lack of magnets hits EVs and hybrid vehicles harder than conventional cars and trucks. A typical EV contains far more rare-earths than a gasoline-powered model, but rare-earth magnets are found throughout any modern vehicle.

One option to conserve dwindling magnet supplies is reverting to older electric-motor technology that doesn’t make use of rare-earth magnets. Carmakers stopped using those motors because the current versions are cheaper and more efficient. They are also considering stripping out some premium features, such as adjustable seats, that make use of several tiny electric motors. High-end speaker systems that use rare-earth magnets could also be replaced with downgraded versions.

Classroom discussion questions:

As Ford’s head of supply chains, what are your options?
What is the long-term solution?

OM in the News: Navigating Supply Chain Disruptions

“Historically, supply chain teams react to crises only after they have already begun,” writes Material Handling & Logistics (Dec. 19, 2024). A crisis starts and the team goes into fire-fighting mode. After the situation is remedied, teams return to business as usual, only to await the next crisis. Balancing strategic imperatives with solving these short-term crises is the key to effective supply management.

For years, supply chain professionals have been forced to play defense, constantly reacting to minimize disruptions as they arise. This approach not only diminishes employee productivity by forcing them to constantly switch between projects and contexts, but it also undermines the perception of the function’s strategic importance.

The Panama Canal is no stranger to challenges and complexities brought about by natural disasters, geopolitical tensions, or technical failures

But new technology is transforming the way supply chains are managed. Instead of addressing problems as they arise, procurement professionals can identify opportunities for strategic value early and often, developing proactive response plans for dealing with predictable disruption events. While the specific timing and severity of disruption events like hurricanes, port closures, labor strikes, or country shutdowns are difficult or perhaps even impossible to predict, there are a finite number of event types each year that can disrupt supply chains, and thus a finite number of response plans that can assure resilient continuity of supply.

With the advent of new predictive procurement tools like those we discuss in Module G (Applying Analytics to Big Data), supply planners and purchasing teams now have the capacity to reduce the chaos of unexpected disruptions. AI-driven tools are now helping to streamline and automate labor-intensive tasks, allowing procurement teams to quickly identify alternative suppliers and manage spot-market opportunities when unexpected challenges arise. By analyzing data trends, such as historical supplier performance metrics and environmental factors, these predictive procurement systems enable businesses to make more informed decisions proactively.

Identifying alternative sources of supply within a company’s existing supplier base is key, since qualifying new suppliers can be time-consuming, and expanding the total number of suppliers may introduce unnecessary complexity. Also, securing carriers with secondary capacity is equally important, as logistical challenges often arise when transport routes are disrupted.

Classroom discussion questions:

What tools do AI provide supply chain planners?
What canal issues have companies faced the past two years, and how have they dealt with them?

OM in the News: Hurricanes and a Rare-Earth Supply Chain Vulnerability

Hurricane Helene left widespread destruction in N. Carolina a few weeks ago. One of the towns impacted was Spruce Pine, the location of the world’s largest deposit of high-purity quartz, an ingredient used in semiconductor manufacturing. Two mining companies that operate in Spruce Pine had to halt operations due to flooding and damage to infrastructure in the area.

The global semiconductor industry is dependent on Spruce Pine as the primary source for virtually all high-purity quartz it consumes, as it is one of only a few places in the world where such quartz is known to exist. The quartz is used to create chips that power everything from laptops to automobiles.

The disruption in Spruce Pine is an example of a single point of failure – a situation in which a system is configured in such a way that failure in one part of the system causes the entire system to fail, a topic in Ch. 17. Avoiding single points of failure comes down to practicing good risk management, writes Industry Week (Oct. 24. 2024):

Are there any suppliers (or suppliers of suppliers) that are the sole manufacturers of a certain input? (See Ch. 11)
How likely a disruption is to occur – and if it occurs, how impactful the consequences will be. (See Supp. 11)
There are four categories of risk controls: avoidance, mitigation, shifting the risk to another party, and accepting the assessed level of risk.

One classic risk mitigation strategy is diversification – in the case of the supply chain, this means using multiple sources of supply. Some limited sources of quartz do exist in other nations. Another is holding an adequate cushion of inventory (see Ch. 12) that can ensure operational continuity in case of a disruption of supply.

Further, AI and machine learning can enable companies to gain critical visibility into their supply chains by aggregating data from multiple sources, such as from vendors, open source repositories, IoT sensors, and so on. Such analytics can answer supply chain questions that are descriptive (how many days of inventory are on hand), diagnostic (why isn’t there enough inventory), predictive (what will happen if supply is disrupted), and prescriptive (what is the best course of action to take to mitigate disruptions)–all topics in Module G of your Heizer/Render/Munson text.

Classroom discussion questions:

What other natural disasters in the past 20 years have impacted the computer industry?
What does it mean to “map out your supply chain”?

OM in the News: Geopolitics and Supply Chains

“Supply chain managers today are thinking more about geopolitical risk than they are about any other risk,” writes The Wall Street Journal (May 3, 2024).

The Rubymar, a bulk carrier hit in a Houthi missile attack, sank in the Red Sea in March

Companies’ top supply chain concerns until recently were how to find a reliable source for products at the lowest cost. That led many to China with its cheap labor and unparalleled ecosystem of factories, parts suppliers and raw materials. Now many firms are prioritizing a supply chain that reduces their reliance on a single country or region.

Some of the changes were spurred by the Covid factory shutdowns in China and soaring prices for ocean shipping. The changes are being accelerated by more recent geopolitical shocks as countries such as China, Russia and Iran face off against the West.

The U.S. has also raised national security concerns about its dependence on China for technologies such as semiconductors that are key to computers, electric vehicles, robots and other goods. It has banned the export of some chips to China and is stimulating domestic manufacturing of chips with incentives for new factories that limit the use of raw materials from China. These new rules, regulations and tariffs complicate trade compliance efforts, especially for larger companies that sit atop a supply chain that can include hundreds of thousands of suppliers.

Companies are having to dig deeper into their supplier networks to identify raw materials and components that could be subject to steep tariff hikes or that could violate a growing number of regulations targeting countries such as Russia and China. VW was surprised when thousands of its Audi, Porsche, Bentley and Lamborghinis were recently held up at U.S. seaports. The cars contained a magnetic component sourced from a sub-supplier blacklisted because it is in China’s Xinjiang region, suspected of using Uyghur forced labor. “We really try, but this shows how challenging it is to really know everything that is happening in complex supply chains,” said VW.

Multinational companies cannot easily disentangle themselves from geopolitical risks. Russia is one of the world’s largest suppliers of metals such as aluminum, nickel and copper. China supplies about 75% of the rare-earths minerals that go into U.S. semiconductors.

Classroom discussion questions:

Why is it difficult for manufacturers to know details about their supply chains?
How does Table 11.3 in your Heizer/Render/Munson text relate to VW’s problem?

OM in the News: Two Canals–Two Problems

More than 50 ships queued to cross the Panama Canal on a recent day—from tankers hauling propane to cargo ships packed with food. A prolonged drought has led the canal’s operator to cut the number of crossings, resulting in longer waits. The tolls that ships pay are now around 8 times more expensive than normal. A single Panama Canal crossing costs around $500,000. But the canal operator has cut the number of daily ship crossings in half (from 36 to 18) and shippers have to go through a bidding process where the highest offer (sometimes $4 million) secures a crossing.

A Houthi helicopter attacking a ship off the coast of Yemen

Over 7,000 miles away, vessels that move containers through Egypt’s Suez Canal are waiting for naval escorts or avoiding the passage altogether to take a much longer voyage around South Africa. Ship operators fear that their crews could be imperiled on the journeys through the Red Sea by missile or drone attacks from a Yemen-based rebel group. Houthis have attacked more than 50 ships since November, including a cargo vessel loaded with fertilizer that sank into the Red Sea and another that resulted in three deaths.

The Suez’s problems are geopolitical and those in Panama are climate-based, but both are roiling global trade and supply chains, writes The Wall Street Journal (March 11, 2024) Cargo volumes through the Suez and Panama canals have plunged by more than a third. Hundreds of vessels have diverted to longer routes, resulting in delivery delays, higher transportation costs and economic wreckage for local communities.

Ship operators are bracing for months of uncertainty in the waterways where some 18% of global trade volumes crossed last year. It’s the first time that both are disrupted simultaneously. Daily freight rates on some routes between Asia and the U.S. surged to more than $20,000 per box, five times higher than current levels.

Businesses are starting to feel the ripples. Tesla and Volvo paused vehicle production for 2 weeks in January because of parts shortages. Some apparel companies opted for their spring fashions to be delivered by air instead of sea to ensure items arrived on time. As more businesses return to pre-Covid practices of keeping minimal inventories and rely on timely deliveries, they are more vulnerable to disruptions if bottlenecks at the two canals continue.

Classroom discussion questions:

What options do shippers have?
How can supply chain disruptions be avoided?

OM in the News: An Auto Parts Maker Adapts to Russia’s Invasion

Leoni’s CEO addresses staff at a town hall meeting in western Ukraine.

After Russia invaded Ukraine on Feb. 24, reports The Wall Street Journal ( April 12, 2022), many Western companies in Ukraine packed up and tried to transfer production elsewhere. The sudden stoppages raised concerns among Ukrainians that some of the factories would close for good. Leoni, which makes auto wire harnesses (simple but vital contraptions that help organize electrical and data wires in a car), came close to leaving too. Within hours of the invasion, the company shut its plants. It planned to shift production to Romania and other sites outside the country, uncertain when production would resume in Ukraine.

Some 70% of Leoni’s harnesses produced in Ukraine go to VW. So when production stopped, VW had to shut down some of its biggest plants in Germany.

After sending workers home, Leoni executives set out to duplicate the harness production lines in other countries. As well as Romania, Leoni has plants in Serbia, Slovakia and North Africa where wages and other costs are low. VW said it would assist in the effort financially and logistically, providing factory space outside of Ukraine.

But a strange thing happened. Workers began calling their supervisors asking to return to work. Initially, Leoni thought the security situation was too precarious to restart production. In the first days of the war, Russia had launched a barrage of missiles at targets across the country. (It takes only 16 minutes for a Russian missile to reach the area).

Leoni discovered it could rent an old abandoned nuclear fallout shelter. Despite being decrepit, the bunker was close enough to get the people out of the factory, into waiting buses, and to safety within 14 minutes. So on March 2, with much of the fighting concentrated in the east and Kyiv, Leoni restarted production. When the sirens blare several times a day, the workers run for the buses. They then hole up in the freezing shelters and wait for the all-clear.

By the end of March, Leoni’s plants were operating two shifts. Raw materials arrive on trucks and finished harnesses are then taken by truck to customers in the West. VW, which had shut much production in the wake of the invasion, said it could restart its idled factories in Germany sooner than expected thanks to Leoni’s efforts. “We are all deeply impressed by the courage of the employees at Leoni,” said a VW exec.

Classroom discussion questions:

Evaluate VW’s harness supply decisions and how it should handle inventory now.
What do you think of Leoni’s decision?

OM in the News: Mexican Factories Gain in Supply-Chain Revamps

Workers on an assembly line at the MGA Entertainment toy factory in Ciudad Juarez, Mexico

New data suggests Mexican suppliers are gaining ground as manufacturers reset their supply chains amid growing global disruptions, reports The Wall Street Journal (April 1, 2022). Last year, large American manufacturers solicited chemicals, produce and construction materials and other goods from six times as many suppliers based in Mexico as they did in 2020. At the same time, the number of suppliers in China that received procurement bids declined by 9% in 2021.

The push for suppliers in Mexico comes as more companies say they are resetting their supply chains by adding suppliers and bringing some production closer to end users. The effort is aimed at bolstering resilience, redundancy, and reliability following a series of shocks to supply networks brought on by Covid-19 outbreaks, port bottlenecks, extreme weather and geopolitical conflicts.

“If you’re a manufacturer and you used to have strategic relationships with one or two suppliers that produce the same good or a similar good, we’re now seeing that same manufacturer have relationships with three or four different suppliers,” said one industry expert.

The added suppliers tend to be closer to the buyer and its customers. There was a 514% increase from 2020 to 2021 in Mexican suppliers receiving bids from U.S. buyers and a 155% increase in Latin American suppliers. At the same time, manufacturers sought goods from 26% fewer suppliers in the Asia-Pacific region.

A separate survey of 2,000 U.S. and U.K. CEOs by a London-based group found that 15% had moved production closer to their home countries or sourced from suppliers in nearby regions, and 26% were looking into doing so.

Classroom discussion questions:

What is “nearshoring” and what are its advantages?
What are the OM implications of these two studies?

OM in the News: Russia, Ukraine, and Commodity Supply Chains

40-50% of all exports of neon come from Russia and Ukraine. Neon is a critical raw material for chip manufacturing.

Russia and Ukraine are both important grain exporters, accounting for 1/3 of the world’s traded wheat. The invasion of Ukraine has cast a pall over the commodities sector because it has also made it impossible to ignore the geopolitical faultlines for key raw materials.

The conflict itself and sanctions on Russia are causing disruption in a number of markets, reports Financial Times (March 3, 2022). The rising cost of energy has important ripple effects in other commodity markets, including for the cost of fertilizer. On top of that, firms are growing increasingly worried about the way that many raw materials have the potential to be used as weapons of foreign policy — especially in a new cold war.

For the past 3 decades, commodities have been one of the most striking examples of globalization. And markets themselves have been built around the expectation of open global supply. But two events have changed the world. The pandemic highlighted the perils of relying on a handful of countries or companies, which had led to severe supply chain disruptions. Now from grains to energy to metals, Russia’s invasion of Ukraine has served as a reminder of how some countries wield considerable influence over raw material supplies thanks to their large market share of vital commodities. As well as being Europe’s main supplier of gas (it accounts for 40% of the EU’s consumption), Russia is also dominant in the markets for neon, oil, wheat, aluminium, and palladium.

The short-term response to the war has been to increase stockpiles of important raw materials. In the long-run, it is forcing industry to consider alternative supply chains that can bypass the conflict that is building between Russia and the west.

As businesses and governments cut costs in their supply chains and made them more efficient, they became more reliant on certain producers, leaving them vulnerable to sudden disruption in product flows. But perhaps one of the more worrying effects of the war in Ukraine has been the impact on grains and food prices. The conflict comes at a time when food prices are already high, the result of poor harvests around the world.

Classroom discussion questions:

What could the U.S. do to alleviate stresses on oil and gas supply chains?
What is the U.S. position on supply chains from China?

OM in the News: Ukraine and Supply Chains

Russia’s invasion of Ukraine is piling new troubles onto the world’s already battered supply chains, reports The Wall Street Journal (Feb. 28, 2022). The fighting has shut down car factories in Germany that rely on made-in-Ukraine components and hit supplies for the steel industry as far as Japan. It has severed airways and land routes that had become crucial since the pandemic began gumming up sea trade.

Trucks are waiting six hours to enter Poland from Ukraine.

The conflict is also bottling up Ukraine and Russia’s vast commodity exports, sending the price of oil, natural gas, and wheat rocketing. Shipping from Ukrainian ports, an important corridor for grain, metal and Russian oil shipments to the rest of the world, has all but ceased. The decision by European nations to close their airspace to Russia will increase the cost of flying cargo from Europe to Asia, potentially making some routes commercially unviable.

If Russia cuts off supply of its products, it will hit supply chains that rely on components and little-known commodities from Russia such as neon gas and palladium, important ingredients to make semiconductors.

The car industry, which has long relied on extended cross-border supply chains, was among the first to feel the blow of the fresh economic dislocations. Leoni, which makes wire systems in Ukraine that it ships to European auto makers, last week shut its factories in Ukraine and sent 7,000 employees home. VW, no longer getting wiring systems produced in Ukraine, stopped production at factories that are most critical in its push into EVs..

Countries including the U.K., Poland and Bulgaria have banned Russian airlines from their airspace, and several freight forwarders have suspended services to and from Ukraine. Further airspace closures or airline-specific restrictions could cause delays, reductions in capacity and rate increases. Shipping giants FedEx and UPS suspended shipments into Russia, having earlier stopped doing so into Ukraine.

The disruption to transportation is worsening by the day. At least 22 tankers are clogging the Kerch Strait, a key Russian-controlled waterway, because ports are closed. Greece, which operates up to a quarter of the global tanker fleet, is urging shipowners to pull their vessels from Russian and Ukrainian waters in the Black Sea.

Classroom discussion questions:

What are the main OM issues arising from this conflict?
Can the decision tree illustrated in Supp. 11’s Example S1 be applied here?

Guest Post: Why Are Supply Chains Disrupted?

Our Guest Post today comes from Professor Purushottam Meena at the College of Charleston. Dr. Meena teaches in the supply chain management program.

We have noticed empty shelves and shortages of many items, including PPE in healthcare, sanitizer, and facemasks at some points since the Covid-19 outbreak. The majority of Fortune 1,000 companies have experienced supply chain disruptions due to Covid. It’s important to ask why that happened.

Many overlapping factors are the root cause of the ongoing supply chain disruptions. Today’s supply chains are global, complex, and longer than ever. Manufacturers have to source components and raw materials from around the world to make any product. If there is a disruption in any component’s supply, the whole supply chain is shaken.

This pandemic has exposed the over-emphasis on the traditional cost-cutting, lean philosophy, and single-sourcing approaches that are being practiced in modern supply chains. This is why companies must analyze their supply chains beyond just cost-cutting opportunities. In a global environment, it’s difficult to predict what will happen to one aspect of a supply chain. There are always geopolitical factors and occasionally major disasters such as earthquakes or hurricanes that can disrupt the supply chain. If companies plan for disruptions, they can have other backup suppliers ready.

Apart from the pandemic, other factors behind supply chain disruptions are:

Unstable inventory-to-sales ratios,
Bottlenecks across the supply chain network,
Record high labor shortages,
A globally connected complex supply network, and
Panic buying

In terms of solutions, the ongoing supply chain crisis will take some time to fix–at least a year down the line– if we do not face another lockdown because of new Covid variants. Firms will be forced to redesign/restructure their supply chain networks–and more emphasis will be on reshoring, nearshoring, and multiple sourcing. As a result, the future supply chains will be more regionalized and less complex.

Apart from all the negatives, the ongoing disruptions have brought the supply chain field into the limelight once again, offering our students many opportunities. Students trained in the latest technologies like artificial intelligence, blockchain, and data analytics will have key advantages in the supply chain field because there will be increasing demand for jobs with such skillsets.

OM in the News: Shipping Woes Snarl Global Supply Chains

Congestion at Ningbo is spreading as big operators divert ships away from Ningbo.

A major container terminal at China’s Ningbo Port remained shut a week after operations were suspended from a single Covid-19 case, with dozens of ships lining up to load cargo for western markets ahead of the year-end shopping season. The congestion is spreading to other ports like Shanghai and Hong Kong as big operators divert ships away from Ningbo.

The cascading effect will lead to crowding at ports along the Asia-to-Europe and trans-Pacific routes that could further slow the flow of goods. writes The Wall Street Journal (Aug. 21-22, 2021). It will also hit cargo owners from giant retailers like Walmart and Amazon to mom-and-pop shops, which will have to deal with late deliveries and higher transport costs as they work to restock ahead of the holidays.

Ningbo is the world’s third-largest container port and a big gateway for Chinese exports like furniture, home goods, toys and auto parts headed to markets in the U.S. and Europe. A growing number of Chinese warehouses are filled with finished goods they can’t ship out as containers and shipping costs keep surging.

About 10% of the global container capacity is stacked on ships stuck outside congested ports. The backlog has stretched across the Pacific Ocean to the ports of Los Angeles and Long Beach, which together handle 1/3 of all containers coming into the U.S. Thirty-seven container ships were anchored outside those two ports this week. Other congested ports include NYC and Savannah, the Netherlands’ Rotterdam, and Antwerp in Belgium.

The lack of capacity is pushing big American retailers to charter their own ships rather than pay freight rates that have quadrupled since the start of the year. Daily freight rates for sailings from China to the U.S. West Coast are now at $16,425 per container compared with $3,886 at the start of the year. Rates from Asia to Europe are at $14,038 up from $5,662 in January.

Classroom discussion questions:

What techniques in Supp. 11 of your Heizer/Render/Munson OM text can be used to address this problem?
What other global factors have impacted ports and created logjams?

OM in the News: Food Supply Chain Problems

Americans are returning to restaurants and bars as Covid-19 restrictions come down, adding new strains in food supply chains, reports The Wall Street Journal (May 22-23, 2021).

Distributors are facing shortages of everyday products like chicken parts, as well as difficulty in finding workers and surging transportation costs as companies effectively try to reverse the big changes in food services that came as coronavirus lockdowns spread across the U.S. last year.

restaurant

“The start up has been, in many ways, as difficult as the shutdown…Everybody is trying to turn it on immediately and the capacity might not be there,” says an industry CEO. Shortages of raw materials are leading to erratic deliveries of items that usually arrive on predictable schedules. That disrupts entire supply chains.

The food sector is seeing a version of the bullwhip effect (as discussed in Supp. 11 of your Heizer/Render/Munson OM text), where companies that have pulled back their operations seek to rapidly scale up on signs of improving demand, leaving suppliers scrambling to keep up. Food suppliers allocated more capacity to retail customers like grocery chains during the pandemic leaving distributors short of some products as restaurants and institutional food-service operations open back up.

Demand has changed too. Restaurants that remained open slimmed down their menus during the pandemic and shifted from fresh ingredients for salad bars and buffets to using more prepackaged foods for takeout and delivery operations. Restaurants, hotels and institutional food-service operations are coping with big price swings on staple ingredients and erratic availability. The cost of pepperoni jumped 60% over the past five weeks while flour and tofu are out of stock about half the time for some restaurants.

The lack of available workers may be the biggest strain on the sector since the impact cascades from the production facilities to trucking to distribution centers.

Classroom discussion questions:

Explain the impact of the bullwhip effect on the food supply chain.
What can restaurants do overcome the shortages?

OM in the News: The Chip Shortage Is Far-Reaching

The global chip shortage hobbled auto makers world-wide. Now, other industries are feeling the squeeze, reports The Wall Street Journal (May 1-2, 2021).

It has hit makers of home appliances, heavy-equipment, servers and boats. It is confounding multinationals to startups. Even companies that don’t use chips as their core business, such as freight operators and retailers, find themselves affected. The scarcity means higher price tags for consumers, longer waits for goods, empty store shelves and swaths of the business world racing to secure whatever supply they can. Chip makers can’t keep pace, driving up prices for parts, thinning out supply and spurring panic buying.

chips

They have also contributed to escalations in the cost of raw materials for electronic goods in recent months. An index measuring the price of inputs for electronics companies in March soared to the highest level recorded in more than two decades.

The chip crunch has spared few companies, even some tech giants that were mass buying to cushion themselves from the U.S.-China trade fight. Microsoft’s hardware sales were dented by the shortage. Apple is seeing sales fall, particularly among its tablets and laptops. Strained chip supplies have pushed Whirlpool to switch production lines frequently, enabling it to churn out various products based on which components are on hand that day. Microcontrollers—an inexpensive chip used widely in electronic devices—are almost nowhere to be found.

Many semiconductors cost less than a can of soda. But they are an important manufacturing component for 12% of the U.S. GDP, and reduced supply can boost prices for some categories of products by as much as 3%. Semiconductors are a $442 billion industry. Total semiconductor unit shipments are expected to increase 13% this year to a record 1.13 trillion units. Intel’s CEO said this week that a global chip-supply shortage could stretch 2 more years.

Classroom discussion questions:

1.What can operations managers do to protect their supply chains?

2. How did this shortage, especially in the auto industry, occur?

OM in the News: Supply Woes Hit Small Businesses

An Oklahoma restaurant is paying nearly $200 for a case of gloves that normally costs $40. A medical-device maker in Colorado is tweaking the way it manufactures its products to offset higher plastic costs. A clothing wholesaler in Michigan has hundreds of hoodies it has yet to sell because winter was over by the time they arrived from Bangladesh.

The supply-chain disruptions rippling across the business world are taking a heavy toll on small U.S. companies, which have fewer resources to absorb or push back on price increases and less leverage to pass along the higher costs to customers.

supply chains

Forty-four percent of small businesses reported temporary shortages or other supply-chain problems in March, reports The Wall Street Journal (April 22, 2021). A U.S. Census Bureau survey of small businesses found supply-chain disruptions in wholesale trade, manufacturing and construction, among others.

Multiple forces are driving supply-chain woes, from coronavirus infections among employees and temporary business closures to increased demand as vaccines take hold and restrictions ease. A backlog at California ports, the temporary closure of the Suez Canal and weather-related problems have created additional challenges. Smaller companies typically have less sophisticated purchasing departments than larger corporations.

Delays can be particularly troublesome for small businesses selling seasonal goods. B&S Activewear, a Warren, Mich., clothing wholesaler, was still receiving shipments of zip-up hoodies and other winter apparel from Bangladesh in April, roughly two months later than expected. B&S has tried to speed up delivery by shipping goods via UPS Air Freight, at a cost of $8,000 for 72 boxes of T-shirts, more than 10 times the cost of sending the same items by boat.

Classroom discussion questions:

What supply chain advantages do billion dollar companies have over small businesses?
What advantages do small businesses have?

OM in the News: A Ship, A Canal, and More Supply Chain Woes

It has been a string of disruptions for global supply chains. A Texas freeze that closed the world’s largest petrochemical plants. A worldwide shortage of semiconductors. A fire in Japan at one of the world’s largest auto chip makers. And now a ship grounding in the Suez Canal, closing off traffic in both directions.

Meanwhile, the U.S. economy is recovering rapidly and seeing its fastest expansion in over 30 years, writes The Wall Street Journal (March 26, 2021). This is increasing pressure on the globe-spanning supply chains that multinationals rely on to make everything from bikes to furniture. (It has been months since my local Wal-Mart has been able to stock adult-sized bicycles, by the way).

The Suez Canal is a vital trade route for tankers carrying oil and natural gas, along with container ships moving manufactured goods such as clothing, electronics and heavy machinery from Asia to Europe and the other way around. Around 19,000 vessels crossed the Suez in 2020, with some 39 large cargo ships transiting daily. There are currently 70 northbound ships stuck, outside the canal, along with 79 southbound ships.

evergiven

Operators occasionally divert ships from the canal to the Cape of Good Hope around the southern tip of Africa to avoid bottlenecks, but such sailings take 2 weeks longer and add $450,000 in costs per voyage.

The Ever Given, sailing from China to Rotterdam with 20,000 containers on board, got stuck in the narrow 120 mile canal earlier this week. Facing high winds, the bow of the ship became wedged deep into one side of the canal, requiring dredging. The ship needs to be lightened by taking off fuel, ballast water and, possibly, a portion of its container cargo. With no cranes high enough along this stretch of canal, helicopters are the only option.

About 55,000 containers are shipped daily from Asia to Europe, meaning massive port congestions when the canal is finally cleared.

Classroom discussion questions:

What technique in Supplement 11 of your Heizer/Render/Munson text can be used to deal with such supply chain risks?
Table 11.3 lists 10 risks to supply chains. which apply to today’s shortages?