Supplier Shortages and Supply Chain Resiliency
Martin Pahulje - April 13, 2021
Following the outbreak of the COVID-19 pandemic, supply chains across the globe are suffering shortages. As a result of health and safety concerns, businesses have had to completely change how they operate, adapting to remote work and financial hardships for customers and team members alike. This has had a domino effect on nearly every industry, resulting in these unprecedented shortages. With operations already impacted by the pandemic, more shortages are coming as a detriment to many major organizations. Because of this, companies need to be flexible in where they obtain materials and even what products they can continue to produce. Without a resilient supply chain, it is unknown how some organizations will recover.
It is vital to show resilience and flexibility in the supply chain industry, now more than ever. Understanding the extent of shortages and how they may impact your operations is crucial to minimize their effect and avoid them. We'll walk through two cases of significant shortages affecting companies so that you may understand their significance and prepare your own organization for potential impact.
Across the globe, millions have been struggling to get their hands on the COVID-19 vaccine to protect themselves against the virus. Slowly, vaccines are being distributed, but the process has been long and cumbersome. Many consumers wonder why the vaccination process is so slow, and it has been challenging to get a straight answer. One primary reason is the manufacturing process. The vaccine requires particular lipids for production in addition to glass vials to fill. These lipids are highly complex and require months of testing to develop, yet creating these is no longer the primary cause for delay. One contributor is that very few companies can make these lipids, and most are small companies not accustomed to large and fast-paced orders. For this reason, their supply chains have not been developed to produce the quantities now needed at the pace desired. Furthermore, because millions are awaiting the vaccine, these companies have used up all reserves, eliminating the buffer that storage offers. As a result, one single delay in a truck or medical center results can significantly delay deployment.
If that weren’t enough of a challenge, there are also bottlenecks in the production of the materials needed. The primary bottleneck, surprisingly enough, is the glass vials used to distribute the vaccines to vaccination centers and physicians. For many vaccines, they must be refrigerated. This poses an issue as most glass products are not made for the temperatures low enough to preserve the vaccine. As a result, manufacturers must make specific vials that can withstand these low temperatures. While many large manufacturers have supplied generous amounts of these vials, it is still insufficient to meet the growing demand for vaccines.
You may be wondering, why not make more production sites and eliminate this issue? Companies are looking to set up new plants and cooperate with one another, but this is an expensive and lengthy process. While many companies are expanding production capacities and recruiting contract manufacturers to assist in the process, there may not be any significant changes in the year. The possibility of other large companies, such as detergent manufacturers, converting part of their operations to produce the lipids is not feasible either. To operate any plant, it needs clean rooms, special technology, and experts to manage it. These requirements are even more in-depth in the pharmaceutical industry, requiring personnel to receive specific training for the products in question.
As a result, it is not a possibility for larger manufacturers in other sectors to contribute. If not properly trained, every error or deviation would lead to major delays and stunt the production process further. Furthermore, several authorities would have to approve the technology, processes, and products being used and developed, in addition to months of planning. So even if it were possible, it would not be speeding up the deployment of vaccines any time soon. The standardization process of manufacturing vaccines is a slow one, but without production standardization, it would receive no approval at all. Clearly, a delay in vaccines is problematic for all, and many health care workers in vaccination centers are on break as they await more. But, a potential concern for the future is staff shortages once the production of vaccines speeds up. While we are living in an unprecedented time, these shortages do not come as a surprise. For now, we can only be patient and await an increase in production capacity so that the vaccine can be more widely distributed.
For our second ongoing shortage, we’ll discuss Toyota’s operations in the Czech Republic. Toyota has suspended operations in this plant for two weeks as a result of auto-chip shortages. This shortage results from production delays following extreme cold weather in the U.S. While it is not unheard of for weather to impact supply chains through transport and delivery delays, it is not typical for the automotive industry. Even before the weather delays, the automotive industry was already struggling with low chip supplies due to increased demand from consumers working and spending more time at home during the pandemic. Furthermore, a fire at one of the world's leading auto chip makers has significantly contributed to this shortage, affecting even more automotive manufactures. These auto-chips are crucial to Toyota's manufacturing, as they are one of the brand's highlighting car features, increasing horsepower and fuel efficiency.
Toyota’s Czech Republic operations are not the only ones facing disruptions. The cold weather in the U.S. has also impacted North American plants in Kentucky, West Virginia, and Mexico. The cold weather has caused disruptions in petrochemical and raw-material supplies, two necessary components for automobile manufacturing. These production cuts will affect the production of several car models, and consumers are unsure of how long or how much production would be cut. These supply chain issues could travel further into the company, potentially halting production at most U.S. and Canadian auto plants for a week starting soon. While this particular shortage may have been accelerated by cold weather, Toyota, like most companies, has faced many challenges over the past year due to COVID-19. With limited materials, Toyota team members have been sitting idle, resulting in costly plant suspensions.
Clearly, shortages are impacting companies from every industry. The outbreak of the COVID-19 pandemic has set to motion many unexpected challenges, especially in the supply chain industry. Many of these disruptions you may see in your own life through vaccination waits, slowed mail services, and company closures. The supply chain of every organization runs in a domino effect, and one disruption or delay can drastically alter a company's operations. Furthermore, a disturbance such as weather which may seem like nothing more than an inconvenience, can be detrimental to organizations. Such delays are incredibly costly, so it is vital to minimize their impact. These two cases of shortages should serve as an example of the importance of resilience in a supply chain. In preparing for shortages, delays, and disruptions, you are equipping your supply chain with the tools to continue necessary operations. With contingency plans in place, including alternative suppliers and back stocks, you will have the flexibility and skills to combat these challenges and come out stronger.