Longer supply chains = more low-cost, diverse sources

Sept. 14, 2020
Strong Links: Part 4

Read more in the Strong Links mini-series!

While shorter supply chains and nearer sources are comforting in a crisis, several suppliers and distributors report that worldwide networks have better communications for handling COVID-19's effects, and the low costs, multiple sources and fast transportation that let them dominate in the past will revive soon.

"We're part of a network of partnerships, so we know how the pandemic occurred at different paces globally," says Frank Cantwell, product and suppliers VP at Allied Electronics & Automation. "We have advanced communications with our sister brand RS Components in the U.K. This gave us detailed pre-warnings, lessons learned and pivot points about dealing with COVID-19 and protecting our staff, so we could mobilize and do pre-work before the pandemic hit North America, and continue to adjust those lessons as it elevated in the U.S."

Just as it's revealed the shortcomings and capabilities of healthcare, governments and other organizations, Cantwell reports that COVID-19 has focused a lens on the supplier and distributor communities. "Many customers have built up their inventories and safety stocks positions on some items, just as healthcare providers in the U.S. have tried to get ahead on PPE, and are seeking sources closer to home," explains Cantwell. "From a freight perspective, shipping worldwide is obviously costly. However, remote networks can help because we have multiple facilities, and can balance stocking levels between them, and shift products to where they're needed most. It's understandable that users want to source products locally because they feel they're in a better position where they are, but it's important to understand that COVID-19 hotspots can shift quickly, and that's when having worldwide locations can help.

"Ironically, the one positive thing about the recent U.S. tariffs, especially on goods from China, was that suppliers had to seek other sources and facilities, so shipments wouldn't come from a particular part of the world. These efforts to fix and bulletproof their businesses in response to the tariffs prepared many suppliers and distributors to handle COVID-19 when it arrived. It was surprising, but the problems caused by COVID-19 would have been much worse if we hadn't already been responding to the tariffs."

Coordinating global production and logisitics

Lou Paioletti, supply chain director at Phoenix Contact, reports his department works mostly with finished goods, which arrive at its logistics and storage center from the company's U.S. and worldwide subsidiaries. Multiple ocean-freight containers come directly from its parent organization in Germany each week, while some products come directly from China and India, and many come indirectly from its plants in Poland, China and India.

"We get materials from many originating countries, but COVID-19 hit everyone hard, many workforces weren't available, and there were delays as precautions were added. We even had a shortage of truck drivers in the U.S. for awhile, and when India closed, it was a big challenge," says Paioletti. "So, we had some delays, but we lengthened lead times, and got through it thanks to our supply chain in Europe and ramping up production in Germany of products that are usually made elsewhere. Between the usual Chinese New Year and the pandemic emerging, we had even more heartburn, but we leaned on our U.S. inventory and stocking distributors. We also brought in some items by air, even though scarce cargo space in airplane bellies caused air freight costs to briefly jump more than four times from $4 per kilogram to more than $18 per kilogram. It wasn't ideal, but we were able to take advantage of our strong global manufacturing network, and if we couldn't get a product from China, then we got it from Germany."

Paioletti credits Phoenix Contact's subsidiary in Nanjing, China, for stripping and sanitizing its facilities to help return to production, and applauds its corporate headquarters for avoiding supply chain interruptions by following Germany's policies that kept COVID-19 under control from the beginning. "Because we got hit early elsewhere, we put measures in place in the U.S. before many local and state government restrictions and shutdowns were issued. We began pushing staff to wear masks mask and gloves in early March," says Paioletti. "Because we're deemed to be an essential and life-sustaining business, we were directed internally to keep our local manufacturing and distribution open. The initial transition to remote work took a week to a week and a half, and mainly involved telling personnel to work at home if they could, and making sure they had what they needed.

"We often hear that automation and social responsibility have an adversarial relationship, but we don't feel that way at Phoenix Contact. One of our favorite quotes that we're able to tell visiting school groups is that we've never had a layoff in our history. I think we're a textbook example of how we can use high-tech, but still highly value and practice social responsibility.           

Paioletti reports one reason many Phoenix Contact employees were able to work at home was due to its automatic storage and retrieval system (ASRS), which added four aisles in 2019 to its existing seven for a total of 110,000 storage locations. It also added four pick-and-pack stations to its existing 10, and a second robotic palletizer, as well as a sorting conveyor loop. "What we build is based on thinking years down the road, but when COVID-19 hit, we realized how fortunate our operation was to have the benefits of robotics already in place," says Paioletti "Without our ASRS, we would've had many more people walking up and down and crisscrossing our aisles, breathing on each other, and touching the shelves. With the ASRS, the robots pick the products that are in totes, and bring them to workers that can stay at least eight feet away from each other. Even in our receiving areas, many products stay in totes, so people don't have to dig through them. Overall, we've greatly reduced touching products directly and have eliminated the walk-around warehouse, and I'm convinced this has helped us reduce potential infections and fight the pandemic."

Because epic negative events are so hard to predict, but stil show up every few years, Paioletti stresses it's important for end users, system integrators, distributors and suppliers to prepare their operations and supply chains for unspecified interruptions and general threats. "We've learned it's crucial to have dual or multiple reliable, backup supply sources, build more time into production and distribution processes, and spend a little more on inventory now, which is much better than spending a lot on a broken supply chain later," explains Paioletti. "We sell about 75% through distributors, and they also stepped up during the pandemic by building up inventories, which let us lean more heavily on them because they're usually local and closer to customers.

"COVID-19 has really impacted everything. Where we used to just think about lean operations and efficiency to reduce waste, now we've added thinking about refocusing on safety and working together to minimize the spread of infections. Similarly, we've been doing digitalization for years, but now we're finding we have to rely on it."

About the author: Jim Montague
About the Author

Jim Montague | Executive Editor

Jim Montague is executive editor of Control. 

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