Supply Chain Snarls Threaten to Temper Strength of Economic Upswing

• Thanks to high-profile news stories like a container ship getting stuck in the mud outside the Suez Canal and slowing the movement of goods around the globe, the term “supply chain” is now in everyone’s lexicon.

• Distributors are doing what they can to manage the current glut of supply chain disruptions, and while that lodged ship might have created the biggest buzz, it’s not the worst holdup.

• Increased demand, slowed production, raw material shortage and other factors are hampering companies’ supply chains.

• Distributors are responding with several tools in their arsenal, working tirelessly to ensure their customers get product delivered as soon as possible.

Brian Bushelow, the supply chain director for Raleigh, North Carolina-based HVACR distributor ACR Supply, knows his company didn’t have product onboard the Ever Given, the container ship that was stuck in the mud outside the Suez Canal for more than a week in late March.

But Bushelow also knows that some of ACR’s shipments were on nearby ships that couldn’t sail through the canal and reach their destination in a timely manner because of the ensuing logistical logjam. Those delays a world away led to extended lead times and late-arriving goods for some of ACR’s customers.

“We had a vendor that had 15 containers that got caught up in the Suez Canal mess,” Bushelow told MDM. “That put them way behind, though I don’t know exactly how long. But, yes, even a small distributor here in North Carolina was held up by the Suez Canal deal. And whether we had product stuck on that ship [the Ever Given] or one of the ships waiting for it to move, it’s the same effect.”

A massive container ship getting lodged outside a major global shipping canal might be the poster child for supply chain congestion this spring, but it’s relatively minor in the grand scheme of shipping delays. It’s only one of many supply chain situations that distributors have dealt with — and continue to deal with — in 2021.

The slowdown of goods from manufacturer to distributor to end-user began, of course, with the rise of COVID-19 a year ago. As suppliers enacted safety measures such as social distancing on their production floors, output decreased. At the same time, demand for everything from PPE to HVAC systems to JanSan products soared during the pandemic.

Out at sea, the global supply chain experienced clogged shipping lanes due to all manner of consumer products making their way to U.S. ports, further exacerbating the situation. Crowded ports slowed the arrival of those goods. A truck driver shortage impacted the next leg of those products’ journey.

In other words, supply chain executives can’t seem to catch a break.

“There are always issues, but none that have slowed down the supply chain to the same degree as recent weeks and months,” Bushelow said. “Mostly, you have one issue at a time, and that stuff can be dealt with. In today’s world, several things are happening simultaneously.”

Whack-a-mole

The global litany of errors did a couple of things for Shane McCarthy, SVP supply chain, product management and marketing at Chicago-based industrial distributor Lawson Products. One, it made his and his team’s job more challenging. Two, it gave everyone else in the company a new appreciation for what he and his supply chain colleagues do daily.

“We’ve certainly been in the news, and supply chain is now a household term,” McCarthy said with a laugh. “But we have been impacted by what’s going on.”

McCarthy said that while the company does source globally, most Lawson’s products are made in North America, so the impact on the distributor hasn’t been the same as companies that primarily import. 

Even still, suppliers in the Canada and U.S. are seeing impacts on their supplies due to raw material shortages and the need for certain components that are only made overseas. The supply chain is truly global, even for domestic manufacturers.

“You would think we’re protected because we’re sourcing these from North America, but suppliers’ incoming raw materials have been delayed,” McCarthy said. 

“That’s also true on the chemical side. One of the things that’s holding up shipments of some of our chemicals is the plastic caps on spray cans. Those plastic nozzles are all made in China, and they’re being held up on container ships, so we might have the product but not all the components that go with it,” he added.

McCarthy said Lawson, which is publicly traded, has seen the impact of labor shortages at suppliers that haven’t been able to return to full capacity even as they managed through COVID. Some manufacturers are simply having a difficult time filling positions to meet the growing demand.

Like Bushelow at ACR Supply, McCarthy understands why everyone has a better understanding of the importance of the supply chain and all its mechanisms. As he sees it, supply chain has become one of the most critical departments for any distributor.

“We’ve been faced with a myriad of issues that have popped up, and it’s been a whack-a-mole situation,” he said. “You address one thing and something else comes up. It’s a challenging time.”

A common problem

ACR Supply and Lawson Products aren’t alone, of course, in dealing with supply chain snags due to increased demand, slower-than-usual production, material shortages, crowded shipping lanes and clogged ports.

Plenty of public distributors have been lamenting supply constraints on their first-quarter earnings calls. A look at recent comments from Fastenal, MSC Industrial and Grainger revealed how widespread the issue has been for companies.

Erik Gershwind, president and CEO of MSC Industrial Direct Co. Inc., Melville, New York, said “the speed of the recovery coming on the back of significant economic disruption is leading to supply chain shortages and disruptions,” but the company is well-positioned to handle these issues — a comment echoed by other companies, including ACR Supply and Lawson Products.

However, Gershwind added, “What’s happening in the global supply chain right now is pretty chaotic. If you think about what’s happening right now kind of across North America and global supply chain, we have a faster-than-expected economic rebound that’s left a lot of suppliers and manufacturers with insufficient inventory and capacity to handle the demand pick-up.”

D.G. Macpherson, chairman and CEO of Chicago-based industrial distributor Grainger, said that while conditions are improving, the recent supply chain slowdowns have been both deep and broad.

“I would say in the entire supply chain, certain things are slower than they’ve been historically, and I think that’s definitely a condition that everybody has,” he said. “Our assumption is that there’s going to be messiness, [but] we’ll manage it as well or better than anybody else and come through it well.”

And Dan Florness, president and CEO of Winona, Minnesota-based Fastenal, noted that while the Suez Canal snafu was understandably garnering headlines around the world, there are indeed more severe problems facing distributors — and they might not be going away anytime soon.

“I suspect everybody regardless of where you live on the planet, saw that ship in the Suez Canal sitting cockeyed,” he said. “That’s merely a very visual thing that we are seeing in ports around North America, that we are seeing in ports around the world. There are a lot of constraints. And constraints and rising activity create … inflationary pressures, and we are seeing that. [That’s a] nominal impact to the first quarter, [but] we do anticipate seeing a larger impact as we move into 2Q and 3Q.”

Finding solutions

Distributors might be experiencing more headaches amid the rash of supply chain constraints around the globe, but they are coping with it as well as can be expected.

One, companies have much better forecasting tools, said ACR Supply’s Bushelow, who noted that these capabilities have become more critical considering lead times are extending much longer than normal.

“We’ve been trying to forecast further and further down the road that we can keep the pipeline open or the pipeline primed,” he said. “ACR is not the biggest distributor in the world, and we don’t have unlimited resources to pour into all of this, so we’ve had to change the way we buy a little bit to forecast out longer, to place orders for future dates, which is not something we’ve done historically. 

“I’ve placed orders that we’re going to have delivered in July and August, and now we’re starting to look at September. Normally we just look at three or four weeks in advance.”

More than anything, distributors know they need to provide for their customers, so companies like Lawson have increased spot buys to ensure end-users get what they need, when they need it — supply chain snarls and hits to the bottom line, be damned.

“If we have blanket purchase orders for our brass products or our fasteners overseas and containers are delayed, we can’t afford to let our customers go without products, so we’re doing spot buys,” McCarthy said. 

“We might think a container is going to be here next week, but suddenly it gets pushed out by four weeks, so we’re doing a lot of fill-in buys from master distributors that have inventory in the U.S. But that has resulted in freight being a little bit higher and some gross margin erosion,” he added.

All of which further proves that distributors are resilient, McCarthy said. That word emerged throughout the pandemic as companies pivoted to help their customers, but it’s again apparent that the distributors who can handle a disruption to their operation — whether that’s a pandemic-driven quarantine, delayed shipments, increased lead times, port strikes, a companywide ERP change, a natural disaster or anything else — are the ones that will continue to take share and thrive during chaotic times.

“There’s probably always going to be something disruptive since we live in such a connected world,” McCarthy said. “It certainly highlights the need to stay in close communication with suppliers and customers.”

ACR Supply, meanwhile, is doing its best to uphold a favorite saying at the company: “He who has the best supply chain wins.”

That means the company with the best supply chain wins the contract, wins market share, wins customer wallet share. While that saying is probably used in some form or another at companies the world over, it has become more important than ever — and perhaps uttered more often in distributor boardrooms — based on the current landscape.

“We’re seeing, and our customers are telling us, that whoever has the product gets the bid,” Bushelow said. “I don’t know how long it’ll stay this way, but right now price doesn’t matter. It matters if you have it and you can deliver it. We work hard to make sure that we have it and if we don’t have it, how quickly can we get it.”