Why Purchasing Will Become Your Biggest Headache

The disastrous breakdown in the global supply chain goes far beyond a lack of toilet paper.

Last May, my wife and I ventured out to purchase bedroom furniture. After visiting three half-empty furniture retailers who couldn’t guarantee when our order would arrive, we finally found one willing to give a date—September. Although we weren’t looking for anything unusual or custom, it would take that long to arrive at the store’s warehouse from the supplier overseas.

The global supply chain that has empowered us to reap the benefits of just-in-time inventories and next-day shipping for years has crumbled, and it will have devastating effects on your business if you are not careful. What makes this collapse so alarming is that it wasn’t created by a singular event, it involves all consumer products and raw materials, and there are bottlenecks at every step of manufacturing and delivery.

Many experts contribute the inception of the collapse to trade tariffs the U.S. and Chinese governments placed on each other several years ago, causing manufacturers and suppliers to voluntarily limit production on everything from steel to wheat. The global COVID pandemic followed, shutting down factories and shipping for months, and it continues to wreak havoc to this day. Extreme weather and the closing of the Suez Canal to unwedge a stuck tanker added additional pressures. World-wide labor shortages have created significant hindrances on both manufacturing and shipping. In fact, in the U.S. there is currently a record number of job openings as well as record job quitting. But the most substantial influence has been a gigantic increase in the demand for consumer products.

To ensure the economy did not collapse during the COVID shutdown, the U.S. Government distributed several rounds of stimulus checks to its citizens. People repeatedly woke up to find several thousand dollars extra in their bank accounts that they were encouraged to spend. With services limited by not having people coming into our homes during the pandemic, people chose to purchase goods. These included grills, electronics, and exercise equipment—all items manufactured oversees in factories that were shut down because of COVID and which had previously been running at limited capacity due to the tariffs. They were also already out of the raw materials needed for production such as plastic, wood, and specific metals. (It currently takes up to three times as long for manufacturers to receive key ingredients such as chemicals and machined parts.)

Once factories in Asia reopened and began to procure the materials needed to assemble their products, they went into overdrive. This caused significant strains on national power grids, especially in China where everything from rolling blackouts to week-long factory shutdowns due to lack of available energy have become routine. Add in entire manufacturing plants and shipping ports in China, Vietnam, Indonesia, and Malaysia that temporarily shut down whenever COVID spikes happen, everything from cars to tennis shoes to paint and lumber is being underproduced and undelivered.

Once a product is finally made, it’s shipped across the Pacific Ocean. But because there is such an increase in products being sent to fill orders placed months ago, there are not enough cargo containers to handle it all. (It is estimated that millions of cargo containers are currently stranded in Africa where they were used to deliver face masks and other necessities during the shutdown with no feasible economic way to return them back into use).

When the container-filled tankers finally arrive in a U.S. port, the logjam is so massive that the ships must idle in the ocean for weeks as they await their turn to unload. Major labor shortages at ports have caused operational capacity to plummet. Once the products are unloaded, it can take several more weeks before a truck is available to move the product to warehouses and distribution points across the country. There are over 60,000 unfilled truck driver positions available in the U.S. alone, because workers are choosing to switch to careers with more-consistent hours that allow for increased family time, an issue the restoration industry is all too familiar with.

Once unloaded, empty containers are traditionally brought to middle America to be filled with agricultural products to be sent back to Asia. Shipping companies are now skipping this step, instead immediately sending the containers back to Asia so they can be refilled and returned to U.S. ports at a much higher profit. It costs six times more money to ship something from Los Angeles to Shanghai as it does to ship from Shanghai to Los Angeles. This is causing warehouse shortages around the country as goods that would normally be sent overseas continue to pile up.

The lack of goods and raw materials arriving and leaving the country means a considerable decrease in the U.S. Gross Domestic Product (GDP) is expected, hampering economic recovery. Restoration is primarily considered recession proof. One of the biggest reasons we are seeing a significant increase in venture capitalists entering the restoration industry, buying up small businesses, and increasing the sophistication level of your competition is because we are considered a safe harbor if the economy stumbles.

More bad news: this situation is not going away anytime soon; with many experts agreeing it will last at least into 2023. The government is getting ready to pass a massive infrastructure bill that will create billions of dollars in construction projects and increase the need for additional goods and raw materials, most of which comes from overseas. It will also open career opportunities in construction for individuals currently in the restoration industry, allowing them to quit you and potentially make more money, receive expanded benefits, and have a consistent work schedule without being “on call over the weekend.”

And if that’s not enough, your staffing needs may be radically changing for another reason. Right now, restoration businesses of all sizes are scrambling to find employees. The holiday season is coming and with that, another heavy round of purchasing (think presents under the tree) which will cause additional strain on the global supply chain. Even if the products you need to restore a loss can be manufactured in a reasonable time (although there is no reason to think this will happen), they won’t be shipped promptly as shipping companies are becoming more selective about what they haul. Why ship dangerous chemicals or heavy steel and lumber when you can ship plastic toys and lightweight electronics that consume less fuel and increase profits?!

We may be approaching a time where you have too many employees because you don’t have enough materials to complete your jobs anyway. This goes far beyond the 2020 manufactured toilet paper crisis. This is real and it affects everything.

On the bright side, many large retailers are just now receiving outdoor patio sets that they will need to sell at discounted rates to avoid warehousing them until next spring, so you can get some great deals!

As we enter business planning season, no doubt you are trying to identify what position to hire for next. I would suggest one very few, if any, restoration companies have—a Supply Chain Manager. This may be someone you already employ, perhaps in administration or operations. Regardless, you must assign to someone the responsibility of making sure you have an abundance of materials and supplies on hand to complete jobs. Once you fall behind, there may be no catching up for years to come.

To get started, I would recommend creating a seven-step plan for procurement.

• Estimate your supply and demand for every product you use to complete jobs.
• Identify additional suppliers for each product and comparable products in case the ones you favor are not available, along with suppliers for each.
• Create procedures to overcome all potential procurement disruptions.
• Implement tracking measures for all deliveries, along with a uniform system for when and how to order.
• Become comfortable with the idea of having too much inventory.
• Always have cash or credit available to make large purchases.
• Have regular conversations with your suppliers.

Step seven is a big one. If you are not currently having frequent conversations with your distributor and vendor reps, you need to start. Who better to know when a shortage of something you need is about to occur? Remind them to call you immediately if they get a big shipment of something you use regularly, so you can stock up. And if you can afford it, consider purchasing and using an inventory management software program that provides real-time data on global supply chains and the availability of raw materials so you can forecast future product shortages.

Take steps now to ensure you are prepared for what’s coming. And while you are at it, get your Christmas shopping done ASAP! Soon the shelves will be very empty and even Santa won’t be able to get the goods!