Many plants around the world have invested to some degree in Just In Time Manufacturing, where goods are created to meet demand, not created in surplus or in advance of need. However this model was stress-tested in 2020, as the COVID pandemic wreaked havoc on the global supply chain, leading many plants to adopt more of a "just in case" approach to spare parts inventory and beyond.
For this episode of Great Question: A Manufacturing Podcast, we're joined by Jason Manganaro, VP of Commercial Technology for the Americas at SPARX Logistics, who talks with Plant Services chief editor about how a post-COVID ripple effect through the global supply chain resulted in innovation at every step.
Listen to Jason Manganaro on Great Question: A Manufacturing Podcast
PS: I know a plant guy who worked in a chip coating application facility in Pennsylvania. In response to the sort of unsteady supply chain, he said that their facility didn't experience any downtime due to the lack of raw materials coming in, but their challenge at the time (this about 18 months ago) was to stay nimble enough with the product lines that they could take whatever material came in on the dock on Friday and put it into process on Monday. It was difficult to predict what it would be, so their weekend teams got very good at taking the lines down, cleaning the lines, and preparing them for the new product.
Now that's eased up a little bit, but when you talked about the uncertain sourcing of materials that brought to mind this this guy, whose team wasn't hadn't ever expected to become good at being nimble like that, but they worked very hard to be more proactive about things. And they said OK, time to dust off the reactive skills and get the lines ready for what we’ve got.
JM: It makes a lot of sense and you know the way I see it is, when you think about that from a macro standpoint, how it kind of throws off the whole supply and demand dynamic that you usually run a business by. Now rather than, OK, this what my customers need, therefore, I'm going to produce these quantities of it, it's almost like, this what I've got to produce with, so therefore here's what I'm going to produce and throw it out there into the market.
It’s not exactly the way we like to do business, but that's the kind of thing that COVID I think necessitated in a lot of businesses. You had to get creative, you had to do what you could with what was available to you. You had to think of different ways of doing business. You had to accommodate remote work, and adjust on the fly to production. I think in concept we always kind of talked about, well, if this ever happened, we would do XYZ. When it actually happened and when it lasted so long, I think it caused a lot of businesses to take a hard look at the way they do things.
There were certainly negatives – we can talk all day about the negatives – but I think there were some positives on the business side and even sometimes on the personal side. We spent more time with our families, we got to reassess the way that we're spending our time sometimes. Then from a business standpoint it, some companies found out things that were capable of that they didn't know they were capable of until they were forced into that position. And it's good to know those things, that you can be flexible, you can up production, you can shift the way that you're doing things if needed. It just makes us more resilient I think for the next time that big crisis hits. Hopefully it is 100 years from now, as they said COVID was going to be 100-year kind of virus cycle, but who knows?
PS: There's a consultant who's going to give a presentation at a professional event in May, and his presentation is going to focus on “why we do the right things for reliability for the wrong reasons.” His point was that one of the rollover effects from COVID was that people got their storerooms in place because they were tired of fighting long lead times, and as you said, people were starting to treat inventory different; instead of “just in time” is became “just in case.”
A more efficient storeroom does lead to greater reliability because you have the parts in place to reduce surprise downtimes, but his point was, you know, it was the right thing, but it happened to be the wrong trigger, right? It was the crisis we were in.
JM: But you know what? Sometimes that's what it takes, right? Sometimes it's the pressure of having to do it that makes us do that thing that we know we should be doing and haven’t been able to dedicate the time, the resources, the budget to. It's a funny way to look at it, but I agree that's probably a good outcome.
PS: So, this is the point in the conversation when I lob the Great Question at you, ok? The great question for today: What's the state of the supply chain? Can you help our listeners understand the degree to which supply chains have remained less predictable than they were before COVID, especially in North America?
JM: That's a great question, and it’s a complex question. One of the things that I personally gave up on in the early days of COVID was predicting: How long is it going to last? When are things going to get back to normal? What are the prices going to do? Are shipping rates going up or going down? Every time I made a prediction, the thing that I thought was just a completely unreasonable answer ended up being what happened.
We move a lot of air freight, we move a lot by rail and truck, but most of our volume is moved by ocean, so I always think of ocean primarily and I think globally that's the primary way that goods are still moved. When I think about ocean and what went through during COVID, the rates reached record highs, and the service level and schedule reliability reached record lows. That's really the best snapshot of where we ended up.
At the time when things were hitting their worst, I think there was a lot of talk saying, well, listen, we've crossed the threshold that we're never going to get back behind. Rates are never going to get back to where they were back in the good old days of 2018-2019. And then they did! Last year, we hit rate levels that got back to that level. But what came along with that was that as soon as new disruptions started to come into the market, things started to creep up again. Thankfully we have not hit anything close to those record highs, but we are kind of creeping back up the last several months.
I would say in terms of the state of the supply chain today, especially related to North America, there's a series of things that people are probably aware of, but I'll just touch on them real quickly. Panama Canal: there was a big drought in Central America and in northern South America last year. They waited for a few signs of possible relief – the rainy season, hurricane season were a couple of big storms that hit the area that they thought might replenish the water levels, but it didn't happen. So the water levels at the Panama Canal are abnormally and dangerously low right now. They've had to restrict the number of vessels that are crossing, the weight and the load levels of those vessels to ensure that they don't have any incidents.
This something that's kind of been a slow build. We saw it in the summer. Things didn't improve by the fall and as is kind of predictable, ocean carriers started to make plans to adjust to this situation, knowing that the next rainy season is not going to start until probably March or April of this year. Even if it's a typical rainy season, water levels aren't going to get back to their normal levels until probably this summer. This a kind of a long term or a year long challenge that we need to overcome.
Naturally, they looked at their options, started to divert some of those routings away from Panama and it was all going to add a predictable and not unreasonable amount of time. These decisions are being made in, say, October or November of last year, then the issues happen with Israel and Gaza, the attacks happening in the Red Sea on commercial vessels. That led the Suez Canal to no longer be a preferred way of routing cargo because of the danger to vessels and crew. So now you've got an unusual amount of volume that would normally go through the Panama Canal is now rerouted to the Suez Canal, and can't go through the Suez Canal so now those vessels are going down around the Cape of Good Hope, and coming to the East Coast that way. Now what you're talking about is added days on the water, added fuel cost, added pollution unfortunately, emissions and added transit time basically. I think we when we did our estimates on it, it's something like 7 to 10 days in the best case of added transit days when you go around Africa versus through the Suez Canal. It’s already a longer route and now you're making it longer and more costly, because there's additional costs involved in going that way.
So that's kind of where we are today, coupled out with the traditional Lunar New Year holiday that's coming up. It's a little bit late this year, it's on the 10th of February. China shuts down, a lot of other parts of Asia shut down during that holiday, so there's a big ramp up of production around this time of year. Factories start to close down, people start to clear out and then things kind of pick up second-half of February, and that puts some additional pressure on things. Between all of these things that we're talking about, the choking off of a couple of major gateways, the rerouting of cargo, and then of course when everything going to the East Coast starts to get problematic, people start to rush to the West Coast, so you've also got a big surge of extra volumes to the West Coast. The opposite happened about a year ago when they were having those labor issues on the West Coast and negotiating the contracts; people started to favor the East Coast, and now it's kind of shifted back.
All this to say again, it's an interesting world with logistics, right? There's always some new crisis, some new fire to deal with, and that's kind of where we are today. What we're anticipating in general is that the volume levels have not risen to kind of obscenely high levels. Demand is still a little bit tamped down from where it was, probably previous Chinese New Year Lunar New Year type periods, but because of all these other issues – restrictions on space, loadability of vessels, delays on getting empty containers back to Asia – all of these things trickle down like dominoes, and one affects the other.
We anticipate that during Chinese New Year, there'll be a little bit of a breath. Production ceases for a few weeks and we'll see maybe a little bit of a catch up. It'll probably be a little rough coming out of the holiday just because of all of the pressure put on the front end of it. But we're hoping that by March and by April, things will start to ease a little bit. I don't think they're going to ease tremendously. I don't think we're going to see rates just tank or anything like that. I think it's going to be more of a moderation happening. And then in the world of U.S. trans-Pacific contracts, the season is May 1 through April 30, that's how the contract season runs, so we'll be creeping up on that May 1 date to negotiate next year's contracts as well. So there's going to be some influence on that as well in terms of how things are running, where the rate levels are on the spot market, and then what the demand level is going into the rest of the year.
So yeah, that kind of in a nutshell is where we are right now. I hate to kind of give the gloom and doom version of it because I tend to be more optimistic and try to be look for some of the bright side of this. I think that we are probably going to land at rate levels, volume levels, and capacity levels that are more sustainable after all of this – that's the hope. I think if we do arrive at that more sustainable level, at least until the next crisis, I think it will be better for the market in general. So you know, let's hope that's where we're headed after all this.
PS: What kind of innovations do you see coming around the corner in this specific area? Anything from driverless trucks moving from intermodal point to intermodal point, to new energy efficient trade routes – I'm curious to know what do you see as the big innovations that might be around the corner for us.
JM: Yeah, it's a great question. The big one that we talk a lot about is an extension of this real time visibility of where your stuff is. So we have all different kinds of abilities to track on the macro level, like if you're looking at a vessel, a plane, a rail car, things like that, you can get pretty close. There's geofencing, you can kind of figure out where things are. But once you get to that last mile, it gets more difficult. You're usually dealing with individual movement. It's on a truck, or on a trailer or a chassis, things like that. The ability to get that last mile tracking as precise as we have in the other phases, I think that's something that's coming. We're seeing more and more GPS type devices that are coming to the market that are more affordable. We're looking at things like attaching GPS devices to chassis or to containers. We're looking at tapping into the ELD logs that drivers have to use that monitors the number of hours that they can be active during the day. All that data goes into centralized sources and you can tap into that in some cases and use that to see where those trucks are at any given moment, because it's feeding the data all day long. Those are a couple of the things from a kind of a track and trace standpoint.
The other one we're hearing a lot about, we haven't really had personal experience with this yet, is robotics and warehouses. We see it on the manufacturing side, it's been in effect forever with manufacturing, but (now it’s coming to) the warehouse distribution center side. Even I would say more so than the driverless vehicles, but that's also coming for sure. Personally, I can see that more in a lot of the big ports, for example, where there's a separation between where the containers get off of the vessel and then where they need to go to either be staged for being picked up by trucks or being put on chassis, or they need to be staged to be put on rail, and you've got just a lot of vehicles tied up in this back and forth of moving things from one part of the port to the other. It's a very defined area, it's a secure area, to me it seems like a natural place where you could start to put in this driverless operation because you don't have foot traffic, you don't have a lot of cross traffic. It's very well managed, it's the kind of environment where you can see it being part of the equation and not being as dangerous as it would be on the open road as you're still fine tuning the technology.
PS: The every-other-year Automate trade show is coming to Chicago in March and April, so now I'm really excited to go see what they have in terms of warehouse robotics and AGVs and technology based on what you just said.
JM: I've seen some pretty neat stuff! We haven't really applied it yet in our warehouses that we operate, but then again, I mean not in the robotic sense, but we do have a lot of really cool next level equipment for emptying containers and racking and things like that, that are I would say a couple of steps ahead of what you would have seen a couple of years ago. Robotics I think is the next frontier and that's where you really mimic human practices with a machine, something that you can basically program it to do the activities and oversee it that way versus a more manual machine that you have to dictate every move that it makes.
PS: We've been listening to Jason Manganaro who is a VP of Commercial Technology for the Americas at SPARX Logistics and he's been answering great questions about supply chain for us today. Jason, thank you so much for taking so much time and explaining about advances, not just in supply chain routing and logistics, but the greater visibility which I think a lot of plants are about to imminently enjoy if they aren't already into how their parts are getting to their plants.
JM: Thank you so much Tom, the pleasure was mine.
