Getting the Derailed Supply Chain Train Back on Track

It’s been 20 months since COVID-19 produced the “Great Derailment” of 2020. The word derailment is used intentionally because it precisely describes what happened to global supply chains when the civilized world shut down to protect itself against a deadly virus. It was almost as if a 300-car train was intentionally derailed. Although folks were divided over the shutdown, there is no denying now that it created quite a few knots in the global supply chain, and fixing those links will be much easier said than done.

I have always been a train enthusiast. Maybe that’s because trains and supply chains have a lot in common. In the 2010 movie “Unstoppable,” the two main characters—portrayed by Denzel Washington and Chris Pine—tried their best to stop a runaway train laden with toxic materials. But the worldwide supply chain train stopped abruptly, derailing most, if not all, the boxcars; that derailment, in turn, is creating product shortages throughout the value chain.

Push (Forecast) vs. Pull (Demand)
Trains consist of one or more locomotives and attached railroad cars (either in front or in back). The locomotives either push the cars in front of it, or pull the cars behind it. Supply chains operate much the same way. A train with the locomotives in front is akin to a Just-In-Time supply chain being pulled by demand; conversely, locomotives at the rear resemble a value chain being pushed by forecast. I first made the association more than three decades ago while waiting 20 minutes for a Dow Chemical train to pass during my commute home from work. I had been involved in a marathon strategic planning session that day—helping my teams determine the global supply chains that were subject to demand (pull), those subject to forecast (push), and the ones requiring a combination of both. I remember sitting in my car thinking, “Interesting—one train is being pushed, one is being pulled, and one train has locomotives at both ends. These are just like my supply chains.”

Simply put, supply chains based on reliable demand are pulled (Just In Time). The locomotive in these chains (demand) pulls product behind it; these chains are quite lean and efficient because inventories can be minimized. When supply or demand is unreliable, however, forecasting should be leveraged to push products into inventory. The locomotive in these chains (forecast) pushes product along the value stream.

Seasoned supply chain talent is a necessity for all medtech organizations and a key tenet of the OE-Tier5 operating model I’ve discussed in past MPO columns. Supply chain executives should understand when and where to pull or push supply chains. Multiple supply chains (Figure 1) can be tricky, as some are pulled and some are pushed simultaneously, a common occurrence in many supply chains. Synchronizing these chains can be quite difficult, which is one of the reasons for many of today’s shortages. Thanks to the Lean Six Sigma movement, many supply chains have been set to Just-In-Time pull mode because traditionally, demand was reliable, supply variability leaned out, and the value chain was easily pulled. But a destabilized chain cannot rely on demand or supply, so it therefore must shift to push mode. However, there was no time to do so, which has triggered massive product shortages.

Larry Kudlow, director of the National Economic Council under President Trump, predicted a V-shaped recovery last summer. In such rebounds, supply chains are not driven by demand on the down side of the “V” but manufacturing must nevertheless continue because demand will spike on the upside and product will be needed quickly. Kudlow was actually trying to encourage global economies to push their supply chains based on his V-shaped recovery forecast. Had governments listened, the world’s supply chains wouldn’t be so strained right now.

Frictional Force
Lately, it seems as though product shortages have been getting worse. There’s good reason for that: The shift or “re-railing” of the supply chain to push mode takes time due to frictional force—i.e., the force exerted by a surface as an object moves across it or tries to move across it. There are at least two types of frictional force—sliding and static friction. The easiest way to visualize this very technical concept is to watch a train fire back up again after it’s stopped.

When the locomotive provides power to a train from the front, it pulls the first car, which then pulls the second car, and all successive cars in order. By the time the last car is pulled, the locomotive has already moved down the tracks. The length it has moved depends on the number of cars it is pulling, the cars’ weight, wheel friction, the locomotive’s energy level, and various other factors. When a train begins to move to the right, with the locomotive pulling from the front, a loud pounding wave-like sound can be heard moving right to left as the first car is pulled, followed the second, third, and all remaining cars. It’s like visualizing dominos falling right to left.

Conversely, when the train is pushed by locomotives from behind the cars on the left, it takes time for the front car on the right to finally feel the push. As in dominos moving left to right, the front car is pushed eventually and the sound wave moves left to right. There are complex mathematical formulas used in railroad management, including artificial intelligence rules to manage this phenomenon. These formulas account for variations in boxcar weight, track conditions, locomotive design, and weather patterns, among others. It is important the boxcars move smoothly, as a jerking motion can damage the cars’ contents or damage and possibly derail the train.

Supply chains work in a similar fashion. Once the front locomotive (demand) starts pulling the supply chain (capacity), it takes time for the last car in the train to move. The process for multi-leveled bills of material, where the last train car may hold a raw material that needs mining and refining in a distant land, can take months to complete. This is what is currently snarling global supply chains, 20 months after The Great Derailment. In late September, there were more than 65 ships lined up at sea waiting for their turn to be unloaded at two of the largest U.S. ports. By mid-October, this number had swelled to more than 140 ships. That means thousands of containers are floating out on the ocean. Those containers holding raw materials will have a domino effect on the supply chains awaiting those substances. CEOs have already warned of record toy shortages at Christmas, which promises to disappoint many children. If those presents aren’t already on the ocean today, or coming in Santa’s sleigh, they likely won’t make it in time for Christmas. On a more troubling note, the containers holding critical raw materials for the world’s supply chains are going to create more delays heading into winter.

Conclusion
For more than 40 years, I have encouraged organizations to buffer the anomalies they experience within their supply chains with inventory. I’m not suggesting carrying inventory to offset the next pandemic (hopefully not any time soon). But all organizations should continually evaluate the frequency and probability of issues and either fix them or carry inventory to buffer the ramifications of these derailments. My experience in this profession has taught me to expect the unexpected. It’s not rocket science, but it can be extremely challenging to get a derailed train back on track. There are thousands of COVID-19 variants, so the global supply chain may experience many more disruptions before it finally stabilizes.

There is no simple way to relieve the product shortages that have twisted the world’s supply chains into a pretzel. Millions of trains (chains) are transporting millions of boxcars (product), on millions of acres of track (not always in the best of shape) spread across millions of geographical miles, managed by millions of people in various time zones speaking different languages and operating in different cultures. It’s complicated.
Nevertheless, it’s time to get the train moving. 

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Chris Oleksy is founder and CEO of Oleksy Enterprises, co-founder and CEO of Next Life Medical, and CEO of Emergent Respiratory. He can be reached at [email protected] or [email protected].