A Simple Explanation of the Complex Supply Chain

Sep 7, 2022Articles

Due to the fact that supply chains have multiple moving parts and layers, it’s very difficult to point the finger at one problem when trying to solve the current product availability crisis.

A good place to start is to understand that there are two main players that make up a supply chain. Player #1 is production, where all the parts and pieces are assembled into a product; and player #2 is distribution, where the final product is purchased by the buyer.

Production can be incredibly challenging especially when several thousands of parts are needed to build a complex product such as a smartphone or an automobile. With the technological sophistication found in so many of these kinds of products, it’s simply not possible for one producer to make every part by itself. So, they turn to specialist suppliers to provide individual components such as batteries, headlights, steering wheels, microprocessor chips, memory chips, display screens, keyboards, disk drives, and chargers, to name a few.

These types of producers end up with multiple layers or tiers of suppliers. Oftentimes the originating company has no idea who the supplier is beyond the second tier because there are so many. According to a report by McKinsey & Company, an automaker averages 250 tier-one suppliers and 18,000 suppliers across all layers. Not only is it hard to keep track of all the suppliers, but some of them also don’t want you to know who their suppliers are in order to avoid being cut out of the tier layers.

This situation became a recipe for disaster during the Covid-19 pandemic when lower-tier suppliers either ran out of parts or were forced to shut down – both of which had a negative effect on the multi-layered chain of suppliers. It only takes one missing part to delay the assembly of a mobile phone or an automobile. And because it takes time for things to pass through the chain, there might be a significant delay before a problem at a distant-tier supplier is realized at the final assembly point.

On the distribution side, the complexity depends on the distance and steps that are needed to transport the product from the manufacturer to the retailer and then to the store. If the manufacturer or factory is far away or even overseas, there could be up to a dozen separate steps along the way. In the last several months we’ve seen several news reports about shipping companies across the nation that ran into bottlenecks due to labor shortages and congested ports. It can take months and sometimes years to clear these costly bottlenecks.

There’s no question that changes need to be made in order to minimize or totally avoid future supply chain disruptions. At Shippers Solutions, we remain focused on solving persistent supply chain problems in order to keep our customers from never running out of inventory. We invite you to contact us to learn more about our supply chain solutions and how they can benefit your business. Send your inquiry to hcamp@ssco.pro.

Credit: this blog is an adaptation of an article written by Dr. Willie Shie, the Robert and Jane Cizik professor of management practice at Harvard Business School.