Out of stocks in retail giants such as H&M, Costa and McDonald’s exposes the cracks in ‘lean’ supply chain thinking.
Leading up to the Christmas period, our Packaging Evolution Champion Kevin McAulay examines supply chain resilience and looks at which brands and retailers are set to ‘make or break’ during this critical trading period.
Over the last few decades, Globalisation has driven big business to expand supply chains across disparate continents, relying Just-In-Time thinking to squeeze maximum efficiencies out the of value chain but the Global disruption caused by the Covid-19 pandemic has exposed cracks in ‘lean’ supply chain thinking.
Retailers and manufacturers that have followed JIT models have suffered badly when the pandemic led to a sudden rise in demand for groceries and consumer products on the one hand and Global disruption to manufacturing and supply on the other. Manufacturers were simply unable to replenish retailers fast enough to avoid empty shelves.
I’ve been doing this for 43 years and never seen it this bad. Everything that can go wrong is going wrong at the same time.
Issac Larian: CEO of MGA Entertainment
LEGO, who saw frustrating out-of-stocks in Christmas 2020 due to Covid-19 downtime, is confident that they can keep pace with demand this year. Huge investments in their Global operation mean they are less susceptible to macro-economic factors and break-downs in the supply chain.
During the past 10 years, we’ve invested in a global supply chain network, with five manufacturing plants on three continents located close to our markets. This means that we’re able to ship products short distances and respond quickly to shifting consumer demands. Over the past year we’ve expanded capacity at these facilities and extended our warehouse facilities. This has enabled us to keep up with sustained strong demand.
Jesper Andersen: CFO, LEGO
Other brands have also looked to move operations closer to home, for example, Steve Madden, the shoemaker has shifted about half its production to Mexico and Brazil, reducing exposure to Asian markets, such as Vietnam. Making goods closer to the U.S. has made its lead times twice as fast as competitors.1
This move by big business to spread their risk is a direct result of many finding ‘lean’ supply chains unable to cope when the Covid-19 pandemic placed their operations under pressure and many are still experiencing issues such as staff shortages, inflation and changes to consumer buying habits.
McDonald’s which has traditionally been a poster boy for JIT with its ‘made to order’ standardised approach has struggled as their domestic supply chain which relies on a steady supply of fresh ingredients has broken down and products aren’t making it into store. Beth Hart, McDonald’s Vice President of Supply Chain, said that deliveries had been disrupted and that shortages of ingredients had impacted menus and forced some of its 1,300 UK sites to close early.2
In 2020, consulting firm McKinsey surveyed 60 senior supply-chain executives from across industries and geographies, asking them about the impact of the pandemic on their operations and their future plans to make supply chains far more flexible and agile. 73% encountered problems in their supplier base, and 75% faced problems with production and distribution. In the food and consumer-goods industries, 100% of respondents had experienced production and distribution problems, and 91% had problems with suppliers.
Perhaps more surprisingly, 85% of respondents struggled with inefficient digital technologies in their supply chains. Digitization today can empower firms to reap benefits long into the future. Whether through more accurate forecasts, reduced downtime, or faster delivery and turnaround times, digitization of the end-to-end supply chain will help businesses eliminate inefficiencies, improve responsiveness, and dramatically reduce overall supply-chain costs. It will also be a critical tool in supply-chain organizations’ responses to future challenges.3
McKinsey argues that to meet these challenges, businesses will need to seek greater centralization of planning activities, shorter planning cycles and introduce advanced-analytics techniques. Sun Strategy is already helping clients do this across their packaging with our e-volve platform which produces fully print-ready artwork across all SKUs and formats inclusive of all local marketing and legislative demands at the touch of a button making it the most responsive system on the market.
About the author
Kevin McAulay - Account Director
Kevin has over 20 years experience in managing print and graphics for multiple global FMCG and retail companies. Kevin has experience working onsite at a number of clients sites including Nestle and Unilever and managing remote teams, with a great understanding of stakeholder engagement across multi disciplines.
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- Bloomberg Oct 2021
- ITV News Sept 2021
- McKinsey 2020