As the Port of Los Angeles announces (on June 10, 2021) that it is now the first port in the western hemisphere to process over 10 million containers over a one year period, one can’t help but wonder why so many containers are being processed in such a short period of time.
The port is processing so many containers because the demand from consumers for product is so much higher. Coffee, ketchup, gasoline, wood pulp and rubber – all are items that have been identified to become less available due to a taxed supply chain in 2021.
In manufacturing, everything is impacted by the supply chain. The glass for bar ware, the wood for cutting boards, the cotton and wool for textiles, and then the work force needed to harvest, process, run machinery, it’s all part of the process. And when one or all of these are affected either directly or indirectly by a global pandemic it becomes a domino effect.
What we are witnessing is something called “the bullwhip effect.”
The bullwhip effect often occurs when retailers become highly reactive to demand, and in turn, amplify expectations around it, which causes a domino effect along the supply chain.
Timing, design, functionality are all impacted but most of all, pricing. Pricing, because all resources along the chain become scarce and that demand drives the price. Pricing, because the overseas and domestic transportation methods become overwhelmed by demand and that taxes the system then driving the demand and pricing.
“During the pandemic many industries reduced their orders and suppliers reduced their orders and capacity even further (because they anticipated that future orders will also be reduced). When the economy came back, there was no capacity to snap right back. On top of it, ports got congested and we have transportation problems,” stated Yossi Sheffi in his book: The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19.
At The Vertical Collective, the teams in both the Hong Kong based office and the California based office anticipated that the changes in 2020 would have an effect on the company and all client business. It started when the teams started seeing delays in shipping and delivery which impacted the price of freight. This moved the teams to action in shoring up factory relationships, increasing efficiency by auditing all freight contracts and identifying best routes for sourcing resources and materials. This reset would then help secure pricing and resources, a benefit that could be passed to clients.
“In the development of our supply chains, and the industry as a whole, relationships are key. My team and I spend countless hours on calls, text and video conferences checking in with our Factory owners, both from a business standpoint and personally, it is those relationships that have helped us remain stable and consistent in this marketplace,” said Morgaine McGee, co-founder of The Vertical Collective, LLC and CEO of The Vertical Collective, LTD.
But making sure that the supply chain and production can remain stable is just half of the equation. Additionally it is critical to have an understanding of your customers’ (and in some cases their customers’) demand so that planning for product development can continue without interruption and unexpected hits to the budget because of pricing fluctuations.
“I have a part time team dedicated to Trend research and the current state of the environment, not just eco-environment but the socio-environment around purchasing. We feed this information to our clients consistently to help them in planning. And then with Morgaine’s team we are just constantly hedging our bets on these trends to secure positions with the raw materials and supply chains. This goes from things like wool and glass to metals and materials needed for producing PPE – its spans from healthcare to home decor,” added Katherine Zabloudil, co-founder of The Vertical Collective, LTD and CEO of The Vertical Collective, LLC.
It’s easy to draw the parallels between the front of the chain to the end – what is paramount throughout are the relationships. It is what drives both sides of the company and what helps The Vertical Collective anticipate the needs of its partners’ business whether that be in sourcing, production, freight forwarders and specifically their direct to consumer clients. Those relationships are what keep the open communication going throughout the process which in turn helps in preparing for and working through changes and fluctuations in the marketplace. It’s what keeps the customer service levels at The Vertical Collective at such a high standard and what keeps their pricing competitive.
The Bullwhip Effect is reactionary. The Vertical Collective is facing that reaction head on with proactivity. And the Los Angeles port, well, with one million containers processed in 12 months – they now are ready to take on anything!
Jodi Flicker is executive business development operations lead and consultant for The Vertical Collective, LLC.
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