Experts breakdown the strains of supply chain demands
When the pandemic really hit the area in Spring 2020, there was a “demand shock” as people bought extra products and bought different products based on what funds they had available. Both changed the demand and disrupted the supply chain.
WADENA, Minn. -- Supply chain issues: they’re the dreaded topics for every supplier, company and consumer. Or maybe you’ve seen grocery prices increase, schools having to change their menus or low COVID-19 testing supplies.
But what is a supply chain and how did this happen? Swan Ray, supply chain development specialist with Regional Sustainable Development Partnerships with University of Minnesota Extension, shared these basics at the Economic Alliance coffee talk, a regular remote chat largely among Wadena County leaders, on Nov. 15. Ray works with crops that the university breeds including barley, oats, camelina and hemp, and previously worked with Whole Foods Market and National Cooperative Grocers Association.
“In commerce, a supply chain is a system of organizations, people, activities, information and resources involved in supplying a product or service to a consumer,” Ray noted during the virtual meeting. Each company has their set supply chain to manage in the short and long-term, which impacts the larger supply chain as a whole. For example, a company might have parts delivered to their factory, these parts are transformed into a specific product based on the internal system, the products are transported and sold.
Within a supply chain, the goal is to minimize waste. Companies don’t want to have to throw away products, create too many products or have employees do work over again.
“One thing … a lot of people think of when they think of supply chain is they just think of transportation and logistics; however, supply chain management is production,” Ray said. “Supply chain management is customer service and information flows. It is very, very broad.”
"Supply is really just a balance of that demand over time and finding the right level of production for consumption."
— Swan Ray, supply chain development specialist with Regional Sustainable Development Partnerships with University of Minnesota Extension
Consumer patterns impact supply chains, such as how much of a certain product people are buying. This demand helps companies know the amount of products that will be needed. Ray said consumers decide their purchases based on what is best for them, whether buying in bulk or focusing on the necessities; and corporations have the goal of increasing shareholder profits through more sales or decreasing production costs.
When the pandemic really hit the area in spring 2020 , there was a “demand shock” as people bought extra products and bought different products based on what funds they had available. Both changed the demand and disrupted the supply chain, Ray said. And when businesses worked to adjust to the new patterns, there were short-term supply chain failures.
“Supply is really just a balance of that demand over time and finding the right level of production for consumption,” Ray said. “It takes the production side a considerable amount of time to adapt.”
When there are products and services available, why aren’t they getting to consumers? Ray sees the truck driver shortage as the “real issue” besides ships waiting at port. With the demand changing often and drivers having to wait long periods at port to have their trucks filled, it’s “quite challenging” for trucking companies to constantly adjust, Ray said.
“As far as the supply locally chain, getting to convenience stores, small grocery stores, even larger grocery stores, there’s a pretty strong network there. If there’s a problem, normally as a company, we had a 98% fill rate … the problem comes before the wholesaler and the local distribution methods,” said Wadena County commissioner Murlyn Kreklau. He worked for 46 years at Mason Brothers, which delivers in five states. “If the company could get it, they distribute it, they have trucks going anyway and they have the network to do it. The issues lie beyond the distributors that are serving most of Minnesota; it’s a bigger issue than when something’s not available it’s because they can’t get it.”
Companies, including agricultural businesses, also have experienced issues getting a railroad spot or having enough trucks to transport the products. Availability is one factor that impacts how products are moved globally, nationally and within the region.
“I would anticipate that in ag you will see higher food prices continue. Input costs are increasing directly to the farmer, and therefore they will need a higher price per bushel to make ends meet,” said Cory Detloff, Central Lakes College Ag and Energy Center and Farm Business Management director, in a message. “Corn alone will cost more than $125/acre more to raise in 2022 than 2021. That cost will need to be passed on to the consumer.”
The labor shortage throughout every industry means certain work can’t be completed or in a less timely manner, but Detloff also wonders how students choosing jobs over college will impact the supply chain long-term. While Ray said she hasn’t seen a decline in enrollment, if jobs are paying higher than before, younger workers might choose entering a job.
“As academia we need to consider the way that we educate a little bit differently, especially in the career and tech ed institutions right now are areas we’re really seeing that demand out there,” Detloff said. “Something that we’re focused on at Central Lakes College is trying to get people out the door faster and prepare them for the workforce.”
The federal COVID-19 vaccine mandate for private businesses with over 100 employees will also impact the number of workers available.
On the logistics side, supply needs like different masks required change how companies store products. At Tri-County Health Care, the inventory system was well set and items came in a timely manner. During the pandemic, the hospital bought items earlier and searches for space to store the items, president and CEO Joel Beiswenger said.
“Something that we didn’t anticipate, and I think is going to create a new … challenge for businesses is that you are having to invest a lot more operating capital in inventory management,” Beiswenger said. “One thing that COVID has taught us, and the supply chain challenges right now is, we better stock up.”
"Corn alone will cost more than $125/acre more to raise in 2022 than 2021. That cost will need to be passed on to the consumer."
— Cory Detloff, Central Lakes College Ag and Energy Center and Farm Business Management director
Fresh products, or cold chains, have long been “particularly challenged” with a lack of storage spots, Ray said. In July 2021, Mason Brothers expanded their overstock groceries storage to Verndale, Minn., with plans to create a refrigerated space there and expand the freezer space at their Wadena location. They store lots of popular products to try to meet the next round of demand.
“Holding of inventory and holding of goods, that’s going to be a constant throughout really this decade,” Ray said. “There’s really no easy answers for fixing supply chain issues, and COVID has highlighted some vulnerabilities and also some opportunities.”