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CSCMP:  Supply Chains Are Seeking to Get Back in Sync Amidst Rising Costs

June 22, 2022

The 2022 State of Logistics Report was unveiled at the National Press Club in Washington, D.C., with the 33rd annual publication finding that U.S.-based supply chains are out of sync, while adjusting to short-term changes and perhaps uncovering long-term solutions. It is produced annually for the Council of Supply Chain Management Professionals (CSCMP) by global consulting firm Kearney and presented by Penske Logistics.

The publication delivers a snapshot of the American economy through the lens of the logistics sector and its role in overall supply chains. The report is a rigorous compilation of leading logistics intelligence from around the world and shines a spotlight on industry trends and key insights on ever evolving supply chains across a number of sectors.

A key statistic that the report generates is the United States business logistics costs, or USBLC. In 2021, USBLC was elevated by 22.4% to $1.85 trillion, representing 8% of 2021's $23 trillion GDP.

Here are some major report findings:

Business inventories dropped to near historic lows, but the costs associated with storing, handling and finance these items rose considerably. Inventory-carrying costs rose by 25.9% in 2021, and transportation costs jumped 21.7%. This led to uneven supply chains and inconsistent product availability for consumers (both in-person and online).

Efforts to increase multi-shoring are expected to accelerate. Companies are seeking to have operations move closer to the U.S., to respond quicker to fluctuating market demands.

Last year's report noted the effects of the pandemic on the supply chain. The residual challenges of the pandemic remain, with some disruptions continuing to deliver damaging effects on capacity.

Last-mile delivery volume is trending upward. The 2022 report notes that e-commerce sales grew 10% last year (to $871 billion), accounting for 14% of U.S. retail sales.

Trucking freight continues to see more volume and opportunities. With road freight accounting for the largest segment of the U.S. supply chain spend, it expanded by 23.4%, to a lofty $831 billion spend.

Mark Baxa, CSCMP president & CEO: "This year's State of Logistics' report is simply an outstanding and valuable asset to any supply chain organization. Competing in today's global marketplace is not just about the high-quality products supply chains plan, procure, make and deliver. It's also about impacting the global community and doing vital work like making and delivering life-saving vaccines. In the 33rd year of this remarkable report, our readers will not only be in the best position to benchmark their own supply chain progress but to refine their approach, leading to better results. With supply chain making up the clear majority of most company's operations and that of its workforce, it has the greatest potential to make a real impact on its competitive advantage. I wish to thank our collaborative research and author partner Kearney, IHS Market, Penske Logistics and the CSCMP staff for all of their contributions."

Balika Sonthalia, partner at Kearney and lead author of the report, noted: "It's not surprising that we are continuing to see ongoing disruptions related to the pandemic, but the scope and impact of disruptions continue to weigh heavily on the minds of logistics providers – as they do for all companies contributing to the U.S. economy. What is notable for 2021, however, is that the logistics sector has begun to enable changes which should benefit manufacturers, retailers and consumers alike. We're especially heartened by the progress the sector has made in rebuilding supply chain resilience via multi-shoring, automation and optionality in last-mile distribution. This will also improve customer service and bring efficiencies for all parties."

Andy Moses, senior vice president of sales and solutions, Penske Logistics: "We have seen an incredible amount of resiliency among private truck fleets and dedicated contract carriage truck fleets. Demand has been up sharply year-over-year and these fleets continue to manage the complexities they face in the trucking supply chain including headwinds caused by shortages of parts, equipment, drivers, and most recently rising fuel costs. The State of Logistics Report does an excellent job of accurately capturing these challenges across all modes of transportation."

“I found the CSCMP Logistics to be a good read and mostly an accurate read, based upon the time of it’s in-field research”, said Scott Deutsch, President, Americas of the Ehrhardt + Partner Group. “While supply chains are still being greatly challenged, we now are seeing the inventory “bull whip” effect playing out in real-time, as so many businesses over ordered six months ago to ensure proper inventory levels. Unfortunately, many businesses believed their demand signals and now have just too much inventory, which will lead to discounting and lowed earnings throughout the balance of 2022.”

Jack Peck, Ph.D. the President of FastFetch: "I read the report and believe the reported statistics. FastFetch operates only in the order fulfillment space inside distribution centers so we have little control over other important supply chain segments, like transportation, outside the four walls of distribution centers. One important statistic in the report that is not surprising is that inventory levels dropped to historic lows while inventory-carrying costs rose by 25.9% in 2021. This is not surprising since the labor and overhead costs in distribution centers remain relatively constant when inventory levels drop. Consequently, the carrying cost per unit of inventory must increase.

For the past few decades we have been advised by inventory purists to carry minimal inventory and adopt a "just in time" replenishment strategy with our upstream supply chain partners. This works great when there are minimal supply chain disruptions but when major disruptions like pandemics occur, these strategies can be disastrous. I've heard it said that many companies are adopting a "just in case" strategy to replace a "just in time" strategy.

While at Clemson University I was a co-founder of a model apparel manufacturing plant (Clemson Apparel Research), primarily funded by the Defense Logistics Agency, that developed and tested advanced manufacturing and supply chain tools and systems, using near-real-time inventory visibility to supply chain nodes, to analyze raw material, work-in-process and finished goods inventories throughout the supply chain with a goal of "balancing inventories" across a supply chain. This tool advised each node in the supply chain concerning what to order, what to make and what to ship, subject to constraints (such as labor, cash, machine capacity, etc.) in each node, so that the supply chain can quickly react to disruptions while maintaining reliably minimal inventories with near zero stock outages. This tool was used to manage the Army Combat Uniform (ACU) for the 2nd Gulf war while lowering inventory levels and almost completely eliminating stock outages.

Read more about supply chain projects completed at Clemson Apparel Research at:

https://apps.dtic.mil/sti/citations/ADA369941

https://apps.dtic.mil/sti/citations/ADA393599

https://apps.dtic.mil/sti/citations/ADA422259

https://apps.dtic.mil/sti/pdfs/ADA444053.pdf

This supply chain management tool has now been refined by Colonel Bill Kernodle, a principal in the development of this new supply chain management strategy, and is currently being marketed at www.balancedinventory.com."

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