Companies and industries across the globe have been impacted by a variety of supply chain challenges in the past 18 months with extreme disruption in supply and demand for thousands of products. Customers have felt the impact of this disruption through empty store shelves, long shipping delays and increased prices.
This disruption has been particularly challenging for companies who source their products from countries in Asia. Wildly fluctuating oil and raw material prices and a shortage of containers have resulted in a significant increase in shipping costs. For example, the cost to ship a container from China to the United States is nearing $30,000 – more than six times higher than it was in May of 2020.
Unfortunately, there is likely to be more disruption ahead. In recent days, the Chinese government has cut power in order to meet energy use targets, resulting in production shutdowns throughout the country. These shutdowns are compounding existing supply chain issues including COVID-19 lockdowns throughout Asia and severe weather delays caused by typhoon season. These factors have created shipping and delivery bottlenecks within the United States. The ports of Los Angeles and Long Beach – already the busiest ports in the United States – are currently experiencing record backlogs, with the wait to offload sometimes exceeding a week.
The holiday season is approaching, which will result in a surge of orders for all types of products. Typhoon season has just begun for the Eastern Coast of China which might cause additional delays, and further outbreaks of Covid in Vietnam and China are disrupting port operations.
At Blackford Capital, our sourcing team has been paying close attention to these issues. We believe the disruptions can be overcome and the costs will adjust, but this will take time and focus.
In the interim, we recommend that companies focus on three areas of sourcing that they can control: process, partners and presence.
If your company is currently sourcing from Asia, you likely already have a close eye on your sourcing, shipping and delivery processes.
If not, this is the perfect time for an in-depth, top-to-bottom analysis of your supply chain. This will help you address your current situation, assess your risk for future situations and find opportunities for improvement.
Here are a few basic questions you should be asking yourself as part of this analysis:
- What policies and procedures do you have in place?
- When is the last time your policies and procedures were updated?
- What data are you gathering? How are you analyzing and using that data?
- What is your due diligence process for sourcing?
- What is the status of your sourcing agreements?
- Do you have the most updated legal & government regulations for all sourcing countries?
- Who manages sourcing operations? Do they have enough support?
- How often are you monitoring changes to supply chain and sourcing costs?
- How easy are you to do business with? Remember we have moved from being a Buyer’s to being a Seller’s market
While you may not be able to correct everything immediately, this audit will provide you with information that will help you be more efficient and flexible in the future.
One of the keys to successful sourcing in Asia is your network of partners.
As supply chain issues continue, it is critical to be in regular contact with any agents, vendors, factory owners and other consultants. You should also be performing ongoing due diligence about other ways to source and deliver your products – both now and in the future.
Diversifying vendors, countries, routes and service providers can help you be in the best possible position to respond to shortages and issues.
At Blackford Capital, we have developed an Asian platform that supports the sourcing needs of all our portfolio companies. Our team of sourcing experts in the U.S. and Asia is constantly evaluating all aspects of our Asian-based supply chain and building relationships that will help our portfolio companies deliver products to their customers and differentiate us from our competitors.
For years, many companies were able to work through intermediaries to rely on their sourcing from Asia without any issues. Even before the pandemic, it was becoming increasingly necessary for companies to have “boots on the ground” in Asia.
A consistent presence in Asia allows you to build relationships with factory owners and decision makers. Trust is a very large part of successful sourcing and having a supply chain executive or a skilled consultant will help ensure a reliable supply chain.
When combined with profitability, a presence can position you as a preferred customer – which means you are less likely to be dropped when capacity tightens.
Consider the current situation: it’s been nearly two years since most companies and supply chain experts have been able to visit factories in Asia. If you are relying on a third-party intermediary, you may not know where your products are coming from or may lack insight into quality control practices. Worst of all, you may be struggling to get your products shipped to the U.S. at all.
Aqua Leisure, one of Blackford Capital’s portfolio companies, experienced a surge in orders during the pandemic. As people around the world flocked to pools and lakes, Aqua Leisure products flew off the shelves. Despite the disruption to the supply chain, Blackford Capital’s presence throughout China and Hong Kong helped Aqua Leisure deliver all of its 2020 and 2021 shipments on time in full.
While there is a lot that is out of your control when it comes to sourcing, A renewed focus on these areas will not only help you weather the current crisis but also be prepared for whatever might come next.
Steve Feniger has been an Operating Partner at Blackford Capital since 2020. He’s an internationally experienced CEO who’s led an IPO on the HK Stock Exchange and works with western brands and retailers to professionalize their buying and sourcing operations in Asia.