With vaccine distribution on the rise and business and personal travel growing, signs of U.S. economic recovery are starting to pick up. While increasing economic activity is great news, the comeback has been faster than anticipated, exacerbating strains on the supply chain. Inflation concerns driven by labor costs, COVID compliance costs, a tightening freight market, and commodity price increases could continue to impact the supply chain throughout the year.
Though supply chains face disruptions across many industries, Avendra is well-positioned to help clients mitigate these challenges. By managing the supply chain at both distributor and manufacturer level, we are able to dampen the impact operators would experience without Avendra. Avendra’s contracts, size and relationships enable us to push back on price increases; and our processes and systems ensure that the correct contracted prices are charged (i.e., if a supplier agrees to hold prices – we check that they are actually held).
As your business continues to improve, there are six major supply chain issues to keep in mind and actions you can take to stay ahead of supply chain challenges.
1
Longer Lead Times – Manufacturers have not shifted back to normal foodservice production from retail. With retailers still ordering heavy volume, you may continue to experience shortages from suppliers. In some cases, current lead times for new products from the manufacturer to your distributor could be 3-8 weeks or more. Labor shortages also affect production and prices, contributing to longer lead times. Make sure to communicate your needs with distributors as early as you can. This gives them time to speak with manufacturers to update forecasts.
2
Supplier Staffing Shortages – Labor shortages continue to impact every part of the supply chain, from pickers in warehouses to delivery drivers. There are approximately 8-million fewer jobs in the U.S. relative to pre-COVID. As the economy and wages adjust, the labor force will eventually come back. In the meantime, in addition to communicating with suppliers, you may also need to be flexible when it comes to delivery time windows.
3
SKU Consolidation – We’ve seen a great deal of SKU consolidation as manufacturing capacity shifted to retail. High-running, popular SKUs are still being made, while less popular ones are not currently being produced or may not come back at all. This means that you may need to substitute items more quickly than in the past. Ask your distributor when items will be available and as an alternative, you may need to look to a different distributor for more unique items.
4
Personal Protective Equipment (PPE) – In general, the PPE supply chain is in good shape with most prices coming down. One item that still has a tight supply is disposable gloves, particularly nitrile. With most nitrile supply going to healthcare, you may need to switch to other glove types such as Vitrile (vinyl/nitrile blend), which is in better supply and has a lower price point. Good news if you’re an Avendra customer – we have ample nitrile glove supply with negotiated pricing.
5
Supplier Solvency – Bankruptcies continue to be a risk for smaller and regional suppliers. A Chapter 11 reorganization may mean that a supplier will remain in operation, but you may need to renegotiate terms. Suppliers facing Chapter 7 bankruptcy will liquidate and cease operations in relatively short order, leading you to find a substitute supplier. You may want to develop a contingency plan for suppliers you are worried about to avoid operational disruption. At Avendra, we constantly monitor supplier health and then develop contingency plans and identify substitutes where we have concerns.
6
Demand Forecasts – Suppliers have had difficulty forecasting demand by geography. Distributors may need to source items from a farther location, increasing lead time. Make sure to communicate with your distributor about upcoming demand. With a better picture for demand, they’ll be able to get product to the correct distribution centers. Avendra continues to work with our distributors on occupancy trends to get as much of the right products to the right places to meet our customers’ needs.
With all these factors to keep in mind, the number one thing you can do to stay ahead of issues is to communicate with your distributors – early and frequently. At Avendra, our contract owners are constantly in touch with key suppliers collecting updates, developing alternatives, and sharing best practices.
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