Supply Chain Shortage: Global Firms Decide to Manage Process Themselves - Bloomberg

Just about anything that could go wrong with global supply chains has gone wrong in the past two years: There's been a pandemic, volatile swings in demand, an unrelenting wave of extreme weather events, shortages of workers and cargo space—even a giant container ship lodged in the Suez Canal. It's an operating environment that executives have taken to comparing to a game of whack-a-mole. The term has been used at least 30 times on investor calls in recent months, according to data compiled by Bloomberg.

Now a growing number of companies are deciding if they want something done right on their supply-chain management, they're going to have to do it themselves. Walmart Inc. and Home Depot Inc. are among the U.S. retailers who've chartered their own container ships to try to speed deliveries. Specialty retailer American Eagle Outfitters Inc. has acquired a pair of logistics companies—AirTerra and Quiet Logistics Inc.—to help manage inventory between stores and e-commerce fulfillment and compete with larger companies in offering affordable same-day or next-day delivery. American Eagle also expects these logistics operations to be a revenue-generating business in their own right: Quiet has previously provided services to fitness-attire retailer Outdoor Voices, Birdies shoes, and other brands, according to its website. American Eagle paid $350 million for the business—its largest ever acquisition, Bloomberg data show.

Sherwin-Williams Co. announced in late September that it would acquire coating ingredients company Specialty Polymers Inc. to bring more of its supply chain in-house and reduce its reliance on manufacturers in the hurricane-prone Gulf region of North America. Specialty Polymers, which generated about $112 million in revenue in 2020, including sales to Sherwin-Williams, has production facilities in Oregon and South Carolina. "We're going to take the steps necessary to serve our customers and eliminate problems for them, and this is an important step in our ability to do that," Sherwin-Williams Chief Executive Officer John Morikis said on a call with investors. Chocolate giant Hershey Co. just announced it's buying Dot's Pretzels—a fast-growing brand with a cult following—but also Pretzels Inc., which manufacturers products for Dot's and other snack companies at three facilities in Indiana and Kansas. "Working in the global supply chain right now is incredibly difficult," Hershey CEO Michele Buck told the Wall Street Journal. "The ability to have a facility in-house just reduces one level of that complexity."

CEOs are betting that vertical integration of manufacturing and distribution operations will give them earlier insight into potential pain points and more flexibility to address them. The current crunch has exposed the vulnerabilities of overly globalized supply chains and also the risks of being dependent on someone else—wherever they might be located—to meet customer demand. One reason the semiconductor shortage was so crippling for the auto industry was that chip purchasing decisions were made deep into the supply chain. The end vehicle manufacturers didn't know there wasn't enough supply to support a production rebound until it was too late, David Simchi-Levi, a professor of engineering at the Massachusetts Institute of Technology who focuses on supply-chain management, said in an interview earlier this year. In a time when so many things feel unpredictable, companies are grabbing whatever control they can.
 
Sutherland is a columnist for Bloomberg Opinion.
 
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