What can retailers learn from tesla's supply chain?

Text/Greg Petro

The supply chain impasse is a once-in-a-century management crisis that no company can anticipate, let alone prepare. But some companies do do to some extent.

Image source: Tesla

In the Super Retailer category, Walmart is implementing a decades-long program to make more of its products purchased closer to home, now in its ninth year. The company initially pledged to buy $50 billion worth of U.S.-made products. Last year, Walmart announced plans to inject another $350 billion into U.S. manufacturing over the next 10 years, in part because 85 percent of the company's customers "say it's important for retailers to sell products made or assembled in the U.S."

At the other end of this phenomenon is Taylor Guitar, a leading acoustic guitar manufacturer. The company has said it was able to maintain production during the pandemic because it has built up a deep inventory of the special wood it uses, which can only be found in overseas forests and must be harvested in a sustainable way.

Perhaps the most noteworthy company for the retail industry is the electric car company Tesla.

As the New York Times recently reported, Tesla recorded a string of record quarterly sales when General Motors and Ford closed their factories due to shortages of computer chips. Last year, the company's car sales doubled in 2020.

Prior to the covid-19 outbreak, analysts were skeptical about the company's founder Elon Musk's goal of letting the company "do more on its own," according to the New York Times. When the pandemic hit, Tesla also couldn't get the chips it needed, "and it took the chips available and rewrote the software that operated those chips to meet its own needs." "Big automotive companies can't do that because their software and computing expertise is mostly dependent on external vendors."

The pandemic caught most retailers off guard, as the industry's common practice, spurred by Amazon's relentless price war, is to focus on the lowest possible costs and inventories.

Brian Higgins, head of supply chain and operations in the U.S. at KPMG, said in a recent interview with The Financial Post: "Many of the supply chain operating models we see today have been broken, and they are all built on universal truths from 20 years ago. These truths, he said, "create long and fragile supply chains."

COVID-19 isn't the first time supply chain vulnerabilities have been exposed. The last time was during the economic downturn triggered by the 2008 financial crisis , the great collapse in asset values — that lasted for several years. The problem at the time was not port congestion, but the effects of financial instability among suppliers.

Finding suppliers domestically and offshore is the third-year trend in the COVID-19 era.

But it's not just a matter of transport distance. The key word now should be cooperation. In a crisis, companies that partner with suppliers and encourage transparency will find that they have the influence and goodwill they have when it comes to selecting resources on a cost-based basis on the other side of the world.

There is evidence that private label sourcing in the retail industry has become an independent issue for managers. In a recent column on the Wall Street Journal website, Michael Taylor, president of private label consultancy Daymon, said his firm surveyed retailers in the U.S. and found that "those retailers with long-term relationships with suppliers outperform their competitors ... Even in times of difficult distribution. ”

Everyone plans to fix this, but the problem remains, as predicted by the supply chain disruption data we recently collected from retail executives. According to consulting giant McKinsey, empty talk outweighs actual actions. The company surveyed supply chain executives from different industries and geographies in 2020 and found that 93 percent said they intend to "make their supply chains more flexible, agile and resilient." A year later, McKinsey reported, "Only 15 percent of companies began structural reforms." ”

Greg Petro is a Forbes contributor and expresses opinions on behalf of individuals only. Translated by Stephen