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March 20, 2023 On The Record | Q&A

Three years after pandemic disrupted flow of goods and services, supply chains begin to ‘normalize’

PHOTO | CONTRIBUTED North Haven’s Ulbrich Stainless Steels & Special Metals Inc. sources about 75% of its materials in the U.S., but has been moving away from some of its suppliers in Asian countries in favor of companies in North America.
By Greg Bordonaro
Mary Rollman 
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Supply-chain issues have plagued many executives of Connecticut small, midsize and global manufacturers in recent years.

New Britain-based Stanley Black & Decker announced in July it would initiate a supply chain overhaul that would help generate $1.5 billion to $2 billion in savings over three years.

Mary Rollman

The tools and outdoor equipment manufacturer’s efforts include reducing inventory, closing manufacturing plants and standardizing product parts.

In a February earnings call with analysts, Stanley CEO and President Donald Allan Jr. also said the company had approximately 50,000 SKUs, or products, it was no longer manufacturing and approved for decommission.

“We activated our transformation with a sense of urgency to optimize our operations, which better serve our customers while also being efficient and agile with our footprint and cost structure,” Allan told investors.

Developers looking to add to Connecticut’s housing stock have experienced similar headaches. Numerous Greater Hartford apartment projects are being put on hold, taking longer to complete or have come in over budget amid higher materials costs and shipment delays, along with rising interest rates.

The topic has been so prevalent that UConn recently announced it would be launching a new global supply chain course as part of its remodeled MBA program. UConn also offers supply chain management as one of its core MBA concentrations.

And the state of Connecticut, in partnership with the Connecticut Business & Industry Association, recently launched a new online service — called CONNEX — that allows manufacturers and suppliers to more easily connect with each other to strengthen and grow their local supply chains.

All these activities are in response to a once-in-a-lifetime pandemic that disrupted the global flow of goods and services.

So, where does the supply chain crisis stand today, exactly three years after the COVID-19 virus led to initial lockdowns in the U.S.?

That’s one of the key questions recently posed to Mary Rollman, a principal and U.S. supply chain strategy practice leader at Big Four accounting and consulting firm KPMG, who has nearly 30 years of industry experience.

There is, finally, some good news, Rollman said in a recent interview with the Hartford Business Journal: Supply chains are starting to normalize, particularly the cost to transport goods into the United Sates, including from Asia.

Her comments came days before the New York Fed published a report earlier this month that also concluded “global supply chain conditions have returned to normal after experiencing temporary setbacks around the turn of the year.”

“While we won’t see that reflected in prices or the financials of an organization for another several months, the costs have gone down,” said Rollman, who has been with KPMG since 2018 and began her career working in the supply chain department of consumer packaged-goods company ConAgra Foods.

Rollman, who is now based in New England, also spent time at consulting firm Accenture and overseas in Brazil, Turkey, Russia and China where she was tasked with helping California biopharmaceutical company Amgen search for international partnerships.

She has a global view of supply chains, and in the pandemic’s wake, Rollman has been encouraging New England-based companies to re-evaluate their logistics networks, including inventory management, vertical integration (or moving more production processes in house) and onshore/nearshore/offshore manufacturing and distribution.

Rollman said none of the challenges most companies faced over the last few years were new, but “they were more intense and the frequency was much higher — things were happening all at once.”

As a result, “Every point in a company’s supply chain that had vulnerabilities was exposed.”

Here’s what else Rollman had to say. The Q&A was edited for length and clarity.

With supply chains starting to normalize, might that have other consequences?

A. Yes, so now what companies are dealing with is trying to figure out what to do with all of the inventory coming into the ports that was ordered a year ago. They are asking ‘Do we still need it? Do we not need it?’

I was in a recent meeting with a range of different industries represented and almost every retailer had the same message, which was they are sitting on a lot of inventory. It’s inventory that they generally don’t need anymore and so they’re going to have to discount it in order to sell it.

So that’s a new problem.

What are you seeing with manufacturers?

A. I think they have a few different issues and it really depends on their supply chain network.

In an effort to reduce their costs, manufacturers over several decades have become much more dependent on trading partners outside of their control and outside the country. And obviously those connections got exposed throughout the pandemic and that continues to be a challenge.

Manufacturers have muscled their way through the last couple of years trying to find new supply sources. Now that they’re coming up for air, I have constant conversations around the strategy, and whether or not their network needs to be rethought.

Should they rethink their manufacturing strategy in terms of moving everything to a closer location? That depends on a company’s portfolio of products and the characteristics of their customer base.

For some companies, the right choice may be to have their manufacturing onshore because they need to have full control.

For other companies it might be rethinking how much inventory they need, or changing their manufacturing approach like shifting final assembly to the U.S.

You mentioned that recent data from brokerage firm Colliers International indicated there are over 200 warehouse facilities currently being built in the U.S. with at least 1 million square feet of space. What does that tell you about how companies might be thinking about their supply chains?

A. Demand for commercial real estate for warehousing is massive, which indicates companies will be holding more inventory onshore post pandemic.

These facilities are also being designed to be fully automated, to address the talent shortage that we have. As companies hold more inventory they will also be relying more on automation to manage it.

We’ve heard a lot about the reshoring trend — bringing manufacturing back to the U.S. Is it real, or an overhyped concept?

A. There’s always a question about bringing manufacturing back into the United States. Generally it is hard to create a business case for that without some form of government incentive.

The operating costs of a manufacturing facility in the United States are massive in comparison to many other locations.

But there are options for more nearshoring, (or moving parts of the supply chain closer to the U.S.). I have one client that has built a manufacturing facility in Puerto Rico. They typically have always done manufacturing in Asia, but now they’re transferring the manufacturing processes to Puerto Rico.

Mexico is an option, but I’ve seen a lot of recent movement a little bit further into Central America. Places like Honduras are popping up as sources of manufacturing capability.

It really boils down to what makes sense for the business at the right cost and right quality.

What about developers and construction? A lot of local apartment projects have been delayed and have longer lead times because of various materials shortages. Are those issues getting better?

A. A lot of materials for building a home now come in from Asia. Vietnam comes to mind when it comes to some of the wood and products like that, that we need.

Those still have very lengthy lead times and I have not seen those come down.

When do you expect to see pricing come back in line and inflation easing?

A. There will be a lag, a pretty decent lag.

We’re starting to see some of the costs normalize, but I still hear every CEO talking about how the supply chain continues to be a burden on their financials, which says we’re not there yet.

We’re probably still at least a good year out before we’re going to start seeing some of that making its way through.

What about technology investment? Where are companies investing in terms of technology to improve supply chain management?

A. The greatest challenge companies are facing right now is typically with their forecasts, which really drove a lot of decision making around supply chain.

Forecasts are created off of history, but that data isn’t great right now and so the forecast accuracy is probably going to be challenged for a period of time.

I’m seeing some investment in more advanced analytical capabilities that try to predict demand by using different variables besides history.

I’m also seeing that companies are bringing in more data scientists.

Companies are also investing more in transportation and warehouse management software to reduce costs.

Mary Rollman

Principal, U.S. Supply Chain Strategy Practice Leader

KPMG

Education: Bachelor’s degree, Briar Cliff University, Sioux City, Iowa; Supply Chain Executive Leadership Program, Georgia Institute of Technology

Age: 50

 

 

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