The SPS Check-in is back for a 10th episode. Vice President of Operations Coleson Chase interviews Director of Procurement Matt Penn about recent upsets to the supply chain. They discuss current supply chain challenges for our supplier partners as well as ways in which SPS is mitigating these challenges for customers.
The following includes a lightly edited transcript of their conversation:
Coleson: Welcome to The SPS Check-in. My name is Coleson Chase and joining me today is my colleague, Matt Penn. Matt, could you tell us a little about yourself?
Matt: I've been with SPS in various roles for about 12 years, now as Director of Procurement. My department’s job is to work with supplier partners to ensure we have the right mix of inventory available so our customers can quickly get products to their patients.
Coleson: All right, so you kind of touched on my next question: inventory. We’ve noticed many supply chain challenges, especially back orders from our suppliers who are struggling to keep up with demand. What are you seeing and hearing from suppliers?
Matt: Backorders are caused by four things: raw materials, transportation, staffing, and capacity. Right now, suppliers are dealing with all of those challenges at once.
In February, we had the deep freeze in Texas that shut down a lot of manufacturers of chemicals, resins and plastics. The deep freeze caused a great deal of inventory volatility and pricing volatility on key components used in products.
We are also seeing a lot of staffing shortages, both with our supplier partners and their manufacturers. This makes it difficult to ship orders and produce products in a timely manner.
COVID is still causing issues in countries around the world. Vietnam, where a lot of our shoes are produced, is being impacted especially hard by the pandemic. Because of new quarantine measures, they have had to shut down some manufacturing. We continue to see challenges in those areas and we’re working with supplier partners to get as much inventory on our shelves as possible.
Coleson: Clearly it’s a tough time out there. How long do we expect this to continue? What can our customers expect?
Matt: Most domestic suppliers are seeing staffing improvements. Staffing is going to help capacity as they're able to start producing to the typical levels. We continue to see raw material challenges, especially with plastic and resins. We're going to continue to see challenges from international sources like China, Vietnam, and other countries who haven't been able to get their workforce back to work at the same rate as the US.
Coleson: What about supplier transit times? As we’re able to get products manufactured, shipments are taking longer to get to the warehouses, especially from overseas. What's going on there?
Matt: Most companies are having to reserve containers three to four weeks in advance to get their product on a ship. In years past, this could be accomplished within a couple of days. When ships arrive at US ports, they are sitting there for 10 to 14 days. It’s an improvement from where we were last year, but it’s still longer than normal. In addition to lengthier transit time, we're seeing the cost of shipments go up exponentially by 400 - 500%. That’s probably going to continue through next year. It's been an enormous challenge for our supplier partners.
Coleson: At the end of the day, what are we doing about this? How are we going to help our customers navigate these supplier shortages and ongoing backorder situations?
Matt: We believe the key is communication. We've been working with our supplier partners over the last few weeks to understand where the extended back orders are. We're working with internal teams to get that information posted online so when customers go to the product page, there will be a note above the ‘Add to Cart’ to indicate transit time or potential backorder time if there's an issue with that particular product.
We're also working to provide product suggestions for items a customer normally buys that is out of stock and has extended backorder times. You will be able to see those suggestions on the product page to the right of the screen under the header ‘Also Consider.’
Coleson: That sounds great. What about SKU counts?
Matt: One of the great benefits of the new facility is we're able to double our SKU count. At the old Alpharetta building, we had about 15,000 unique SKUs. By the end of 2021, we will have over 40,000+ SKUs in the new distribution center. We can also control our inventory levels better with the new Warehouse Management System as we work with suppliers to carry extra safety stock in our distribution centers. Ultimately, customers will receive products in one package rather than three or four packages that arrive via dropships. In addition, customers have real-time inventory visibility on our website, so they're always going to know if a product can ship the same day.
Coleson: It sounds like we are working to mitigate the effects of these backorders for our customers by working closely with suppliers, increasing the communication to our customers, adding functionality to the website, and adding more SKUs in the distribution center. Sounds like it's keeping your team pretty busy!
Matt: It certainly is. Our goal is to make sure our customers are getting the products they need. There have been unique challenges in the last 12-18 months, but we have rose to the challenge and continue to do so.
Coleson: Thank you, Matt, and thanks to your team for everything they’re doing to navigate us through these challenging times.
That’s about all the time we have for today. Thanks for sharing with us, Matt.
Matt: Thanks for having me.
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