Let’s rewind to a year ago, to February 2020. If I told you then that a consumer product as common and simple as a bicycle would have delivery times that would jump from an average of three months to an expected nine to 18 months over the next year, with a price increase, I think most folks would say, “That’s impossible.”
And yet, that is exactly where we are right now.
Over this past year, I have done over 30 webinar presentations covering how a combination of poor timing on COVID lockdowns, global macroeconomics and a series of decades-long mounting pressures within China have been contributing to an unprecedented fracturing of the global supply chain. We haven’t felt the effects as much in the United States because we have been suffering with our own economic slowdown but, at long last, reality is starting to come to our shores.
Commencal, one of the leading global marquee bike manufacturers, recently announced that, due to supply chain issues on saddles, tires, suspension and transmission components manufactured in Asia, it would now have order lead time increased from three months to nine to 18 months. Further, shipping those components has now extended from three weeks to three months due to lack of capacity and traffic jams at the Panama Canal. If that wasn’t enough, the falling dollar throughout the world due to the economic impact of COVID-related shutdowns means all these components are dramatically more expensive.
What this translates into is that a product as straightforward as a bicycle may have a 600 percent increase in lead times for order, a 400 percent increase in shipping duration and cost significantly more than it did in February 2020.
Perhaps you don’t ride a bicycle, so this doesn’t mean much to you. But think about how many American businesses rely on subcomponents from Asian suppliers, components that may be small in financial value but are incorporated into much larger, more complex and expensive devices that they offer for sale. What does it mean to U.S. business?
Consider also just how many American businesses have narrowed their supply chains and may be utterly reliant on a single source manufacturer in Asia for these components. Moreover, these single sources may be suffering from a poorly trained workforce as employment patterns are dramatically changing in China, and they may also be experiencing capital starvation as the working capital necessary for maintenance, training and expansion just isn’t there.
What happens when those suppliers end up like those manufacturing components for bicycles or, even worse, simply go under without any notice whatsoever to their U.S. customers?
If it happens to you, like Commencal, don’t say you weren’t warned. Take steps immediately to lessen the escalating risks resulting from the fracturing global supply chain. Doing nothing will threaten the viability of many businesses reliant on third-party suppliers.
In my next article, I will cover the five essential steps I recommend to all clients facing this threat.
David Iwinski Jr. is managing director at Blue Water Growth