US producers opt for less efficiency to deal with supply shortages

US manufacturers are finding that their main weapon in fighting supply chain tangles is greater inefficiency.

Industrial companies that have released results in recent weeks have described the steps they have taken — from procuring trucks to transport their own products to building goods that sit on the factory floor waiting for missing semiconductors — to deal with delays and the shortages that have been chasing them since the last year.

“We want to optimize our supply chain as much as possible,” said John Morikis, chief executive of Sherwin Williams Co, describing to analysts last month how the Cleveland paint maker started using its own trucks — a much more expensive route than use third-party services — to bypass bottlenecks in transportation systems.

Morikis admitted that this is “less efficient” but necessary to meet growing demand. Over time, he said, “efficiency is expected to work again.”

There are few signs that this will happen anytime soon. A recent study by the Royal Bank of Canada found that one-fifth of the global container fleet is stuck in congestion at ports around the world.

The report said supply chain problems appear to be worsening as Covid-19 lockdowns in China expand and Russia’s invasion of Ukraine disrupts trade flows.

Currently, shipping products from a warehouse in China to a facility in the United States takes 74 days longer than usual before the pandemic, according to the report.

For decades, manufacturers struggled to develop long supply lines that spanned the entire world, often targeting the cheapest sources of goods, particularly in China and elsewhere in Asia.

The search for low-cost sources became a fundamental part of “just-in-time” systems, in which companies kept only the minimum inventory available to feed current production and emphasized flexible supply contracts and economies of scale.

“I don’t think we’re going to completely abandon supply chains,” said Cliff Waldman, chief executive of New World Economics, an economic analysis firm that studies manufacturing trends. There are many benefits to these global networks, he said.

“We want efficiency, because greater efficiency means lower cost,” he said. “But companies don’t want efficiency at the expense of excessive risk.”