Our June Webinar “Changing Trends in Counterfeit and Nonconforming Reported Parts in the Electronics Supply Chain,” presented by Mr. Richard Smith, VP-Business Development from ERAI Corporation, discussed on-going issues with counterfeit materials in the supply chain.[1] One point I found especially interesting was his discussion on how current parts shortages led to increased counterfeiting.

Richard explained that when manufacturers are unable to source through normal suppliers, they’ll turn to alternate, poorly vetted, sources. These “alternate sources” are too-often counterfeiters moving fake or poor-quality material. The material then ripples down through the supply chain and, if not identified, turns up in end-items. Richard explained how counterfeiting is a growing problem in a number of industries.

I see the issue of counterfeit parts to be a symptom of a larger issue; the increasingly more frequent disruptions in supply chains caused by natural disasters.

The Pandemic Shortages

One of the current significant shortages are specialty computer chips needed by auto manufacturers, which is causing manufacturing delays of current-year models. The shortage of automotive computer chips is just the latest manifestation of supply chain disruptions in the age of the pandemic.

A study published by John Hopkins Bloomberg School of Public Health, in November 2020, titled “The Pandemic and the Supply Chain Addressing Gaps in Pharmaceutical Production and Distribution” identified serious shortages in the pharmaceutical supply chain. The report identified that shortages were driven by production issues, and more significantly by sudden unplanned increases in demand. The twin causes of production issues and sudden unplanned increases in demand seems to echo through many supply chain disruptions.

We’ve been experiencing various spot disruptions of key items since the beginning of the COVID-19 spread, with the earliest being medical face masks in January 2019. During the peak of the pandemic crisis in Spring 2020, we experienced critical shortages of all medical supplies. Additionally, we also had short-term issues with consumer products, such as the infamous toilet paper and hand sanitizer shortages. Other short-term consumer product shortages have popped up throughout the past year

Last summer my wife and I decided to buy a small chest-style freezer. We apparently were one of thousands of people having the same idea at the same time. The local appliance outlets were sold out, with none expected for several months. Prices on online outlets were doubled over prices just a few months earlier. Several months later, prices and availability were back to normal.

An Era of Disasters

The pharmaceutical production issues noted by John Hopkins may have roots in a previous disaster. When Hurricane Maria wiped out Puerto Rico in 2017 eighty pharmaceutical manufacturing plants were put out-of-service; the world’s fifth largest concentration of pharmaceutical manufacturing. The loss of those plants had the cascading effect of further concentrating pharmaceutical manufacturing centers, setting up the world for more intense future shortages.

Hurricane Katrina

Hurricane Maria was just one of the localized disasters we’ve experienced over the past 20 years. The 2005 Hurricane Katrina now seems like a prelude of things to come. I happen to have personal knowledge of Hurricane Katrina as I was living on the Mississippi Gulf Coast at the time. I lived the impact of wide-scale destruction caused by high winds and massive flooding, which caused cascading loss of supply chain elements normally taken for granted.

Supply Chain Impacts

The immediate impact was loss of power. Widescale loss of power meant perishable supplies – food and medicines – could not be stored. Loss of power also caused shortages of potable water, in southern Mississippi in September when temperatures were in the 90’s. Without power, fueling stations could not operate so fuel for emergency generators (needed for emergency power) was in short supply. Fuel shortages also hampered vehicle operations needed to transport emergency fuel, water, and supplies.

Compounding the losses of power, fuel, water, and supplies was the loss of habitable buildings both commercial and residential. With shortages of power, fuel, water, supplies, and shelter, people moved away, which meant the local workers needed for recovery were gone.

Huntington Ingalls Industry (HII) Pascagoula shipyard was short twenty-five percent of their skilled workforce two months after the storm. Local contractors were offering salaries as much as fifty percent above pre-storm levels for skilled workers needed to rebuild the behemoth Biloxi casinos. This in turn drew workers from at least as far away as Illinois, effectively emptying the Midwest of skilled labor.

Planning for Disaster

I would expect the same supply chain issues in other recent disasters, including the 2012 Superstorm Sandy, the 2018 Hurricane Michael, and the 2018 California wildfires. My point is to illustrate the need for preparedness in supply chain management. In an era when local and global disasters appear ever-more common, what are your plans for the next major disruption?

Can your supply chain management strategy compensate for several-month’s shortage of a key component? Compensate for shortages of several key components? How do you maintain the quality of your products knowing that there are companies only too willing to provide counterfeit material during supply shortages? What would an unplanned weeks-long shutdown do to your customers and suppliers? If your company suddenly lost twenty-five percent of your skilled workforce, how would you compensate?

Please feel free to share your thoughts and insights on our forums, open to all CLEP members.

  1. CLEP hosts monthly webinars on logistics topics free and open to the public. Webinars are recorded and archived on our website, but archives are only available to CLEP members.

Edited: November 14, 2021