Thanks to Joel Meek, law student at Mississippi College School of Law and Summer Associate in our Ridgeland office, Summer 2023, for his contributions to this article.
I. Introduction
What is the “Golden Screw” and what does it have to do with current supply chain issues?
The “Golden Screw” refers to an essential part in a product which is difficult to procure, and which, if missing, prevents completion of the product. In other words, it is that unavailable small screw, manufactured by a separate company, which halts the production of a larger product, whether a power drill, an automobile, or a forklift.
Today’s global supply chain is highly complex, delicate and rapidly shifting. A company’s success depends on its flexibility and adaptability in dealing with supply chain issues, so that a missing Golden Screw does not bring the company’s production to a screeching halt.
II. Identifying the Component
Identifying essential but potentially unavailable components is not always predictable. Companies must carefully consider which stressors on the supply chain can arise at different stages of production. Solutions will vary from company to company because supply chain issues have a variety of underlying causes.
As companies seek to perfect their supply chains and prevent a Golden Screw from stopping progress, they must proactively tailor their processes and assess their entire supply chain in order to maintain reliable supplies of necessary components, while producing products at the speed required by customer demand.
In determining how to create impenetrable supply chains, companies must gauge material scarcity, labor shortages, freight cost and availability, port congestion and changing consumer attitudes. Only then can companies accurately determine how to diversify suppliers, production capabilities and transportation processes, as well as find alternative materials and create nontraditional partnerships.[1]
In addition to being proactive in fortifying supply chain processes, companies must be reactive in responding to various pressures and demands placed on their supply chains. A company’s ability to be reactive is seen through its responsiveness and resilience when dealing with supply chain disruptions.[2]
III. Responsiveness and Resilience in Supply Chains
Responsiveness and resilience in the supply chain are defined as:
Responsiveness: The ability of a supply chain to respond purposefully within an appropriate time frame to customer requests or supply changes in the marketplace.[3] Responsiveness can include volume flexibility, variety flexibility, product/service modification flexibility, new product flexibility, etc. Ways to improve responsiveness include “signing flexible contracts with suppliers, forecasting the trend of future demand and supply, conducting multi-source procurement, making centralized decision-making, and investing in digital technologies.”[4]
Resilience: The ability to mitigate the negative effects of a supply chain disruption, as well as rapidly accommodate and react to such a disruption.[5] This generally refers to the ability to absorb or cushion against damage or loss, as well as the ability to recover rapidly from a disruption.[6] Resilience focuses more on providing a dynamic response system to aid in maintaining growth in the face of external disruptions.[7] Resiliency occurs when a company focuses on stability, agility, robustness, collaboration, redundancy, centralization, visibility, and information sharing.[8]
An example of responsiveness was seen when companies responded quickly to the sudden need for life-saving products (e.g., face masks, face shields, disinfectants) during the COVID-19 pandemic. Likewise, companies showed resilience by allowing employees to have flexible schedules and work from home using technologies such as Zoom.
In assessing both responsiveness and resiliency, the reactive tenacity of a company can truly be tested when a missing Golden Screw disrupts or halts production. When such a disruption occurs, the company’s responsiveness is shown by how quickly it adapts to the situation. Depending on the financial strength of a particular company, the time and effort spent coping with a supply chain disruption can be fatal.
Likewise, the company’s resiliency is vital. Minimizing the impact of such a disruption can avoid derailment of the entire operation. A company’s resiliency allows it to adjust when a disruption occurs, enabling the company to have time to create an avenue through which it can contend with the disruption, while planning to mitigate the potential for more unforeseen risks in the future.
Numerous occurrences can disrupt a supply chain and impact a company’s success. Companies must understand the impact of supply chain issues and mitigate those issues. They must also be able to anticipate problems that could arise in the future. A company must take the necessary steps to ensure those problems can be solved should they materialize. Again, many potential complications such as material scarcity, labor shortages, freight cost and availability, port congestion and even changing consumer attitudes, amongst other things, can present themselves to cause hiccups in a functioning supply chain.
IV. Addressing Responsiveness and Resilience in Companies
Varying methods can be used to address supply chain problems. For example, if there is a specific item or component that could become difficult to acquire, creating a stockpile of those items is prudent. Developing the ability to use alternate components or varying materials extends a company’s flexibility to endure the limited availability of necessary parts. A focus on alternative components can prevent the devastation of a missing Golden Screw and facilitate continued operations while other companies are struggling.
Logistical disruptions involving shipping, customs and the like pose additional problems separate and apart from production issues and the availability of parts and materials.[9] Even if a particular part is available, that does not mean a company can access it. With global issues, such as COVID-19, interruptions arise beyond just the necessary parts being manufactured. Supply chain issues can stem from freight problems such as the closure of major global ports and airports.[10] These issues can create a snowball effect because major backlogs can arise following these closures. In addition to the methods of avoiding reliance on a Golden Screw addressed above, there are methods manufacturers can employ to overcome supply chain breakdowns. The prevention of backlogs necessitates adopting methods to cope with these unpredictable issues to ensure continued success. Partnering with a freight forwarder (i.e., an intermediary between the company which makes the shipment and the final destination for the goods) aids in managing and tracking the shipment of goods.[11] These relationships allow companies to benefit from the extensive knowledge freight forwarders possess; they can arrange the entire process of shippers and negotiate for the best prices and routes.[12] The use of a freight forwarder can allow expert involvement, which could prevent the absence of a Golden Screw from hindering the entire supply chain.
A. Liquidity
Keeping liquidity within the business is a cornerstone in combatting supply chain issues.[13] Access to money allows companies to pay suppliers “cash” during challenging times, rather than relying on credit arrangements or other financing. Liquidity also assists companies in coping with increased freight costs as backlogs occur. Companies which have not put themselves in a financially viable position will not be able to do the same. Companies with deeper pockets can weather the storm thanks to their financial planning. Suppliers will favor the companies with financial resources available because they know they will be compensated. Such liquidity gives companies financial flexibility to receive priority treatment and come out ahead once the supply chain issues are resolved.
B. Demand Forecasting
A focus on demand forecasting can be quite valuable in preventing problems from materializing throughout the supply chain.[14] Demand forecasting, however, can be much easier said than done. Looking at historic trends assists in estimating what future demand will be. The more historical data, the greater the ability to gauge future demand. Having seen what tendencies look like in varying economic situations enables more precise formulations of future demand. Forecasting allows a company to source what is necessary to ensure that demand expectations are met. Simple steps such as keeping enough safety stock (i.e., an extra quantity of product stored in a warehouse to prevent an out-of-stock situation) enable a company to meet demand and be prepared for demand increases. Use of safety stockpiles will vary, but material surpluses protect a company when it has under-forecasted demand.
C. Diversify Sourcing
The ability to diversify sourcing within the supply chain can keep a company from running aground due to the unavailability of a Golden Screw.[15] When a company can acquire parts from multiple suppliers, it creates leverage in negotiating purchase terms. Having multiple supplier relationships is better than reliance on a single supplier. The overreliance on a limited number of third parties precludes a company from having the supply chain resilience that is fundamental to ongoing success.[16] The expected outcomes include a stronger and more flexible supply chain with greater potential for risk and cost mitigation in the future.[17] Versatility in the diversification of suppliers can prove to be the difference in a company surviving an economic downturn that disturbs supply chain flow.
D. Developing/Utilizing Manufacturing Facilities
Companies can develop their own manufacturing facilities to eliminate reliance on third party suppliers. Of course, there can be financial barriers to creating such facilities. However, the ability to manufacture in-house even a portion of the components that are prone to availability issues can substantially improve the company’s position. Private facilities can ultimately save a company money and enable it to expedite the acquisition of the Golden Screw. Companies can also utilize their manufacturing facilities to supply the needs of others, which may support the growth of the company.
E. Investment in Technologies
Technological improvements aid companies by strengthening their supply chains.[18] Companies that do not implement modern technological strategies can struggle to compete. Advancements in technology can enable automation of the supply chain, including in warehouses and manufacturing facilities.[19] Currently, artificial intelligence is used to aid in analytics, such as demand forecasting. Artificial intelligence can, and will likely, be used in providing more visibility of the entire supply chain.[20] In other words, as the number of connections and companies/participants within the extended supply chain continues to grow, a company’s visibility (e.g., the ability to track different goods and/or products in transit) is becoming more and more difficult. Thus, leading organizations are beginning to use artificial intelligence and other advanced technologies to better track goods in transit and likewise are becoming far more responsive to major disruption and variability within their domestic, regional and global supply chains.
Due to the sheer size of some supply chains, it can be easy for various aspects to get overlooked. Overlooking sections of the supply chain can quickly create a Golden Screw situation. The use and development of modern technology improves the necessary supply chain visibility and enables efficient responses to disruptions throughout the supply chain.[21]
V. Necessary Labor in Workforce
Another issue companies face centers on the workforce and having the necessary labor to continue operations.[22] COVID-19 sparked a major shift in the global work atmosphere. During COVID-19, people reassessed their needs, desires and preferences regarding the work they do, the environment they seek to work in and the compensation they desire. Companies must adapt to these modern workforce trends in order to remain viable. Adaptation starts with creating a desirable work environment. People will quickly begin to find other employment opportunities when their current work environment is toxic, stagnant or just unsatisfactory.
A company must also be able to assess modern demographics, specifically, to include a focus on Generation Z. Members of this generation are increasingly part of the workforce, and companies must implement the necessary recruiting and engagement strategies tailored toward their hiring.[23] While every generation of Americans is unique in the way it thinks and approaches life, today’s companies, if they wish to succeed, must understand and successfully recruit members of the younger generation. Successful strategies include remote work, multiple means of digital communications and emphasizing a healthy work/life balance.
Even though employees are people and not component parts, sometimes it is an individual employee who can be the missing Golden Screw. Put another way, undervaluing employees can quickly create gaping holes in an organization. Retention issues can arise when skilled employees do not desire to stay with the company and seek employment elsewhere. Undervaluing employees also hurts recruiting when it becomes perceived that the company does not value their employees. Likewise, people do not perform their best when their work is not valued. To have the “personnel component” satisfied, companies must create and maintain a desirable work environment. Finding the Golden Screw will not matter if the company lacks the workforce needed to manufacture the product and get it to market.
VI. Conclusion
A Golden Screw may be a small piece in a large, finished product, but a missing piece can cripple production: “For want of a nail, the kingdom was lost.” Accordingly, a company must continually assess its supply chain process in its entirety.
[1] Top 10 Supply Chain Trends 2023, Association for Supply Chain Management (ASCM), https://www.ascm.org/making-an-impact/research/top-supply-chain-trends-in-2023/.
[2] Xiang Li, Xiande Zhao, Hua L. Lee & Chris Voss, Building Responsive and Resilient Supply Chains: Lessons from the COVID-19 Disruption, ASCM Journal of Operations Management (Apr. 14, 2023), https://onlinelibrary.wiley.com/doi/full/10.1002/joom.1250.
[3] Mansoor Shekarian, Seyed Vahid Reza Nooraie & Major Mellat Parast, An Examination of the Impact of Flexibility and Agility on Mitigating Supply Chain Disruptions, (2020), https://www.sciencedirect.com/science/article/abs/pii/S0925527319302488.
[4] Li, et al., supra note 2.
[5] Yusoon Kim, Yi-Su Chen & Kevin Linderman, Supply Network Disruption and Resilience: A Network Structural Perspective, ASCM Journal of Operations Management, (Oct. 27, 2014), https://onlinelibrary.wiley.com/doi/10.1016/j.jom.2014.10.006.
[6] Manpreet Hora & Robert D. Klassen, Learning from Others’ Misfortune: Factors Influencing Knowledge Acquisition to Reduce Operational Risk, ASCM Journal of Operations Management (June 28, 2012), https://onlinelibrary.wiley.com/doi/10.1016/j.jom.2012.06.004.
[7] Li, et al, supra note 2.
[8] Seyedmohsen Hosseini, Dmitry Ivanov, & Alexandre Dolgui, Review of Quantitative Methods for Supply Chain Resilience Analysis, Science Direct, (Mar. 22, 2019) https://www.sciencedirect.com/science/article/abs/pii/S1366554518313589?via%3Dihub.
[9] Six Key Trends Impacting Global Supply Chains in 2022. KPMG (2022), https://kpmg.com/xx/en/home/insights/2021/12/six-key-trends-impacting-global-supply-chains-in-2022.html#:~:text=Driver%20shortages%2C%20logistics%20provider%20capacity,dominated%20discussions%20and%20required%20attention.
[11] Ashley Brown, Supply Chain Challenges in 2023 & How to Overcome Them, Extensiv (Mar. 17, 2022). https://www.extensiv.com/blog/supply-chain-management/challenges.
[12] Id.
[13] Id.
[14] Cesar Brea, Sanjin Bicanic, Yue Li & Shweta Bhardwaj Predicting Consumer Demand in an Unpredictable World, Harvard Business Review (Nov. 26, 2020), https://hbr.org/2020/11/predicting-consumer-demand-in-an-unpredictable-world.
[15] See Sarah Hippold, Diversifying Global Supply Chains for Resilience, Gartner, (Feb. 4, 2021), https://www.gartner.com/smarterwithgartner/diversifying-global-supply-chains-for-resilience.
[16] Scott Lang & Ben Jones, Managing Supply Chain Concentration Risk: 4 Strategies to Increase Resilience, Prevalent, (May 22, 2023), https://www.prevalent.net/blog/supply-chain-concentration-risk/.
[17] Id.
[18] Ultimate Guide to Technologies That Are Transforming Supply Chains, 6 River Systems, (Jan. 18, 2023), https://6river.com/ultimate-guide-to-technologies-that-are-transforming-supply-chains/.
[19] Id.
[20]Id.
[21] Lang, et al., supra note 16.
[22] Six Key Trends Impacting Global Supply Chains in 2022, supra note 9.
[23] Jenny Fernandez, Kathryn Landis & Julie Lee, Helping Gen Z Employees Find Their Place at Work, Harvard Business Review, (Jan. 18, 2023), https://hbr.org/2023/01/helping-gen-z-employees-find-their-place-at-work.
