Despite the world’s ongoing economic recovery from the coronavirus pandemic, global supply chain bottlenecks have caused record shortages of many products consumers are used to having readily available—from household goods to electronics to automobiles. But for many consumers, the question remains: “What happened and when will it end?”
What Is a Supply Chain?
Generally speaking, a supply chain is a network between a company and its suppliers that produces and distributes a particular product to the final consumer. Activities, individuals, firms, information, and resources are all found within this network. It is also important to understand that the supply chain also represents the process by which a product or service is brought from its “original state” to the customer.
There are a series of steps involved in getting a product or service to the customer through a supply chain. The process consists of moving and transforming raw materials into finished products, transporting those products across the globe, and distributing them to waiting consumers. Among the entities involved in the supply chain are producers, vendors, warehouses, transportation companies, distribution centers, and retailers.
In order to remain competitive, companies develop sophisticated supply chains to reduce their costs, therefore, an optimized supply chain should result in lower costs and a faster production cycle, which is why supply chain management is so essential.
When Did the Supply Chain Issue Start?
As you know, in March of 2020, the entire world entered lockdown. Many people found themselves working from home and taking on the position of teacher to their children. Dining rooms became offices, and kitchen tables became classrooms. Shortly into the pandemic, families began buying proper office furniture and outfitting playrooms as classrooms—ramping up sales in areas such as home goods and furnishing. In addition, lumber and related do-it-yourself (DIY) industry sales started to skyrocket as eager DIYers began tackling their long awaited “honey do lists,” or simply found that with surplus time on their hands, they could now tackle other home projects they had been putting off for another time.
And with that, consumer purchases flooded the system, wreaking havoc on the supply chain due to timing and quantity. As a result, factories whose production schedules tended to be predictable began to ramp up to meet the surge in demand, but to no avail. So, why didn’t factories that were open produce more goods?
Why Can’t Factories Just Make More?
They answer to this is not that simple. Global workers, who are critical parts of the supply chain—those working in factories, at loading docks, or driving trucks—were forced to stay home in the beginning of the pandemic. The result? Factories in large industrial countries like China, South Korea, and Germany (to name a few) shut down.
The ripple effect then extended into the shipping industry, where we saw reduced schedules in anticipation of a significant drop in demand. We all know now that this was unfortunately not the case. According to Peter Goodman of the New York Times, “This proved to be a terrible decision.” This is what happens when we follow analysts who were making incorrect recommendations about the way the pandemic would unfold.
This, along with the increasing number of workers who did not return to their jobs once businesses started to reopen, coupled with those quitting jobs (the great resignation) that were vital to keeping things running smoothly, choked the once well-oiled machine that was the pre-pandemic supply chain.
Look at the United States for example. In August 2021, 4.3 million Americans quit their jobs—the highest number since the Department of Labor began tracking this data in 2000. While retailers are increasing wages to keep up with concerns around inflation, they are also now forced to come up with creative ways to glean talent and workers from their competition. Warehouse employers such as Walmart, Target, and Amazon were offering attractive benefits, including free college tuition, to attract workers ahead of the 2021 busy holiday season.
Where Are All the Ships?
Plain and simple, ocean freight is suffering from massive delays and increased prices. In a “perfect storm” of sorts, we how have peak shipping season running into a significant labor shortage, not to mention natural disasters like floods, wildfires, typhoons, and tornadoes, which have all aided in the reduction of supply chain capacity.
Due to labor shortages, congestion at major marine ports, a lack of space on vessels, and restricted amounts of available containers, ocean freight is facing unprecedented delays and higher rates. In addition, more fleet capacity is needed to move the same amount of cargo, resulting in longer delays as container ships spend more time waiting in ports like the Port of Los Angeles and the Port of Yantian, due to lack of skilled labor. Now, toss in the delta and omicron variant that led to countries restricting or completely closing off land access, this situation could potentially happen again. The result? Sailors stranded at sea and captains unable to staff a ship or rotate crews. To state we are experiencing a global supply chain crisis is the only point of accuracy you can allude to here.
What Items Are in Short Supply?
Record shortages of food, household products, electronics, paint, and raw materials such as plastics, lumber, and cardboard have been caused by supply chain bottlenecks. “At this point, shortages are guaranteed,” said Jonathan Gold, vice president of supply chain policy at the National Retail Federation. “We’ve been warning consumers to manage their expectations for the holiday shopping season (and beyond) for months now. The fact of the matter is the supply chain is stretched to its limit from end-to-end.”
And the demand for product is not slowing down. According to Gold, demand grew so rapidly in the past two years of the pandemic that it is the equivalent of almost fifty million new Americans joining the economy. Since there are fewer workers to process goods, shipping yards and warehouses are running out of space, making it increasingly difficult to organize and get goods to their final destinations—consumers. This includes goods that have expiration dates.
“All parts of the supply chain, most of which are built on ‘lean’ principles (no slack, little redundancy, from truck drivers to inventory in warehouses) were not prepared for this increase,” explained Tony Pelli, practice director of security and resilience at BSI, in a recent article in Business Insider India. “While consumer demand can increase in a matter of months, it takes more time to increase port capacity, build warehouses, hire employees, etc. to meet that demand,” he added.
What Does the Future Look Like?
To say the future is uncertain, is an understatement. Until there is a solid therapeutic to accompany vaccines, this will likely be an ongoing issue for the world. Regarding the supply chain crisis, issues around containers and the trucking industry will continue to be a long-term problem.
As someone who lives and breathes the current supply chain issues, I will share this warning. Manufacturers need to be cautious. As they scramble to find and substitute materials, there needs to be a greater focus on quality control. For example, car manufacturers will need chips for vehicles, but if they are not properly quality controlling these processes and parts, the result may be cars having major issues that they did not have pre-pandemic. Proper measurements need to be put in place to not only protect the brands, but more importantly, the consumers.
When it comes to retail supply chains of the future, technology is only part of the solution. Beyond labor shortages, retailers will need to strategize on reducing costs within the supply chain, adjusting to the rapid digitalization of the retail landscape, experimenting with technologies to bridge the gap between labor and health concerns, and managing the ever‑changing needs and behaviors of consumers.