Supply Chain Challenges – Part I – What’s Happening with the Supply Chain?

From shoe stores to electronics stores and from car lots to grocery stores, almost all retailers have one thing in common: sparsely-stocked shelves. It all started in 2020 when COVID-19 shut things down in the United States and the now-infamous toilet paper shortage hit the news. Two years later, stores are still limiting bathroom tissue sales per customer, and it’s now hard to find a pair of Nikes in your size or test drive a car before you buy it.  It’s even harder to buy a car unless you are willing to pay well over the initial price that car was listed for prior to COVID. 

We’ve all heard about the supply chain crisis, have seen the ships sitting in the harbors and know it’s somehow responsible for our scanty provisions.   But what really caused this supply chain disruption? In this first ofa three-part series about the supply chain challenges, we’ll explore what the problem looks like and how it evolved.

Where are the Backlogs?

The short answer is everywhere.  Some of the most impressive and visible logjams are at the busiest US shipping ports: Los Angeles, Long Beach, New York, and New Jersey.  These ports manage the importing and exporting of more than 5.6 trillion dollars’ worth of goods and services in cooperation with over 200 countries and territories across the globe (Ohio University).

Why are the Backlogs?

This question does not have one short, easy answer.  The problems run deeper than dock workers not unloading cargo fast enough. “It’s not a single link that failed in a linear system,” Robert Swinney, an operations professor at Duke University’s Fuqua School of Business, points out. “It is the response of a complex system to major changes in conditions” (Fuqua).  We’ll try to give you the short version of a long answer by running through a drastically simplified timeline:

  • In 2020, the pandemic caused business operations to shut down, or drastically slow down worldwide.  Workers were unable to go to their manufacturing, shipping, sales, or virtually any jobs.
  • Because of the shutdown, supplies dwindled at the source.  This happened everywhere, not just in storage and retail facilities.
  • When business started to resume, consumer demand soared, but supplies and workers were scarce.
  • This created the “(bullwhip effect)”. Sensing higher demand, retailers and suppliers increased orders, but manufacturers didn’t have the capacity to fill them.
  • When supply finally started to catch up with demand, truck and driver shortages became an issue. The trucking industry had already been running at capacity and didn’t have the bandwidth to transport supplies from cargo ships to warehouses or from warehouses to retailers.
  • With no drivers to transport unloaded cargo from the ships, ports became clogged and the ability to offload cargo came to a halt.

Changing Habits

Historically, US companies have run on something known as the “just-in-time” model, meaning that companies only ordered raw materials when they needed them, based on demand. They didn’t operate with a surplus mentality.  The goal was to get adequate, but not extra, products to consumers when, but not before, they were needed.

During the pandemic, consumer habits changed. As people received stimulus checks and saved money on things like vacations and restaurants, they started shopping more online (The Guardian). Basically, people wanted more “stuff,” while companies were making less of it.

Because the problem is so complex, the solution may be as well.  New business models will probably evolve that will permanently change the supply/demand landscape.

In the next article, we’ll discuss how the supply chain crisis is affecting US workers.