Supply chain delays, shortages, and delivery issues are here to stay.
The global supply chain is in hot water. The pandemic has made it notoriously difficult for shoppers to buy certain consumer goods, from home appliances and furniture to laptops and bicycles. And things aren’t getting better anytime soon, at least not this year. Shipments have been delayed, raw materials are in short supply, and businesses have scrambled to dole out apologies and assurances to anxious customers.
With the holidays a few months away, experts are predicting that the year’s busiest shopping season will be “a perfect storm” of supply chain bottlenecks. Shoppers, as a result, will face higher prices, even as retailers remain uncertain as to whether they can keep up with demand.
“This year, Christmas will be very different,” said Steven Melnyk, a professor of supply chain and operations management at Michigan State University. “We won’t see as many blowout sales leading up to the holidays, and prices are going to go up.”
The back-to-school season typically offers retailers a glimpse into consumers’ shopping patterns, but the delta variant has thrown a wrench into businesses’ hopes for an economic return to normalcy. Melnyk thinks customers will approach holiday shopping differently if they continue to face product shortages. More people will shop from brick-and-mortar stores given the uncertainty of online orders, and gravitate toward goods made in the US: “Shoppers will be focused less on price, and more on availability of the items they want.”
Here is an incomplete list of consumer goods that have been subject to backorders, delays, and shortages: new clothes, back-to-school supplies, bicycles, pet food, paint, furniture, cars, tech gadgets, children’s toys, home appliances, lumber, anything that relies on semiconductor chips, and even coveted fast food staples like chicken wings, ketchup packets, Taco Bell, Starbucks’ cake pops, and McDonald’s milkshakes (in the UK, for now).
Today, the circumstances are no longer as dire as, say, the indelible toilet paper shortage of 2020, when big-box retailers rationed the number of rolls customers could buy. Companies like Coca-Cola have had time to nimbly adjust and manage their stock, so the most high-volume, in-demand items can remain on shelves. Yet, the supply chains that drive the global economy will likely remain vulnerable to delays until 2022 or 2023, according to experts, or until most of the world is vaccinated. Here’s why.
The implications of a global supply chain
Supply chains are global, made up of factories, processing centers, and shipping companies all over the world. Companies and industries have spent years — if not decades — fine-tuning them for maximum efficiency and maximum profit. To understand the size and scope of this global manufacturing system, it’s helpful to look at how individual products are made. As Hilary George-Parkin has previously reported for Vox, behind every sold-out product “there’s a vast supply chain linking raw materials to factory floors to distribution centers.” The pandemic has created a ripple effect in this system that often leaves, quite literally, minimal room for error, since companies rarely stock up on excess inventory. As a result, over a year later, businesses and suppliers are still grappling with the fallout.
American shoppers — and the companies that sell us stuff — have long grown accustomed to convenience, partly made possible by lean, “just in time” manufacturing. This production model was first used by the Japanese to build Toyota vehicles in the mid-20th century and was emulated by companies around the world. The premise of the just-in-time model is cost-efficiency, which means companies hold onto relatively little inventory or parts themselves. Instead, they rely on suppliers. To make a product, businesses look overseas for suppliers who can source raw materials and assemble components, sometimes in various locations, where labor and the cost of materials are cheaper. After a lengthy production process, the finished product is imported to warehouses and distribution centers before it’s shipped to the final destination.
Everlane sent an email to customers saying their supply chains are totally screwed up pic.twitter.com/2YdqDvG2W7
— hk (@hassankhan) August 19, 2021
Historically, this production model has been a win-win for consumers and businesses — provided that nothing goes wrong. Companies are able to reduce inventories, cut costs, and deftly adapt to changing market demands, all while keeping prices low. But now that disruptions are affecting every step of this supply chain, there’s no quick-fix solution.
The coronavirus outbreak sent the global supply chain into an unprecedented slowdown at the start of 2020, as the virus made its way through China, Europe, and then the US. Manufacturers put thousands of factories on pause until Covid-19 safety policies were put into place. While supply chains didn’t fully recover from the initial shock, companies were optimistic heading into 2021. But the delta variant — and the lack of vaccine access in low-income countries — has prolonged the timeline for global recovery.
About half of the world’s sailors, who are crucial to the flow of global trade, are from developing nations where vaccine rollouts have been slow. In countries where the coronavirus is still rampant, factories have had to shut down or operate with limited staffing as workers had to quarantine. Vietnam, for example, is America’s second-largest shoe and apparel supplier, but most of its workforce remains unvaccinated. The country has managed to evade the virus through strict lockdowns for the first 14 months of the pandemic, but the highly contagious delta variant has forced many factories to close down. According to the Wall Street Journal, Vietnam’s government has begun requiring employees in high-risk regions to eat and sleep at their workplace, rather than go home, in an effort to maintain production rates.
Meanwhile, as economic activity resumed in wealthy, vaccinated places like the United States and Europe, the shipping industry is contending with a deluge of delays. Enormous container ships are stalled outside major ports, while more cargo just keeps arriving. In some cases, ship crews have had to wait days or weeks before unloading at ports.
“We are seeing a historic surge of cargo volume coming into our ports,” Tom Bellerud, the chief operations officer of Washington’s Northwest Seaport Alliance, told NPR in June. “The terminals are having a difficult time keeping up with processing all the cargo off these vessels fast enough.”
Inland freight hubs, where cargo is sent from the ports, have also been inundated with containers of goods. According to a Wall Street Journal report, “congestion on rail networks and a labor shortage of truck drivers and warehouse workers has led to big backups at cargo facilities.” Companies are struggling to unpack shipping containers and get them back into circulation. As a result, shipping containers are in short supply, even though there should be enough containers to handle global demand. Too many are just stuck in circulation and stay unused.
Major retailers like Walmart, Target, and Home Depot are chartering private cargo vessels and buying shipping containers to prepare for the holiday shopping season. This effort to directly oversee transportation and shipping can help reduce some supply chain problems, but Melnyk worries these efforts won’t be enough, especially with manufacturing slowdowns overseas and the domestic labor shortage.
“Companies also have to worry about the last mile — getting the product from the store to people’s front doors,” Melnyk said. For years, the trucking industry has been operating with a shortage of domestic drivers, caused by high turnover rates and its decades-long failure to increase workers’ wages and benefits. “Last year, there was an explosion of online shopping, but it’s possible shoppers also want to get back out to brick-and-mortar stores. Retailers have to prepare for multiple circumstances: if people want to order online and pick up in-store, or vice versa.”
A recent history of supply chain fallouts
Some of the recent product shortages, particularly those at the end of 2020, are the direct result of decisions made by retailers when forecasting consumer demand. At the height of the pandemic, it would’ve been difficult for, say, Walmart to predict in April 2020 that Americans would rush to buy outdoor heaters or fishing tackle. There was no way for retailers to accurately predict the popularity of these niche items. Instead, many big-box retailers shifted their focus toward restocking the most popular, in-demand consumer goods.
“Every retail chain is focused on their big sales items: what they sell most, what they’re known for, what the customers come to the stores to buy,” Rafay Ishfaq, an associate professor of supply chain management at Auburn University, previously told Vox. “If that means that the peripherals or seasonal items or secondary product categories run short, then so be it.”
But some hiccups, like factory shutdowns, scarce raw materials, and freight delays, are entirely out of retailers’ control. The shipping crisis has threatened to disrupt the transportation of wood pulp — the raw material for products like toilet paper — which is shipped out from South America. And for products like lumber, which is currently experiencing levels of demand not seen in a decade, suppliers can’t suddenly ramp up production overnight. One sawmill owner told Vox’s Emily Stewart that a new mill takes two years to build and costs $100 million, without any guarantee of raw materials. Trees, after all, take years to grow, and in some parts of the US, there’s limited sawmill capacity to turn timber into lumber.
One of the greatest concerns for automakers, medical device manufacturers, and consumer tech companies is the semiconductor chip shortage, which likely won’t be resolved for another year or two. These chips are responsible for powering a slew of consumer goods — home appliances, tech gadgets, automotive vehicles — that have been subject to supply chain slowdowns due to the sheer number of parts required to assemble a finished product. The chip shortage is affecting major American companies like General Motors, Microsoft, Apple, Tesla, Qualcomm, and Hewlett-Packard. This crisis is on the White House’s radar; the federal government plans to invest in chip manufacturing in the US, but the process could take years.
“Making a single chip takes an incredibly long time,” reported Recode’s Rebecca Heilweil. “At the same time, building more chip manufacturing plants, sometimes called fabs, requires years of engineering and construction and billions of dollars.”
A plant takes roughly two and a half years to build, according to Patrick Penfield, a supply chain management professor at Syracuse University. “We’ve got Intel, we’ve got a couple of smaller manufacturers, but it’s gonna take time — and I think there needs to be more of an investment,” he told Recode.
The pandemic has forced major companies and entire industries to reassess the risks of an interconnected supply chain. For years, this system has consistently boosted profit margins, and its vulnerability to unexpected events, like a pandemic or climate change, was not put into question. Still, most industries hesitate to make vast changes to their manufacturing process, which would be a costly and time-intensive endeavor. For now, consumers have no choice but to start getting used to these delays. It is, after all, the fault of the business model that habituated Americans to this “I see it, I like it, I want it, I got it” consumerist mentality. Or maybe, it’s time to start buying locally and less.
Author: Terry Nguyen