How to Solve the Supply Chain Shortage

The recent Covid pandemic has “exposed vulnerabilities in the production strategies and supply chains of firms just about anywhere” (Shih 1). It has also highlighted the “extremity of the problem” and “the world’s failure to find a quick fix” (Murray 1). The economy jump starting again has resulted in one of the largest traffic jams in history. Many producers have been caught off guard by the rebound of decreased production after consumers stopped spending last year. Most factories also had to reduce production due to workers going back home out of fear of Covid spreading. Even large scale companies like Apple and Amazon are struggling to keep up. Amazon said it’s fourth-quarter profit could be lost having to pay labor and transport fees and Apple lost $6 billion by not being able to meet demand (Murray 5). 

However, there are ways for you to protect your business from supply chain shortages without losing competitiveness. First it is important to understand where risks lie in your company, including distribution facilities and transportation (Shih 4). This process helps identify which suppliers can be categorized into low, medium, and high risk. You should also consider if your operations and manufacturing capacity is flexible or requires more sophisticated materials, such as smartphone chips from Taiwan or sensor technology from Japan or China. This information can be used to diversify your sources of materials. 

It is also a good idea not to rely on production from only one area. The U.S. trade war with China has caused some companies to shift to a “China plus one strategy” of having production in China as well as one other Southeast Asian country. Shifting production from China for goods like furniture and clothing will be easier than for electronics and tech. It would not be smart to completely stop production in China as it’s the world’s second largest economy and has a widespread presence in the global market. 

A company should also be able to determine how much extra stock they should have in case of supply chain shortages. Developing innovations are allowing more companies to reduce costs, switch between producers, and become more environmentally sustainable. 

Although there needs to be a long term solution for making the global supply chain more efficient, which would be getting Covid under control, building new infrastructure, and better technology for transactions and faster communication. More time and investment is necessary to add more logistics capacity. President Biden recently signed a $1.2 trillion dollar Infrastructure Investment and Jobs Act. The American Trucking Association’s President and CEO Chris Spear states it will create a 38% increase in road and bridge funding, and an infusion of highly trained, younger talent into our work-force” (Fuller 2). About $100 billion will be added to discretionary funding for grant programs addressing supply chain efficiencies and as well as 2.5 billion in funding for cities to address port congestion and improved transportation of goods. It is foreseeable that by prioritizing the nation’s fundamental transportation network the problems businesses are facing with supply chains will be addressed.

Picture Credits:https://www.qualityassurancemag.com/article/managing-risk-in-the-global-supply-chain/

Sources:

Fuller, S.L. “Biden signs $1.2 trillion infrastructure bill.” Supply Chain Dive,  8 Nov. 2021.

Murray, Brendan. Orlik, Tom. Roye, Bjorn Van. “Supply Chain Crisis Risks Taking The Global Economy Down With It.” Bloomberg, 1 Nov, 2021.

Shih, Willy C. “Global Supply Chains in Post-Pandemic World.” Harvard Business Review, 2021.

The Current Problem With International Supply Chain

Have you ordered something online and it’s taken weeks to arrive? Or tried to buy something and it’s entirely out of stock? This is a result of the global supply chain shortage that is being seen everywhere. Although there are a variety of factors, I think the most prominent would be the labor shortage and the lack of computer chips. According to CNBC, experts also state that inflation is rapidly increasing as more goods become scarce. 

The “usually invisible pathway of manufacturing, transportation, and logistics” (New York Times) is a mess for companies all over the world trying to get their goods to where they should be. After Covid-related shut downs in almost every industry, suppliers are struggling to keep up with the increase in demand. What happened is during the height of the pandemic, many manufacturing sites all over the world, but mostly in China, South Korea, Taiwan, and Vietnam shutdown due to Covid cases or shutdowns. This caused many shipping companies to cut back their schedules due to the expected decrease in demand. However, many people chose not to save during the pandemic and instead spent while stuck at home. This led to a sudden increase in demand and created a bottleneck for the global supply chain. The U.S.’s consumer price index has increased 6.2% from last year, which is the sharpest rise in 30 years (CNBC). This is far beyond the Federal Reserve’s target. The sudden demand surge led to congestion in the transportation of goods, and many goods piled up in Chinese and Asian warehouses due to a lack of shipping containers. Power shortages in China and Brexit in the United Kingdom have also caused shortages.  

According to the New York Times, before the pandemic it cost $2,000 to ship a container from Shanghai to Los Angeles, and now it’s close to $25,000 (New York Times). The labor shortage and lack of work due to shut downs means there’s not enough people, such as warehouse workers and truck drivers, to unload these goods off the shipping containers and transport them too. Many shipping containers also got stuck in countries that don’t send goods back to China, such as West Africa and South Asia (New York Times). Since most companies require a large amount of components coming from all over the world, one component not being shipped can cause production to halt. This led to higher prices for consumers and slower recovery of the global economy (CNN Business). Some say that the supply chain shortage may be a problem for a while, however others argue that it will be solved relatively quickly. 

It is important that consumers are aware of the supply chain shortage as many begin to shop for gifts. Therefore they should try to order what they need more than two weeks before they are expecting it. They should also be aware of higher than normal shipping fees, which should be factored when ordering items. Also try not to hoard items or purchase things that can wait. 

Picture Credits: https://pairach.com/international-logistics/

Sources:

Egan, Matt. “The global supply chain nightmare is about to get worse.” CNN Business, 13 Oct. 2021. https://www.cnn.com/2021/10/12/business/global-supply-chain-nightmare/index.html

Goodman, Peter S. “How the Supply Chain Broke, and Why It Won’t Be Fixed Anytime Soon.” New York Times, 22 Oct. 2021. https://www.nytimes.com/2021/10/22/business/shortages-supply-chain.html

Smith, Elliot. “Big business bosses warn that supply chain issues and inflation are here to stay.” CNBC, 10 Nov. 2021. https://www.cnbc.com/2021/11/10/big-business-bosses-are-warning-that-supply-chain-issues-and-inflation-are-here-to-stay.html

About Me: Get To Know The Author

Hi, my name is Dilini and I run this blog. I am currently in the David Nazarian College of Business at Cal State Northridge. I decided to start this blog as I noticed many people are not up to date on business related affairs outside of America. In the age of technology and increased technology, it is important we are aware of what is happening with global trade, as this affects our lives as well. I hope you learn something from my posts and become more knowledgeable about international business as well.