Supply chain expert explains consumer issues ahead of holidays and shopping season
Businesses survive and thrive on supply and demand. They rely on the supply chain to get products from production to consumers, but when a global pandemic disrupts that chain of events, consumers are left without and demanding more. Product shortages likely will worsen into this holiday season as supplies dwindle and demand increases. In the beginning of the pandemic in 2020, paper products like toilet paper and paper towels were available in limited quantities or not at all. Eighteen months later, consumers are finding stores lacking in such products as half-and-half, yogurt and meat. And now experts say toys will be scarce for even Santa Claus to produce this holiday season.
Glenn Richey, the Raymond J. Harbert Eminent Scholar and chair of the Department of Supply Chain Management in Auburn University’s Harbert College of Business, discusses the current crises and what consumers can expect as the holidays and the associated shopping season approach.
Is the COVID-19 pandemic completely to blame for disruptions in the supply chain?
The pandemic created a cascading disruption that impacted supply chains at their most vulnerable points. Workers at plants that normally operated 24/7 were completely closed. Their suppliers were also closed. Driven by a focus on [cost] efficiency, many of these manufacturers and their suppliers could not ramp up quickly enough to meet the post-pandemic demand because the focus on cost above responsiveness provided no safety net. Raw materials and parts suppliers paused and held limited inventory. Being so lean caused inventory to dry up.
Don’t forget, the 2018-19 tariff “warnings” had a significant impact on trade in the short-term, but many businesses did not adjust. Similarly, the issue with the pandemic is a global disruption that we normally see once in a lifetime. World wars caused similar issues, but the supply chain wasn’t nearly as global. This is not new to the Greatest Generation, but I expect the politics are new to them.
Shortfalls in human resources in manufacturing and trucking, poor labor relations and productivity at our ports, aging U.S. rail infrastructure, outdated just-in-time manufacturing focus, misplaced emphasis on lean inventory management, spiked growth of e-commerce and panic forward buying (i.e., customers stocking up on toilet paper) all have had a major impact. You can blame management, unions, government, experts and customers. All of us are involved in supply chains, and we all have contributed to this problem.
What caused overseas production factories to close?
Manufacturers were closed globally for numerous reasons. In China and the U.S., an entire plant or port might be closed if one employee tested positive. Other countries closed plants depending on non-business specific issues, but plants also shut down when parts and raw materials aren’t available or when labor has the means to not return to their jobs.
Scarce inputs, matched with increased spending, makes balancing supply and demand difficult. Consider a situation where your neighbors once kept large bags of sugar in their homes. Health issues convinced people to stop using so much sugar in the 1980s. So, that money went to—maybe—leaner living? But surprise! Your child’s elementary school decides to have a bake sale and asks all the parents to make two items. Your child tells you at 7 p.m. the night before. Irritated, yet resilient, you decide to bake two cakes with your child, but you are out of sugar. You ask your neighbor for a cup of sugar, but he has already been asked by another neighbor who is making brownies. You go down to your grandmother’s home—her sweet tea had tons of sugar—but your competitive cousin already cleaned her out. Next, everyone rushes to the grocery store and only the first five people buy all the sugar. Some industries are mired in this situation.
Eighty percent of our sugar today is manufactured outside the U.S., so this hypothetical problem could be a global issue. Scarcity caused by a focus on typical demand limits cannot be fixed in 24 hours. Globally, who knows the timeline. But let’s hope you and your child don’t test positive for coronavirus during the production process when you finally get some sugar. At the very least, that might cut your cake count in half. That’s our current global economy.
Why are cargo ships unable to dock and unload cargo?
There are many reasons as port operations are complex, but I think the current critical issues are pandemic recovery demand, e-commerce demand growth and an unwillingness to do the work that needs to be done at choke points, including some western U.S. ports.
When most supply chain functions create bottlenecks, employees and management step up and do whatever it takes to not be the weakest link in the chain. That was not happening at our U.S. West Coast ports until recently. They finally started working nights and weekends in southern California and now say they will move to 24 hours. That’s great news, but the situation is more than an infrastructure issue that is popular with the local politicians. It is a labor relations and productivity issue that is now adding pressure to other ports like Savannah. D.C. politicians and some national media were talking for weeks about buying Christmas gifts early rather than encouraging all-hands-on-deck at our ports.
Those of us who have worked in the supply chain understand dealing with peak demand. It looks like we are dealing with multiple peaks this year because of choppy supply and surging demand. Holiday peak will be massive this year and will be hard to manage. Normally, employees and management embrace the growth, as it results in major business and personal income, but it is a painful time. If employees and management want a higher wage, this is the time to flourish.
Of course, some of this is customer panic buying—which is causing retail panic buying—which will be causing manufacturers to overproduce. Our local Walmart has so many bikes, they don’t know where to stash them. Other products are not in stock. My suggestion to our federal government is to encourage customers to not stockpile or rush to buy products. Stop saying things like, “Buy your Christmas presents now.” That behavior is inflaming the situation. If you hear politicians saying, “buy now,” don’t trust their understanding of supply chain management or the economy.
Evidently there was a shortage of truck drivers, who take the goods from the ports to warehouses, before the pandemic. Why and has the pandemic exasperated this labor shortage?
We have been trying to grow the truck driver ranks for 20 years. It is an ongoing issue. A recent report noted that we will need an additional half a million truckers by 2035, despite automation. Truck driving is a solid career. Over-the-road drivers can make a six-figure salary, receive superior health care and retire after 20 years. Some days, I wonder why I didn’t pick that career! We need to do more outreach in high schools and trade schools about the benefits of joining this career path.
Is automation in the supply chain a possible long-term solution to many of these problems?
Automation can help us toward a long-term solution, but there is no magic bullet. Automation assists supply chain processes. If the company focus is efficiency, it works to speed the process while also reducing human error. That’s a big plus, but not something that fixes a major bottleneck like we are experiencing today. If the focus is adjusting to market issues, automation can become a massively costly investment that might even become irrelevant.
Automation saves cost and human error, but can limit a company’s ability to respond to the needs of the market and target customers. Innovative management and employees remain our most important asset in the U.S. Combining those people with automated material-handling equipment and automated trucks should help us to return to normalcy in time.
There is a shortage of computer chips, so auto manufacturers can’t make new vehicles. Why?
Raw materials are in high demand and low supply while manufacturers are ramping up production. It is also easier for computer chip companies to send a million chips to a cell phone company. They could send the same to GM, but why deal with interventionism when you can distribute at home in massive quantities? Why deal with the relationship and political risk in the U.S.?
Some reports indicate there could be a shortage of anything packaged in aluminum, such as canned food products, sodas and other beverages. How can that be? What would you suggest to people who use canned yams or canned cranberry sauce for Thanksgiving dinner?
Recycled aluminum has been a problem for a while, and packaging is experiencing the same disruptions. I don’t think this will be a big problem unless the customer is buying a non-traditional size. Many local manufacturers have eliminated larger and smaller sizes, as packaging is not available. Then again, Coke has eliminated some brands due to shortages, including Tab. That is one of my true positives of the pandemic.
Families canceled holiday celebrations last year to keep COVID-19 from spreading. The concern this year involves toys and Santa’s ability to meet the all-time high demand. Are toy companies and retailers doing anything to bypass the global gridlock caused by plant closures and shipping container woes?
Major retailers are reserving ships, trucking, space—everything they can. We are seeing both out-of-stock and overstock situations. Some items won’t be available. The Christmas and holiday traditions are about celebrations, family traditions and surprise gifts. Some companies will not be able to meet demand this year. If you can’t find what you want, I recommend customers put down the phone, turn off the computer and go to their local retailers. They may discover amazing products, some made locally. It also might not be a bad thing to wait until the discounts arrive in February.
The only silver lining in all of this may be that consumers now have a better understanding, and even respect, for all facets of the supply chain. And what a teachable moment for the Auburn students studying supply chain. Agree?
Community: Customers now know what a supply chain is, but they don’t understand supply chains. They don’t know the complexity, distance, cost and speed issues, and why should they? Consumers just want the product now. Understanding that supply chains have limited capacity, maybe customers will come to realize that they don’t need everything in two days, nor do they need massive 48-roll packs of toilet paper.
Government: Our politicians need to know there is no “the” supply chain. Supply chains are many and beyond direct control of our government, outside of blocking/delaying distribution to our citizens. Supply chains make up massive networks of global companies connecting to support world commerce. Politicians should not criticize private industry when many supply chains involve public entities, including the Chinese and other governments. Maybe our public servants will spend some time learning about and understanding the importance of the supply chain.
Universities: Our Supply Chain Management program at Auburn has seen massive interest and related growth, but many universities pay almost no attention to supply chain management education. That needs to change if we want to respond effectively to future disruptions. Perhaps all this attention to supply chain management will encourage the growth of new programs, helping us increase the very much-needed talent pool. Until then, I encourage every interested undergraduate and graduate student to consider Auburn. We want you here.
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