3 Issues Causing Supply Chain Shortages

Who could ever imagine that people would hoard toilet paper? Or, send friends urgent text messages telling them where they found cans of Lysol? While the situation has gotten better in the past year and a half, we still have a long way to go. Toyota has put the production of less profitable cars on hold due to a shortage of microchips. Customers are waiting six months or more for deliveries of Lazyboy furniture since labor, lumber, and materials are in limited supply.

Shortages of essential materials and skilled workers continue to cause disruptions throughout the supply chain. Few industries are immune to the bottlenecks and production shutdowns precipitated by the ongoing pandemic. Ships loaded with cargo containers continue to experience delays, along with critical products such as semiconductors, pharmaceuticals, and minerals. Analysts at Goldman Sachs anticipate shortages will continue into Spring 2022.

The current supply chain situation has created a sense of urgency and motivated the Biden Administration to form a task force to address production, construction, and agriculture issues. The group will also examine other areas of concern, such as our nation’s growing dependence on imports from China and other countries. An earlier review of supply chains resulted in a 250-pg. report that indicates the shortages are a threat to national security and economic stability.

Labor Shortages
Port delays are causing slow deliveries of merchandise shipped from around the world. Fewer dock workers prevent ships docking in Los Angeles/Long Breach and Oakland from being unloaded promptly. Fewer workers also impact how quickly ships can return to their port of origin. Every delay means more back-orders of goods and services, as well as a loss of shipping capacity. According to a U.S. Chamber of Commerce survey, 90 percent of local Chamber of Commerce leaders surveyed believed the labor shortage limits economic growth.

• In March 2021, there were 8.1 million vacant jobs in the U.S.—a record high
• There are half as many workers available for every open job
• In several states, there are fewer workers than the total number of open jobs
• Workers are reluctant to return to work. People are voluntarily leaving their current positions at a higher rate than pre-pandemic levels

Just In Time or Lean Manufacturing
Retailers are very familiar with the concept of minimizing the amount of inventory. Doing this saves on storage and holding costs. This strategy works well for companies that want to be efficient and competitive. However, when there is a breakdown in the supply chain,  demand gets thrown out of the window. Companies are faced with uncertainty and are dependent on the availability of products from their suppliers. Other companies are more flexible and are prepared to meet consumer demand and supply products even in uncertain times such as a pandemic. They keep additional inventory to compensate for a shortage of supply or increased demand. While maintaining “safe inventory” increases inventory levels and costs, it ensures production is not disrupted based on the ability of suppliers to deliver materials. However, this can be costly and at odds with designing an agile, resilient supply chain.

Global Microchip Shortage
The average person rarely thinks about microchips and their critical role in our lives and the products we purchase. However, the shortage of microchips is hurting manufacturer’s ability to ramp up production and distribution. Toyota advanced the auto industry by successfully implementing lean manufacturing throughout its supply chain. However, the pandemic has fueled a microchip shortage the automaker was unable to anticipate. The lack of raw materials is driving up the price of goods and stalling production across the globe. Factories were also closed to halt the spread of Covid-19, ships were rerouted, and consumers limited their purchases.

The Biden administration and federal government are taking measures to assist manufacturers and mitigate the shortages that hurt the recovery of the supply chain. These include:

• Energy Department will release blueprints for lithium batteries to assist in shifting the U.S.to electric vehicles
• Department of Health and Human Services will partner with pharmaceutical companies to manufacture essential drugs
• Interior Department will determine the mining location of critical minerals
• Commerce Department will boost investments in the semiconductor industry

“Our approach to supply chain resilience needs to look forward to emerging threats from cybersecurity to climate issues, says Sameera Fazili, a deputy director of the White House National Economic Council. “And so, we are future-proofing.”