Last updated on January 26th, 2023 at 03:51 pm
The global supply chain is in turmoil, a situation that has spelled disaster for a wide variety of industries. Grocery store shelves remain unstocked, high-demand products are off shelves, and customers are hoarding what they can get in a frenzy, panic-buying to avoid not being able to get items like eggs and Dr. Pepper. Moreover, the supply shortage has resulted in inflation, with the Biden Administration considering antitrust legislation to plug the hole in a now-sinking economic ship.
Manufacturing companies have struggled to keep up with demand, with Coronavirus having exposed longstanding problems in the supply chain and exacerbated them, as well as having created entirely new ones for production companies to deal with. Below, we’ll go over some of the commonly credited causes of the supply shortage, as well as discuss options for resolving it that may have varying effectiveness. Nobody knows the answer to resolving this problem completely, as it’s complex and involves many disparate factors converging for the worse all at once: however, we can take steps to mitigate the effect the supply chain issues have on our industries.
Let’s get into it.
Cause 1: The Labor Shortage
Let’s get this out of the way first. While analysts are currently debating whether the labor shortage is the most significant factor in the supply chain shortage, it’s acknowledged that manufacturing employment has dipped by almost 400,000 positions.
The BLS reported that while there were 10.9 million open positions at the end of July 2021, only 6.7 million were filled. Moreover, this crisis was compounded by 930,000 employees leaving their manufacturing jobs by the end of the same month. The manufacturing field is having a hard time hiring employees, and once hired, it’s having an even harder time holding onto them.
Cause 2: Increased Demand for Goods
Exacerbating the problem is an increased demand for goods on the consumer side, putting pressure on different supply chain points by reacting out of proportion to delivery issues. The business of the supply chain is naturally reactive, and despite some forward-thinking executives’ attempts to curb the more negative aspects of that, even minor changes in customer demand can have a massive impact on manufacturers’ ability to deliver.
What happens is that as customers create a change in demand, manufacturers at different points of the supply chain put in safeguards to make sure that demand is met, magnifying the effect of that change and ironically creating a demand that cannot be met. This effect is called the bullwhip effect, and amidst a pandemic where resources became more scarce, this effect has single handedly led to many of the shortages reported by news outlets today.
Cause 3: A Closed Borders Approach
Coronavirus caused a severe regression in globalization as borders closed down with little warning, cutting off trade routes without so much as an apology. As such, shipping containers got lost in transit, vessels were unable to reach their destinations and drop their cargo, and shipping capacity also took a hit.
Considering the average cost of shipping containers, that’s no small loss: one that some manufacturing companies have struggled to recoup.
Solution 1: Cut Costs on Equipment
To make up for lost profits, manufacturing companies may want to invest in used equipment where they can, such as used pallet racks, used shipping containers, and more. This will help them recoup the costs of lost equipment and undelivered shipments to some degree, freeing up room in their budget to invest in other measures that will help them succeed moving forward.
Solution 2: Move Manufacturing Closer to Home
Experts suggest that manufacturers may want to move their operations closer to home to combat the problems associated with a regression in globalization. Our reliance on foreign companies to build crucial components needed for our products is a huge liability and has contributed to shortages across several industries. Moving some of our operations closer to home and building redundancy in our processes will help the supply chain be more resilient, protecting it against sudden failures resulting from things like borders closing.
Solution 3: Invest in Automation
Recent advances in automation allow manufacturers to produce a higher quantity of goods at a higher quality, removing the human element from the equation and reducing overall capacity for error. While automation cannot and should not replace human workers altogether, companies that are suffering due to the effects of the aforementioned labor shortage may find that investing in high-tech production solutions eliminates their problems with getting products out.
It is unlikely that the supply chain problem will be resolved in 2022 as the world continues to grapple with the pandemic and all its ramifications. Yet, implementing some of the above solutions may make it easier for our economy to stay afloat and the supply chain to stay intact amidst times like these.