Learn Why Global Supply Chains will undergo Transformation and may Never Be the Same through a series of Examples and Videos
As per this WSJ Report : Every day, millions of sailors, truck drivers, longshoremen, warehouse workers and delivery drivers keep mountains of goods moving into stores and homes to meet consumers’ increasing expectations of convenience. But this complex movement of goods underpinning the global economy is far more vulnerable than many imagined.
Unfortunately, with intermittent shutdowns of ports and factories in China due to Omicron, sanctions on Russia, and the invasion of Ukraine, supply chain disruptions are in some ways as big an issue as they were during the peak of the pandemic.
With every new report of goods costing more or being more difficult to get, backlogs at ports or walkouts at an e-commerce distribution centre, it feels like understanding of how all of that works is more important than ever.”
WSJ technology columnist Christopher Mims
2021–2022 Global Supply Chain Crisis
In 2021, as a consequence of the COVID-19 pandemic, global supply chains and shipments slowed, causing worldwide shortages and affecting consumer patterns. Causes of the economic slowdown included workers becoming sick with COVID-19 as well as mandates and restrictions affecting the availability of staff. In cargo shipping, goods remained at port due to staffing shortages. Watch the video below that explains this.
The related global chip shortage has contributed to the supply chain crisis, specifically in the automobile and electronics sectors. During the Christmas and holiday season of 2021, an increase in spending in North America, combined with the spread of the Omicron variant of COVID-19, further exacerbated already tight supplies. Long tail effects of the supply chain crises are contributing to ongoing food security issues related to the pandemic, including the 2022 food crises.
Some Publicly Available Facts Regarding the Causes of Global Supply Chain Crisis
- Based on the Public Information, In early 2020, the COVID-19 pandemic initially slowed the global supply chain as manufacturers suspended work until safety precautions were enacted. Despite rosy forecasts from businesses for the next year, global trade continued at a reduced capacity and did not fully recover.
- Vietnam, for example, is a major provider of American apparel. The country worked through the pandemic in 2020, with a strict lockdown procedure, but outbreaks in 2021 forced many manufacturers to close, especially as workers remained largely unvaccinated. To sustain production in 2021, the Vietnamese government required workers in higher-risk regions to live at their workplace.
- Economists pointed to lean manufacturing (also known as “just-in-time” manufacturing) as a major source of the supply chain disruption.
- The lean manufacturing method relies on well-tuned matching between the raw material input and finished good output of production facilities to minimise the amount of products stored in warehouses and thereby save money on overhead costs.
- It is notably weak to unexpected shifts in demand because it requires extremely accurate demand forecasting to achieve the savings and economies of scale that are its main benefits.
- When the COVID-19 pandemic began to shut down manufacturing facilities, it set off a chain reaction of disruption to the many companies which adopted lean principles in their production pipeline.
- Later, as demand skyrocketed for consumer goods and medical supplies like personal protective equipment (PPE), these same facilities were unable to keep up with demand, leading to massive backlogs.
- These disruptions cascaded into the global shipping industry where ports like the Port of Los Angeles, a major hub for imports from Asia, are unable to clear their shipyards in a timely fashion, further exacerbating the supply chain crisis.
- This has led to suggestions that stockpiles and diversification of suppliers should be more heavily focused
Based on this Report by Duke, It appears that three major issues have contributed most to the current Crisis apart from many other.
1. COVID & COVID Induced Logistics & Manufacturing Issue
COVID created a shortage of manpower that has greatly impacted the production capacity all over the world. Factories, Ports and Trucking capacity have high operating costs and become cost effective only when there is a high rate of utilisation.
Learn how the Ports of LA and Long Beach were the worst affected due to Shortages. They were worst affected by the Shortage of Shipping Containers and Shortage of Truck Drivers which had global consequences. And subsequently how there was Bubble Tea Ingredients Shortage in the US during the Global Supply Chain Crisis. Watch the Video below.
A long line of cargo ships may make it seem like ports need to unload faster. But ports don’t have a place for so many containers to be unloaded. If you add storage capacity for extra containers, you’ll need more trucks to transport the goods quickly, but there are not enough chassis to transport the goods, because so many chassis are holding goods waiting to load onto cargo ships. It’s an iterative process that takes a while.
Robert Swinney, Operations Professor at Fuqua School of Business.
2. High Demand & Low Production
As there is an increased demand for products, Companies are put under tremendous pressure to meet those delivery deadlines. This create a sort of ripple effect across the entire supply chain which means every point in the Supply Chain is Impacted.
“Imagine a retailer sees demand increase 10 percent for a product. Anticipating continued growth, it inflates its orders with suppliers not by 10 percent, but by 15 percent. Now their supplier sees a 15 percent increase in retailer orders. Also anticipating further growth, the supplier inflates its orders with its suppliers not by 15 percent, but by 20 percent. This pattern can repeat at each link in the supply chain. The compound effect of these changes can create the appearance of a huge swing in demand”
Robert Swinney, Operations Professor at Fuqua School of Business.
3. Factories are not running close to Capacity
Running close to capacity makes production and distribution more cost-effective. Because this is happening not just at one point in the supply chain, but multiple points, it becomes difficult to bring supply and demand back into balance.
Learn what is causing Global Supply Chain Crisis with an Example of a Sweater
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