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Everyone has felt the effects of the current supply chain issues and the topic has become part of everyday conversation, even among novices. It’s no longer just about the lack of toilet paper, but the lack of everything from your favorite brand of bread to high-ticket items like a new water heater for your home. Nothing is off limits—or is it?
The state of the supply chain today is strained; that’s not news. And although all roads likely lead back to the pandemic, there are various reasons for why and how we got here. There are also ways in which we can get out of this mess to make a difference going forward.
In this blog, we explain the five biggest drivers of the supply chain crisis we’re currently experiencing. Some of these issues will require time and resources to resolve. But in some cases, data and analytics can significantly aid a business in navigating through the uncertainty and even offer a light at the end of the tunnel for customers.
In the beginning of the pandemic, supply chains were strained because manufacturing plants were shutting down. Today, although manufacturing still plays a significant role, the biggest strain on supply chains is that demand is simply outpacing supply.
Pent up consumer demand coupled with monetary aid through stimulus packages, as well as increased savings for many households has pushed supply chains to the brink. Buying behavior in general fundamentally changed with the onset of the pandemic—many households moved to online shopping for just about everything from toiletries and food to larger appliances and electronics. Add to that an economic rebound spurred by the rollout of vaccines and eased COVID-19 restrictions—which have led to many businesses playing catch up to meet consumer demand—and it’s a recipe for disaster. The supply chain that supported 2019, and that was strained in 2020, is no longer a supply chain that can sustain 2021.
As a result, it has led to disruption in production across industries and across the globe.
Factories aren’t producing enough components that feed into end-state consumer products. Vehicle manufacturing, for example, has stalled due to a lack of semiconductors and chips, which are overwhelmingly manufactured in China along with other car parts. Without the requisite components needed, factories in the U.S. have either deferred production or shuttered operations until levels can be met to facilitate demand.
Many consumer products have been offshored making us over reliant on overseas factories. And although COVID-19 restrictions have eased in some parts of the world, the same is not true in others. Vietnam, for example, has had to shut down factories or reduce capacity, which means goods cannot be produced at the pace needed to satisfy demand in the U.S. The imbalance between highly vaccinated segments of the world buying goods from highly unvaccinated areas of the world also contributes to the logjam and rising costs of raw materials.
The price of fuel is continuing to rise, making it more expensive to transport goods whether by road, sea, or air. Fuel aside, other factors are leading to increased shipping costs. For example, at the beginning of the pandemic, containers were not being shipped because most manufacturing plants across the world were shut down. But when exports from other countries picked up again, the containers weren’t where they needed to be, which caused a shortage and eventually led to new containers being built. All this came at a tremendous cost, which is now being felt across the globe. Nearly 80% of the world’s trade is done over ocean freight and according to Drewry’s shipping index—which measures the cost of containers—the cost is up from an average of $2,000 to book a 40-foot steel container to now nearly $14,000 for the same container (600%) compared to a year ago.
When transport costs erode margins on products, the choice needs to be made whether to pass the cost onto consumers or stop production and shipment altogether on those products, which has led to major supply chain issues across industries.
Where businesses can find and purchase containers, they are now running into a different problem with containers being stuck at port. In some cases, the waiting times before the ships can dock have stretched to three weeks. Because ships can’t be unloaded, not enough empty containers are in transit to carry the additional goods consumers are buying, which circles back to the preceding problem of transportation costs. But it also adds to the problem of being able to deliver goods to businesses and consumers on time and when they’re needed.
The issue seems to stem from a few things: increased demand means increased ships coming to the ports, which are at full capacity with no room to unload the containers. But there is also a serious labor shortage from those who work at the ports to those who need to transport the goods from the ports.
It’s not just at the port; there is a labor shortage across every part of the supply chain—manufacturing, warehousing, transportation, retail, etc. There is an estimated shortage of 80,000 truck drivers in the U.S. and this spans across industries—impeding both regional and local deliveries of goods to manufacturing plants, as well as retailers and direct to consumer.
According to the U.S. Bureau of Labor Statistics there were twice as many job openings in manufacturing and warehousing sectors in 2021 compared to 2020. The department also notes that 4.3 million people left their jobs in August 2021, the highest level seen on records dating back to December 2000. Labor shortages have a very immediate effect on our everyday lives, but they also have a direct impact on the other drivers of the supply chain issues— pent up demand, stalled production, higher costs, and bottlenecks.
We’ve all heard the call to get going on holiday shopping because we are certain to have delays caused by supply chain issues. We’re already experiencing it with everyday purchases. In addition to the delays, most everyone has seen costs go up on consumer goods across the board.
This doesn’t just effect consumers; it hurts businesses as well. So, what will it take to keep your warehouse and shelves stocked, while also providing a good customer experience without breaking the bank? While some problems plainly require time and resources, many of the supply chain issues we’re experiencing today can be addressed by collecting data and applying analytics.
There are four key areas you can improve using data and analytics:
It’s easy to get caught up in the moment of a crisis, especially when it effects every aspect of your business. But with a wider lens on supply chain data and a better grasp on the bigger picture operations, it’s easier to identify and address root problems and plan for more agile supply chain operations. Here are “4 Things You Should Be Analyzing in Your Supply Chain” (www.analytics8.com/supply-chain-ebook/) so that the data you already have can help you make better informed decisions for your business and for your customers.
For more articles like this, visit www.analytics8.com.