(The Conversation) – The US economy is still plagued by a shortage of basic goods – 2½ years after the outbreak of the pandemic turned global supply chains upside down.
Want a new car? Depending on the model you ordered, you may have to wait up to six months. Looking for a spicy condiment? Supplies of Sriracha hot sauce are dangerously low. And if you feed your cat or dog dry food, you have to expect empty shelves or higher prices.
These are not isolated products. Baby food, wine and spirits, lawn chairs, garage doors, butter, cream cheese, breakfast cereal and many other items also faced shortages in the US in 2022 – and popcorn and tomatoes are expected to be in short supply soon.
In fact, global supply chains have been at their most stressed for at least a quarter century and pretty much since the start of the COVID-19 pandemic.
I have been involved in supply chain management for over 35 years, both as a manager and consultant in the private sector and as an adjunct professor at Colorado State University – Global Campus.
While every product that fails has its own story of what went wrong, most involve a concept that people in my field call the “bullwhip effect.”
What is the “Bullwhip Effect”?
The term bullwhip effect was coined by MIT computer scientist Jay Forrester in his seminal 1961 book Industrial Dynamics. It describes what happens when fluctuations in demand reverberate and amplify throughout the supply chain, leading to worsening problems and bottlenecks.
Imagine the physics of cracking a whip. It starts with a small flick of the wrist, but the whip’s wave patterns grow exponentially in a chain reaction, leading to the spike, a crack – and a searing pain for everyone on the receiving end.
The same can happen in supply chains when orders for a product, for example from a retailer, rise or fall by a certain amount and this is amplified by wholesalers, distributors and raw material suppliers.
The onset of the COVID-19 pandemic, which led to protracted lockdowns, massive unemployment and a whole host of other impacts that disrupted global supply chains, essentially supercharged the bullwhip punch. How the Bullwhip Effect Works.
cars and chips
The delivery of cars is one such example.
Both new and used vehicles have been in short supply throughout the pandemic, sometimes forcing consumers to wait up to a year for the most popular models.
In early 2020, as the pandemic put most Americans in lockdown, automakers began to anticipate a drop in demand and, as a result, significantly curtailed production. This was a signal to suppliers, especially computer chip suppliers, that they needed to find other buyers for their products.
Computer chips are not one size fits all; They are designed differently depending on their intended use. So chipmakers started making fewer chips intended for use in cars and trucks and more for computers and smart refrigerators.
When demand for vehicles suddenly returned in early 2021, automakers were unable to secure enough chips to ramp up production. Production fell about 13% last year compared to 2019. Since then, chipmakers have started producing more auto-specific chips, and Congress even passed legislation to boost US semiconductor manufacturing. Some automakers, like Ford and General Motors, have chosen to sell incomplete cars without chips and the special features that power them, like touchscreens, to avoid delays.
But bottlenecks remain. You could blame this on poor planning, but it’s also the bullwhip effect in action.
The whip is everywhere
And that’s a problem for a hell of a lot of goods and parts, especially when they come from Asia like semiconductors.
In fact, just about everything Americans source from Asia — about 40% of all US imports — could be bullwhip-affected.
Most of this stuff travels to the US on container ships, the cheapest mode of transportation. This means that goods usually have to cross the Pacific Ocean for a week or more.
The bullwhip effect occurs when the flow of information from the customer to the supplier is disrupted.
Suppose a customer discovers that an order of lawn chairs has not been delivered on the expected date, possibly due to a minor shipping delay. So the customer complains to the retailer, who in turn orders more from the manufacturer. Manufacturers are seeing an increase in orders and are passing the orders along to the suppliers with a small addition, just in case.
What started as a delay in transportation has turned into a significant increase in orders throughout the supply chain. Now the retailer gets delivered all the products it overordered and reduces the next order to the factory, which reduces their order to suppliers, and so on.
Now try to imagine the ups and downs in incoming orders from the suppliers.
The pandemic caused all manner of transportation disruptions — whether due to labor shortages, problems at a port, or something else — most of which triggered the bullwhip effect.
The end is not near
When will these problems end? The answer will probably disappoint you.
As the world becomes more connected, a small problem can grow bigger when information isn’t available. Even with the right information at the right time, life happens. A storm could result in a ship carrying new cars from Europe being lost at sea. Having few sources of baby food creates shortages when a safety issue shuts down the largest manufacturer. Russia invades Ukraine and 10% of the world’s grain is held hostage.
The early impact of the pandemic in 2020 resulted in a sharp drop in demand that impacted supply chains and reduced production. A strong U.S. economy and consumers awash with coronavirus cash led to a surge in demand in 2021, and the system has struggled to catch up. Now, the effects of rising inflation and a looming recession will reverse this effect, leading to an oversupply of goods and a drop in orders. And the cycle will repeat itself.
As far as I can tell, it will take many years for these disorders to recover. And as recent inflation reduces demand for goods and consumers begin to cut back, the stick will work its way back up the supply chain – and you’ll see more shortages.
https://www.woodtv.com/news/nexstar-media-wire/butter-garage-doors-and-suvs-why-shortages-remain-common-2%C2%BD-years-into-the-pandemic/ Butter, garage doors and SUVs: why bottlenecks are still the order of the day even after 2½ years of the pandemic