By now, it’s clear that supply chain disruptions will continue into 2022…but will that be the end of it? Challenges are piling up — manufacturing delays, inventory and supply shortages, labor scarcity, rate hikes, port congestion. The world is still dealing with health and safety concerns and their direct impact on the economy, and now we’re seeing the significant issues that have developed adjacent to the pandemic.
Problems Beget Problems
According to the latest analysis by IHS Markit (IHSMarkit.com), the supply chain delays seen this year will carry on well into 2022 and possibly even into 2023. COVID-19 sparked a supply chain crisis that was followed by an economic rebound, resulting in an increased demand for goods throughout all sectors of the economy.
However, as shoppers continue to spend, the manufacturing, transportation and other logistics providers are feeling the pressure, and some sectors just can’t keep pace. The early stages of the pandemic saw a huge reduction in workforce numbers, and while many have returned to work, others have not, leading to labor scarcity in a time when companies need workers more than ever. And labor isn’t the only thing businesses are spending more on — inflation exists throughout the economy, and maintaining operations is expensive in addition to being congested.
Supply Chain Vulnerability & Pressure
Pre-pandemic, supply chains were purposefully designed to deliver product just-in-time and to avoid surpluses. Years of optimization went into achieving these incredibly efficient systems that matched supply and demand as precisely as possible, and in these operations, excess represented an unnecessary expense. Such planning left multiple industries vulnerable to disruption.
When COVID-19 arrived in early 2020, consumers overwhelmed well-functioning supply chains by panic buying and hoarding goods like toilet paper and cleaning supplies. Media attention to these trends only fueled the frenzy, stockouts resulted, and scarcity (even if temporary or just perceived) encouraged further panic behavior. Similar patterns unfolded across the globe in product categories ranging from household goods that you could clearly see missing from store aisles, to less obvious shortages of products like semiconductor chips.
Why the Long Wait?
Recovering from shortages isn’t easy. Remember that in a pre-pandemic world, making and storing products in excess was not part of an optimized supply chain, so to compensate for stockouts, manufacturing typically needs to be ramped up and lead times can take upwards of 52 weeks. After manufacturing, transportation and fulfillment have to be considered, both of which extend the time to market, and demand for all these things poured in all at once.
Relief for supply chain disruptions will unfortunately take time, and with the holiday shopping season holding up demand for more products, we likely will face more challenges before we see smoother operations. The delays will definitely last into 2022…and as for 2023…it’s hard to say. With inflation as high as it is, natural disasters on the rise and a global pandemic that isn’t over yet, it’s wise to keep building those contingency plans.
