Supply chains are how products get from manufacturers to store shelves and consumers’ homes. Ordinarily, people rarely thought about how supply chains work and the ways they can break down. That is, until a global pandemic demonstrated that favorite foods could be out of stock for months and prices could suddenly shoot up. Even now, supply chain issues can intensify in a world where online shopping makes it possible to buy products on a dime.
Already existing problems, such as supplier dependencies and labor shortages, become visible bottlenecks that worsen pent-up demand. The COVID-19 pandemic may have brought many of these underlying supply chain issues to light. However, the global economy continues to feel the pandemic’s aftershocks on a system that depends on several moving parts. Let’s look at four facts you need to know about supply chain issues.
1. Online Stores Increase Product Demand
Online stores make it easy to buy nearly any product and schedule next-day or same-day delivery. It’s often far more convenient to browse virtual shelves and make a few clicks. You don’t have to drive to a store, deal with a crowd, or wait in line at a checkout stand. Because of these factors, online shopping is a timesaver for many. Plus, shoppers can instantly see if products are available and what they cost.
That being said, e-commerce growth puts additional strain on supply chains. Some products are now available through a multitude of physical and digital stores. More items must flow from manufacturers and warehouses to consumers, putting pressure on distributors and shipping carriers. Costs and competition for resources like limited warehouse space can increase as product demand does.
Small but growing businesses and independent online sellers may find it difficult to secure enough warehouse space. These sellers compete with household names for space and other distribution network resources. Partnering with a third-party logistics provider can help alleviate these worries and streamline costs. That’s because a 3PL company handles storing, packaging, and shipping. A 3PL partner also manages returns, also known as “reverse logistics.”
2. Just-In-Time Inventory Systems Create Vulnerabilities
If you went to business school or worked in a supply chain, you’ve heard of just-in-time inventory systems. But even if you haven’t, the JIT concept is exactly what it sounds like. Manufacturers make products according to demand projections, and retailers receive and stock them “just in time.” Instead of keeping a bunch of products on hand, businesses make them available when consumers want them.
However, entire supply chain networks, from manufacturers to retailers and sellers, rely on data to make this happen. That information is usually historical and comes from several sources, including sales data from retailers’ point-of-sale machines. For a JIT system to work, data has to be extremely accurate and flow smoothly between everyone in the supply chain. This includes every supplier, warehouse distributor, and store or seller.
When unexpected disruptions like global pandemics happen, the seamless coordination JIT systems depend on is suddenly absent. JIT inventory systems may boost profits and create supply chain efficiencies under normal circumstances, but they’re not as agile. The drive to control costs and mitigate losses under JIT models may also create dependencies on a few suppliers.
If those suppliers can’t make or ship products, a supply chain can grind to a halt. This was seen during the pandemic as shipments out of Asia became stalled, backed up, or cut off. Some retailers are considering alternatives in light of the issues that arose with JIT systems during extraordinary circumstances. One of these is the just-in-case model, which does build some backstock as a buffer.
3. Labor Shortages Exist in the Transportation Industry
Products don’t move without trucks, trains, planes, and ships. These vehicles also won’t go places without skilled and licensed operators. However, the transportation industry is facing growing labor shortages because of a history of high turnover. Large truckload carriers reported a turnover rate of 92% in the fourth quarter of 2020. Smaller carriers had a turnover rate of 72% during the same time frame.
The trucking industry’s physical demands, driver safety concerns, and pay cuts are some of the reasons behind high turnover rates. Simultaneously, drivers are retiring before employers can find and train replacements. Post–Gen X workers are less likely to see a job in transportation as desirable. A lack of work-life balance is one reason. Another is different state stipulations and standards for commercial driver’s licenses.
Making jobs in the transportation industry more attractive is a significant challenge for employers. It demands cooperation and coordination between the private and public sectors. A combination of financial incentives, national licensing standards, and stronger safety measures are potential solutions. Technologies such as automation and artificial intelligence may also help fill some of the gaps.
4. Supply Chains Experience Equipment Shortages
In addition to labor shortages, supply chains can run out of equipment like shipping containers and intermodal chassis. The latter is the trucking equipment that moves shipping containers once they arrive at a port. Supply chain networks can’t move products efficiently without these types of equipment.
As a result, products have to sit in warehouses until enough containers are available. It can also take longer for full containers on a ship or at a port to move. Equipment shortages create more bottlenecks and delays, which lead to empty store shelves and out-of-stock labels on digital store products.
Equipment shortages may raise the prices of shipping containers and chassis. Consumers often bear the brunt of these increased costs, which may already be on the rise because of high demand. Boosted manufacturing of supply chain equipment is part of the answer. But tighter coordination between all supply chain network stakeholders is also necessary.
Supply Chain Facts Are Unignorable
The last few years have shown that supply chains are vulnerable to disruptions. Online stores, JIT inventory systems, and labor and equipment shortages can lead to out-of-stock products and shipment delays. Correcting existing deficiencies will call for agile and synchronized solutions between manufacturers, logistics providers, and sellers.