And while people often look to inventory first, this is not the only solution.

… including sourcing from multiple suppliers in diverse locations, having some excess or backup capacity that can be brought online quickly, and holding inventory as safety stock. “In the near term, I expect companies to exhibit renewed vigor in applying resilience measures. “Companies need to reevaluate their disruption-mitigation strategies and be prepared to invest more in resilience,” he said. In fact, he adds, a potential overcorrection could result from the bullwhip effect, meaning consumers could see a surplus of some previously hard-to-find items and potentially, lower prices.įor businesses, recovering from this global supply crisis means acknowledging the disruption risks are more significant than we once thought, Swinney said. “Companies are increasing capacity and demand will moderate after the holidays.” “The most important thing to know is that these shortages aren’t going to stay,” Swinney said. Those interruptions are typically limited and don’t have the power to cause the sweeping issues that a pandemic can, he said. Swinney conceded that coal and related energy issues affecting factories in China have also strained production, but most businesses have diversified their supply chains to account for temporary outages and weather emergencies. That is, to avoid over-ordering and duplicate ordering so that we don’t overcorrect for these disruptions while still building the necessary capacity to meet growing global demand.” “The real key is to make sure accurate information regarding retail demand is being conveyed to firms deeper in the supply chain. “Some companies may already be anticipating this,” Swinney said. This pattern can repeat at each link in the supply chain.”Īlthough these are small adjustments at each step in the supply chain, the compound effect of these changes can create the appearance of a huge swing in demand, he said, generating a pattern known as the “bullwhip effect,” which gets its name because only a minor flick of the wrist creates significant motion in a whip. Also anticipating further growth, the supplier inflates its orders with its suppliers not by 15 percent, but by 20 percent. Now their supplier sees a 15 percent increase in retailer orders. “Anticipating continued growth, it inflates its orders with suppliers not by 10 percent, but by 15 percent. “Imagine a retailer sees demand increase 10 percent for a product,” he said. This can create distortions that ripple through supply chains, Swinney said. It takes time and careful analysis and cooperation by all stakeholders in this process.”ĭistortions to demand: the ‘bullwhip’ effectĪs companies see increased demand for their products, they scramble to keep up. “Each bottleneck needs to be fixed and that immediately exposes another bottleneck. “It’s an iterative process that takes a while,” Swinney said. 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. But ports don’t have a place for so many containers to be unloaded, he said. coastlines as an example.Ī long line of cargo ships may make it seem like ports need to unload faster. When that happens, “all steps in the supply chain need to be examined and potential bottlenecks need to be alleviated,” Swinney said, offering the long queues of cargo ships off U.S. 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. Running close to capacity makes production and distribution more cost-effective, he said, but that means it also doesn’t take much to overwhelm them. That means they don’t have a lot of excess capacity,” he said. “Things like factories, ports and trucking capacity are expensive, so they’re designed to run at high utilization. It appears that three major issues have contributed most to the chaos: COVID creating a shortage of workers that has reduced production capacity around the world, distortions to typical demand due to changes in customer purchasing behavior, and the fact that manufacturing and logistics systems are often run at or near their maximum capacity, he said. “This is something that we will be studying for a long time, so the answers are not entirely clear, but it appears to be a combination of complicated global supply networks and logistics processes that are being simultaneously strained at many different points,” Swinney said.

Supply chain issues 2021