Understanding and Coping with the Supply Chain Crisis
The year 2021 was supposed to be a brighter year for businesses in the U.S. after many troubles in the preceding year due to COVID-19. However, fast forward to the end of 2021, the economy was not as good as predicted. As reported, the U.S. saw the highest inflation in the last 30 years. According to the Bureau of Labor Statistics, wholesale prices rose 8.6%, and consumer prices grew 6.2% in October compared to 2020. Moreover, the U.S. experienced widespread shortages too. As a result, Black Friday sales last November were much calmer than those in the past. All of these were driven by one factor: the supply chain crisis.
SUPPLY CHAIN IN 2021
A supply chain is like an orchestra; every member has their task, but all members must work together in sync to play a symphony. It also works similar to a relay race; passing the baton is critical, and it requires good communication, cooperation, and coordination between the runners. Unfortunately, the United States witnessed the complete opposite of a beautiful symphony, causing a supply chain crisis. There were stock outs, shipment delays, labor and truck drivers’ shortages, and seaports jams. At the root of these disruptions is the global COVID-19 pandemic.
In short, Americans who were forced to stay at home during the pandemic set off a surge of orders, led by home furnishings and household appliances orders. The arrivals of these high orders caused a logjam at the U.S. major seaports. Ports have a limited capacity to load and unload containers, and the pandemic and its restrictions have further limited their constraints. Moreover, there has been a shortage of truck drivers and warehouse labor. Finally, there have been shipping-container and chassis shortages that added a layer of complexity. The crisis showed how vulnerable the supply chain is. Throughout the past two decades, firms have focused on applying lean strategies such as just-in-time (JIT), zero inventory, or slack minimization. Research shows that lean systems allow efficiency that can increase firm performance. However, such strategies carry higher risks and stretch the supply chain thin, leaving only a small tolerance to supply disruptions. To mitigate these problems, firms and the government took necessary measures. Some were successful. However, others were unsuccessful and created new problems. Unfortunately, small firms ended up paying the consequences.
STRATEGIES FOR SMALL FIRMS
During the supply chain crisis last year, small firms suffered the most. They paid shipping costs multiple times only to receive a small portion of their orders. Furthermore, they absorbed most of these costs because they did not want to risk losing customers if they increased the price. It is time to rethink and redesign the supply chain to be more resilient to handle disruption.
SUPPLY CHAIN OUTLOOK 2022
The U.S. will see the effects of the 2021 crisis flowing into 2022.
There will be a price increase across a broad category of products. Many firms passed on the increased costs to their customers. As a result, there was a decline in Thanksgiving sales in 2021 compared to the previous year.
Inventory hoarding, logjam, and unsold holiday products will cause surpluses in some product categories.
By contrast, there will be a shortage in other product categories given current economic conditions and the recovery of factory production.
However, declining freight rates, easing port congestions, and the end of the holiday season can be reasons to be cautiously optimistic in 2022. As a result, supply chain activities will be calmer in the year’s first quarter; it will be an excellent time to evaluate and reflect.
The U.S. supply chain will go through a round of evolution in 2022. This evolution brings new opportunities for small firms as many firms will consider redesigning their supply chain.
Following the 2021 crisis, firms will pay more attention to supply chain risks by identifying and mapping possible disruptions in their supply chain.
Firms demand more control over their supply chain. Some examples include diversifying the supply base, finding local sources, and exploring substitute materials or products.
Firms expect more visibility and quick information from their supply chain partners to prepare for disruptions.
There have been many changes in consumer behavior following the pandemic. As a result, firms will invest in more slacks and flexibility to adapt to changes quickly.
Finally, the government can facilitate the relationships between private and public sectors across regions to integrate the supply chain. In addition, the government needs to come up with policies and provide solutions that benefit all stakeholders, including small firms.
