Global supply chain disruptions caused mainly by the COVID-19 pandemic have created shortages of computer chips, recliners and many other products in the U.S. and have forced companies to make fundamental changes in how they operate to keep up with rebounding consumer demand.
The pandemic hit a variety of industries that had been cutting back on inventories for years to lower costs. The practice, known as “just in time” inventory management, exacerbated worldwide shortages when the public health crisis forced factories to shut down, workers to stay home and shipping to slacken.
The results have been rising prices and persistent shortages of toilet paper, lumber, new automobiles, olive oil, chicken wings, chlorine for pools, oxygen for medical use, and dozens of other products and services.
“The pandemic was the catalyst, but the challenge was a lot of companies were running very tight with inventory,” said Alan Amling, a former executive at UPS. “There is a price to efficiency that a lot of companies paid during the pandemic when there were supply disruptions.”
Mr. Amling, a fellow at the University of Tennessee’s Global Supply Chain Institute, said the disruptions in worldwide shipping and distribution are the most significant he has ever seen.
“Change is either good or bad, depending on what side you’re on,” he said. “And right now, there’s a lot of jockeying going on for what side of change your company’s going to be on.”
U.S. businesses also have a shortage of workers to build and deliver products. Some analysts and elected officials blame the labor shortage partly on expanded unemployment benefits from Washington, where Democrats have extended extra $300-per-week payments into September.
“Unemployment insurance was pretty generous,” said Desmond Lachman, a global economics analyst at the American Enterprise Institute in Washington. “So at least until September, you’ve got quite a number of workers saying, ‘Why do we need to come back to work if we’re getting something like 80% of our pay by staying at home?’”
President Biden said Friday that it “makes sense” to end the extra $300 unemployment payments when they expire in three months. The White House also isn’t taking issue with Republican-led states that are cutting off the added benefits earlier.
The nation also has a shortage of truck drivers to transport goods, long-haul and locally. The American Trucking Associations said the industry was about 61,000 drivers short in 2019. When the pandemic hit, the demand for home delivery of a multitude of products increased.
Mother Nature hasn’t helped the supply chain crunch. Severe winter storms in Texas forced shutdowns of plastics manufacturers, contributing to rising prices for packaging and hundreds of other products. Shortages of raw materials such as polyethylene have led to factory shutdowns and disrupted the manufacturing of a broad range of products made with plastics, including appliances, exercise equipment and auto parts.
Sophisticated criminal gangs have managed to interrupt portions of the U.S. supply chain. Ransomware attacks, believed to be from locations in Russia, temporarily shut down gasoline supplies on the East Coast and briefly disrupted major meat processing plants.
The law of unintended consequences also has played a part. Mr. Amling said lumber company executives anticipated reduced demand for building supplies at the start of the pandemic and shut down their mills. Instead, they were confronted with greater demand from idled workers who took on home remodeling projects and greater demand for spacious houses with room to telework.
“The housing market and home improvements went through the roof, which no one expected,” he said.
The pandemic hasn’t eased in India and other parts of Asia. Analysts predict some shortages to continue for months.
“A rapidly spreading new variant of the COVID-19 coronavirus is now impacting Vietnam’s northern provinces, where key suppliers of high tech, smartphone and electronics suppliers are located,” Bob Ferrari, managing director of The Ferrari Consulting & Research Group, wrote in his Supply Chain Matters blog. “The country continues to fall behind in obtaining vaccine supply and in vaccinating populations. … Meanwhile, India’s ongoing unchecked pandemic outbreak is straining production and supply chain activity. Taiwan’s latest … data indicates capacity is extremely constrained at this point.”
Vietnamese authorities last week started vaccinating thousands of factory workers at a key Samsung Electronics plant as the country battles COVID-19 in its prime manufacturing region in the north.
Mr. Ferrari noted that a local virus outbreak is affecting one of the world’s busiest ports, serving China’s Shenzhen manufacturing province. As many as 60 container ships have been anchored outside the Yantian and neighboring Shekou ports in southern China, near Hong Kong, as Chinese officials work to contain the outbreak.
The shipping giant Maersk said Thursday that it anticipates vessel delays of up to 14 days because of the backlog at the Chinese ports.
“The situation continues to deteriorate as more positive COVID cases have been confirmed in Shenzhen, where Yantian port and Shekou port are located,” Maersk said in a statement to its customers. “We continue to closely monitor the situation and are doing our best to mitigate the impact on your supply chain where possible.”
The Biden administration on Thursday announced a plan to share 25 million vaccine doses with other nations quickly and distribute at least 80 million doses by the end of June.
The global economic turmoil has forced U.S. businesses to adapt. Some companies with foresight, and perhaps luck, have adjusted better than others.
When Target bought the same-day delivery service Shipt for $550 million in late 2017, Mr. Amling said, some analysts thought it was a bold move and wondered whether it would bear fruit. When the pandemic struck and customers moved to online shopping, the decision proved to be fortuitous.
“Shipt grew 300% in the fourth quarter of last year,” he said.
The retailer’s drive-up service increased by 600%.
“Target made some investments early around coordinating their in-store and online inventory, which helped them respond better in this during the pandemic,” Mr. Amling said.
More retailers are taking greater control of their supply chains by focusing more on ship-from-store operations.
“It was one of the biggest changes structurally to the supply chain because they started using these assets that they had forever — the stores as distribution points,” Mr. Amling said. “And when you’re picking up locally, you can do it in a day, or oftentimes the same day. Companies are looking at ‘How much safety stock do I really need?’ How do I look at alternative suppliers so if there’s a disruption in one part of the world, I’m not cut off from my supply? There’s all of these exercises going on.”