Thursday, November 11, 2021

Supply Chain Woes Today: Predictable in Early 2020

Supply chain issues have been in the news a lot. As well as worker shortages, the Great Resignation (voluntary leaving of jobs) in healthcare and customer service type jobs, particularly. But while some people in the news like to blame politicians, most of us in business must admit that there are many other non-political reasons for shortages:

  • Diversion of materials and goods manufacturing to deal with COVID crisis last year, whether it was a massive shift to technology goods for remote work or diversion of steel from automotive to other industries; it can take a bit to have a return of distribution into the abandoned channels. Ever play the Beer Game?
  • Workers staying home: half stayed home because of COVID fears and lack of childcare. Even with the loss of extra unemployment benefits in the US and the reopening of most public schools this fall, many workers are still staying home.
  • COVID is still having an impact on the labor force availability. Perhaps you've seen reduced hours--even temporary closures--of many restaurants and grocery stores because of a lack of staff due to COVID exposures.
  • Many developed nations import from less developed nations and they have not had the COVID vaccine availability and therefore a much, much lower rate of resistance to the virus. Thus, the labor force effects we see here are amplified in those countries, which can mean goods and source materials being in short supply.
  • Logistics issues are exacerbated with yoyo demand in goods (remember the Beer Game?). Therefore, there can be excess pressure on trucking, shipping, air freight and so on creating log jams...and, you guessed it, shortages of goods and materials being available. Business inventories dropped 5% in the 1st 3 months of the pandemic and slowly rebuilt through the late winter 2021.
None of these have to be greater than at a 5% deficit for it have substantial impact throughout the economy. Suppose there are 10 steps--and this is very conservative--from raw materials to goods on the shelf. Let's say on average each step is 95% reliable (full quantity, on time). This is simplified because if any one step is lower than that, say at 90% or 80%, then the whole supply chain is maxed at the level optimistically. The probability that a good will be at full quantity and on time at the final stage is...60%. Therefore, 40% of the time or 2 out of 5 days or 2 out of 5 goods will be short at the point of sale (POS).

Ignore the politicians. This was predictable a year ago without a global recovery from pandemic health effects.

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