Global supply chain bottlenecks have been affecting the global economy, ever since the COVID-19 pandemic started. As industries and businesses were forced to shut down, this had an extreme effect on restraining the supply of different products.
Coupled with the inefficiencies caused by the pandemic restrictions, and the lower number of shipping vessels traveling across the globe - shortages were inevitable.
Here are the reasons behind the supply chain disruption, its consequences, and what is being done in order to fix them.
What are supply chain bottlenecks?
Supply chain bottlenecks happen when the supply chain is constrained due to higher than expected demand. This causes a supply chain disruption that could affect businesses across multiple industries.
The COVID-19 pandemic has created several supply chain bottlenecks, that are still being dealt with. Due to these sudden changes in demand, supply had to adjust in order to find a new supply-demand equilibrium.
Since the reopening, global supply chains are still adjusting, as demand returns to pre-COVID-19 levels.
What causes supply chain bottlenecks?
There are several causes of the supply chain bottlenecks we are experiencing, however, they all stem from the same main cause - the COVID-19 pandemic.
The pandemic has completely altered consumer behavior, and the restrictions to limit the spread of the virus have affected businesses in a nearly irreversible way. Here are some of the causes for supply chain bottlenecks:
- Rapid changes in consumer behavior
- Businesses shutting down
- Restrictions limiting the transport of goods
- Lower demand following the pandemic
- Higher demand after the reopening
- Lower supply
- Pandemic restrictions, and shutdowns
- Production hurdles due to the lack of supply
- Labor shortages
- Changed consumer preferences
- Trade restrictions and tariffs
The COVID-19 pandemic created a unique situation that inevitably impacted the supply chain across several industries. The combination of all of these factors only accentuated the severity of the supply chain disruptions felt across the world.
What are the consequences of supply chain bottlenecks?
There are several consequences to the supply disruptions:
- Unavailable products
- Limited stock
- Longer wait times to receive products
- Delayed delivery
- Businesses unable to operate at full scale
- Inefficient manufacturing
- Industries working at lower than full capacity
- Higher costs of products
- Longer backlogs
- Difficult to make estimates and forecasts
- Changing transport costs
It should be noted that some of these consequences vary depending on the industry, sector, and location.
How can you avoid supply chain disruption?
The supply chain disruption showed how many businesses large and small were totally unprepared for such a situation. However, there are ways to minimize or avoid supply chain disruption and its consequences.
Here are the main ways to avoid supply chain disruption:
- Increase inventory and stock
- Optimize the manufacturing process
- Adjust production capacity for changes in demand
- Schedule production according to demand
- Establish contracts with suppliers
- Reduce backlogs
What are the major supply chain issues?
The major supply chain issues are the non-availability of some products and constant manufacturing delays that reduce the company’s ability to operate normally.
Why is the supply chain slow?
The main reason why the supply chain is slow is due to the COVID-19 pandemic. Since there was a rapid decrease in demand, businesses on the supply side had to adjust. This led some companies to reduce their production and their overall output.
As the world economy returns to normal, it takes time for companies to employ new workers, and ramp up production to pre-pandemic levels. Some other issues caused by the pandemic are also making the process slower, like:
- Pandemic restrictions
- Labor shortages
- Decreased inventory
- Factories not working at full capacity
What caused supply chain disruption?
The main reason for the supply chain disruption was the pandemic, and how fast it spread across the world. This forced governments to enforce lockdowns and restrictions, limiting businesses from operating under normal circumstances.
Consumer behavior and preferences were also affected by the pandemic, which forced businesses worldwide had to adapt to this new reality. Both the manufacturing and logistic infrastructure had to drastically change their modus operandi.
Why are there so many supply shortages?
There are so many supply shortages because demand suddenly contracted after the COVID-19 pandemic started. As the world economy reemerges, demand is returning to pre-pandemic levels. Businesses worldwide are taking time to increase their production to 2019 levels.
Is the supply chain getting better?
Overall the supply chain is improving, since the number of COVID-19 cases is decreasing, with most countries lifting restrictions. However, there are some industries that are still struggling to keep up with demand.
The semiconductor industry has been the most affected. As the demand for chips remains very high, companies in the sector have a hard time meeting that demand. In turn, this has pushed semiconductor prices higher, which naturally increases the prices of products that use them, such as electronics.
Are supply chain bottlenecks creating inflation?
One of the reasons that have been attributed to the high inflation we have been experiencing in the supply chain bottlenecks. Although this is partially true, it also varies depending on the specific industry.
After the pandemic, several industries were forced to lower their productions or even shut down completely. This created a situation where the production of these goods was completely altered. In turn, the supply drastically shrank.
Most of the supply chain disruption we have been experiencing happened following the reopening. With everyone getting back to their normal life, the demand for certain products skyrocketed. Since suppliers were still getting back to their previous production levels, this led to shortages.
Understanding the chain reaction of supply chains
One of the most significant impacts of the supply chain disruption is its influence on many other industries. Businesses are all dependent on each other, in one way or another.
For example, a semiconductor manufacturer, that is unable to produce the chips that auto manufacturers need will, in turn, have an effect on that industry. The automaker is unable to produce the vehicles they intended, and in turn, the car salesman at the dealership is unable to sell more vehicles. This in part explains why the prices of used cars have increased a lot shortly after the pandemic hit.
The extreme impact the pandemic had on the supply chain worldwide is a case study, for how sudden changes in demand and supply can affect the whole chain. Although most of the supply chain problems have been overcome, there are still some small industries that still need to catch on.
Namely the semiconductor industry, which has been completely disrupted by the pandemic. In turn, companies that rely heavily on semiconductors to make their products are now restrained and will take longer to recover.
The supply chain bottlenecks have brought to our attention how dependent different industries are on each other.