How did they impact the economy and what’s next?
Supply chains are networks – means of sourcing and delivering various goods and services around the world. Unfortunately, due to the complications resulting from the pandemic, businesses and consumers have learned firsthand just how vulnerable these networks are, and how critical they are to delivering what we and others desperately need.
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Here’s how the supply chain impacted the economy this year – and also what the future may hold for us.
Why did the supply change shortage occur?
Supply chain shortages began in the first quarter of 2020 – at the start of the pandemic. Factories around the world have been forced to scale back or shut down production due to the spread of COVID-19 and the lockdowns that resulted. Because factories weren’t shipping as much – or no cargo at all – shipping companies responded by clarifying their schedules.
Shipping companies were then called upon to act to ship personal protective equipment around the world. Unfortunately, many of these containers were unloaded in destination countries, emptied of their cargo and not returned, resulting in a shortage of sea containers.
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At the same time, consumers were forced to shelter in place, which meant they no longer participated in activities like dining out, traveling, and obtaining personal care services. Soon they became restless and found other ways to take care of their homes, such as making home improvements, purchasing home office facilities, investing in gaming systems, and ordering small household appliances.
Even though some companies have increased their production to meet the new level of demand for their products, they have not been able to source some of the parts or raw materials that they need to continue production due to factors such as as transport delays, closures of major Chinese ports, container shortages and reduced manpower to load and unload goods. As a result, production eventually came to a halt and a shortage of goods prevailed.
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How do supply chain shortages affect businesses?
“Most consumers don’t really understand how incredibly complex today’s supply lines are,” said business expert Monica Eaton-Cardone, owner, co-founder and COO of Chargebacks911. “Companies can import some parts from China, other parts from India, maybe rare earth elements from elsewhere – and if there are any delays at any point, it limits how quickly these products can be bought, assembled, packaged, shipped and sold.
“As we’ve seen recently, this causes prices to increase because all the efficiencies that have been so carefully built into the supply chain have collapsed. This ends up leading to shortages, shortages, and many unhappy consumers, especially during the holiday season. A broken supply chain is unpredictable and the system cannot operate without reliability in supply and without predictability in shipping.
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Why does the supply chain make such a difference to our global economy?
“To be competitive in the global economy, companies must outsource and build supply chains,” said Dr. Tenpao Lee, Emeritus Professor of Economics at Niagara University. “The success of a supply chain depends on great collaboration, coordination and communication. Any small disruption would ruin the entire supply chain system. For example, car manufacturing cannot continue without simple computer chips. Port congestion can cripple many related industries.
Eaton-Cardone explained further:
“When our supply chains are functioning as intended, they are truly a marvel of modern business science,” she said. “The price of smartphones, for example, would increase exponentially without reliable and reliable supply lines. Some of the smartest, most knowledgeable people in the world’s largest companies have dedicated their lifetimes to maximizing efficiency imaginable. That’s all they do, and they’re pretty good at it. They are therefore extremely complex and very complex logistics systems, but everything must move at the same time in order to maximize efficiency. Unfortunately, this is also its greatest vulnerability: an immovable shutdown at one point can destabilize the entire operation, and the Rube Goldberg-style assembly system will come to a halt inglorious. “
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What’s the next potential step when it comes to supply chain issues?
“At some point, the crisis in our supply chain will ease and return to normal,” said Carlos Castelán, managing director of The Navio Group, a retail consulting firm that advises companies on way to overcome supply chain challenges.
“But until then the key to the future is inventory,” he said. “For commercial retailers, inventory could be the difference between success and failure in early 2022. The first and possibly second quarters of 2022 will be a test of retailers’ supply chains and operational capabilities. With shortages of many key components for manufacturers as well as labor shortages – or shutdowns around the world due to COVID – retailers are facing a variety of headwinds on different fronts. “
Having a strong inventory position while providing convenience to customers – in many ways just retail fundamentals – will position local retailers to meet demand.
Dr Lee agrees that companies need to be well prepared to effectively manage ongoing supply chain issues. And it looks like the government has a lot of work to do as well.
“The pandemic has provided a good opportunity for companies to be creative in setting up and balancing their internalization and outsourcing activities,” said Dr Lee. “Only companies with a competitive advantage will prevail in the long run. In the meantime, the government must reassess its infrastructure strategy with improved traditional pillars such as port capacities and new developments in the fields of artificial intelligence, automation and 5G information technology.
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This article originally appeared on GOBankingRates.com: Supply Chain Problems in 2021: How They Impacted the Economy and What’s Next?