The pandemic has upended the global supply chain, throwing once smoothly managed businesses, industries and economies into disarray.
After nearly three years of wild swings and extremes, the system is slowly picking up speed and getting better in sync; have weakened, prices have fallen, warehouses are full (perhaps too full), friendship, rapprochement and recovery efforts have accelerated, and China has lifted its “zero Covid” policy.
“We’ve had a fundamental shift that started about six months ago,” says Timothy Fiore, president of the Supply Management Institute. “There are certain components like integrated circuits [and] microcontrollers that still affect manufacturers’ ability to make material flow. But, by and large, the pressure is off.”
However, many potential roadblocks still loom large.
Globally, developments in China and Ukraine remain ongoing question marks, especially if the manufacturing powerhouse suffers another setback or shutdown, or if conditions worsen in Europe with Russia at war.
Domestically, exports have weakened and the state of consumer demand remains a wild game, said Phil Levy, chief economist at shipping and consulting firm Flexport.
“I wouldn’t describe this as a car that rumbles right now,” he said. “It’s more getting its bearings and trying to figure out what’s going to happen next.”
Among the potential obstacles: in some areas, particularly in Southern California, storage capacity is quite close, he said. In addition, the land distribution network, especially rail and areas where transfers are made from one mode to another, had some challenges, he said.
The system is not yet in a stable state where businesses have a good idea of how long it will take for production, delivery and ultimately sales.
“I don’t think we have it,” Levy said. “There’s still a lot of uncertainty about how long it takes to move things. When we see warehouses full, is this because demand is too low? Is it because people moved things too soon? So there’s a lot of things that are still being sorted out.”
Supply chain activity has yet to normalize, but it is returning to pre-pandemic trajectories, said Zach Rogers, assistant professor of operations and supply chain management at Colorado State University.
“There’s kind of a reaction-overreaction pattern that always tends to happen anytime there’s a major disruption,” Rogers said. “And Covid is the biggest disruption we’ve had.”
At the start of the pandemic, businesses canceled orders in the belief that consumer spending would collapse. However, trillions of dollars were pumped into the economy to get consumers and businesses back on their feet. Americans, stuck at home with fewer outlets for discretionary spending, have turned to e-commerce for their shopping.
A surge in demand for finished goods at a time when supply has been constrained in part by pandemic-related labor shortages and work stoppages, particularly in China’s cities, factories and manufacturing centers, has overwhelmed the global logistics system.
Ports became congested, lead times lengthened, and costs rose significantly how shortages increased throughout the supply chain.
“Everyone was overbooked, and around February and March [last] The year, everything has arrived here, in time for the invasion of Ukraine,” Rogers said.
Gas prices and inflation soared, causing a huge drop in consumer spending.
“The challenge in supply chains over the past 10 months has been to test the needle between bringing inventories down to reasonable levels while once again not reacting, and [landing] return to the state of deficit,” he said. “We’re moving back to the trendline in a way that we haven’t done in the last few years.”
Contributing to this is that supply chains are much more resilient now than they were in late 2019, Rogers said.
“In 2019, we basically had all our chips on one side, which was that things are built in East Asia, come by ship through ports in Southern California, they get on trains that go to Chicago, and then on other trains. or trucks to distribute to the East Coast,” he said.
And while divorcing China is nearly impossible, companies are taking different paths to the supply chain, whether it’s in Vietnam, Bangladesh, Central America or domestically, Rogers said.
“Because of that, supply chains are not as fragile as they were three years ago,” he said. “And so if there’s another shock, particularly if there’s a China-centric shock, I think we’ll be able to absorb it a little bit better than we’ve had. But you can’t estimate something like the invasion of Ukraine or a virus outbreak that shuts down the world.
Rogers is also a researcher and co-author of the Logistics Managers Index, a monthly survey of supply chain executives conducted by a team of university researchers and the Council of Supply Chain Management Professionals.
The December reading of the index, which measures inventory levels and costs; storage capacity; usage and prices; transportation capacity, utilization and prices was 54.6, up 1 point after an eight-month decline.
Most of the LMI readings were in the 40s, 50s and 60s, Rogers said, noting that it was the first time since the start of the epidemic that the indices were not in the 70s or 80s.
“If you’re in your 40s, it’s a contraction, but the 50s is a normal, healthy growth rate,” he said. “In a month there could be another huge black swan event that throws everything upside down. but at the moment respondents seem to be predicting stability in the supply chain.”
If anything, the pandemic’s shock to the supply chain should be a wake-up call, said Jack Buffington, director of supply chain and sustainability at First Key Consulting and assistant professor of supply chain management at the University of Denver.
“I would classify it as ‘effectively broken,'” said Buffington, whose own book, Reinventing the Supply Chain: A 21st Century Pact with America” was delayed due to supply chain issues.
“All supply chains are really supply and demand, and there’s been so much disruption in materials and consumer demand with labor, inflation and geopolitics,” he said. “The basis of the model itself is broken compared to what are the requirements today. The complexities associated with a globalized supply chain, human systems cannot handle it.”
He added: “Covid wasn’t the cause of the supply chain problems, it was a trigger to show how bad it was,” he said.