By Dr. Kandis Y. Wyatt, PMP
Faculty Member, Transportation and Logistics
From a business perspective, 2021 taught us a lot. Many businesses had to pivot on a dime and learn to be more e-commerce friendly to attract and retain their customers. They had to build an online presence, develop systems for online purchases and hire customer service specialists.
While businesses adjusted to 2021 pandemic challenges, most laypersons were relatively unaware of the term “supply chain” and its importance until they experienced major disruptions in 2021. For instance, certain products such as toilet paper and hand sanitizer grew difficult to find at many local stores.
However, everyone from local business owners to citizens of all ages gained a new awareness of what a supply chain is and how it affects every aspect of their daily lives. Here are some key factors related to the supply chain that more consumers and businesses have come to appreciate.
The Laws of Supply and Demand
It’s a common concept in the supply chain world and economics that supply and demand are inversely related. When items are in high demand, the supply of those items decreases and their cost rises. When there is an ample supply of a product, the demand and cost decrease.
Over time, common items such as toilet paper, cleaning wipes, hand sanitizer, appliances, laptops and electronics became less available. Consequently, we started see a spike in the price of these items.
Some of the cost spikes in electronic products can be attributed to a lack of microchips needed to power them. As a result, the quantity of items decreased as the demand increased.
Backlogs Due to Lockdowns and Quarantines
The COVID-19 pandemic caused problems in many supply chains when countries imposed quarantines and lockdowns. Some nations have had to endure multiple shutdowns or quarantines of 14 days or more; many countries also restricted the air travel of passengers from other nations.
However, consumer demand did not take a hiatus, and order backlogs developed at many companies. Without ample staff at some businesses, orders and shipments were delayed as much as two to three months.
Similarly, the restrictions on air travel and other forms of transportation have made it difficult to ship raw materials through the supply chain. That has also caused prices to spike for certain products.
A Decreased Reliance on Global Partners
Prior to the pandemic, many businesses relied on global partners for goods and services. They enjoyed cost savings because the labor in other countries was cheaper than in the United States. Also, ordering in bulk often resulted in lower prices when there was a predictable delivery schedule.
However, the drawback was the time needed to ship those materials to the United States. When countries imposed lockdowns and quarantines, the supply chain was adversely affected. Companies’ production and distribution became more difficult, and global distribution decreased.
Due to long delivery delays, local and regional companies had to find local distributors for materials, goods, and services. In many cases, businesses found local suppliers who were more reliable and provided various services in less time.
New Government Policies to Reduce Shipping Backlogs
While all forms of transportation were affected by the COVID-19 pandemic, ship/ocean deliveries were particularly affected by the pandemic. In some cases, some of the country’s largest ports had backups extending for several months. Consequently, President Biden imposed new regulations mandating 24/7 operations at some of the nation’s largest ports to reduce the backlog.
New Hiring Tactics
The pandemic has caused a shortage of available labor, such as in the trucking and delivery industries. For multiple reasons, such as age, certifications, and salary, people have chosen not to pursue a career in trucking or delivery.
To attract more employees, companies have increased wages and offer benefit packages and signing bonuses to job candidates. Hiring tactics have shifted to provide more initial perks as opposed to the long-term perks given to loyal employees who stay with a company for a prolonged period of time.
Changes in Shopping Habits
With production and delivery prices going up on many items – especially vehicles, food and gas – the costs have been passed on to consumers. As a result, consumers are becoming more savvy in their shopping habits. Many people have opted to keep their household costs low by opting for generic brands, waiting for sales, using coupons or postponing their purchases.
A big part of the supply chain is reverse logistics – the process involving customers sending items back to retailers or suppliers. The most common form of reverse logistics is returned products. Companies can use returned items in a multitude of ways: they can resell, refurbish, recycle or discard products.
For businesses, each method of using returned items has its pros and cons, but each method must provide a benefit to the company. However, companies quickly realized that with fewer workers, some returns ended up costing the company more money than the item was worth.
In these cases, it was easier to give a credit to a customer and allow him/her to dispose of an unwanted item. While this tactic may seem like a win for the customer, the company often incorporates such costs into future sales, which ultimately affects customers’ finances.
Disruptions in the global supply chain caused major backups at seaports. As a result, water became polluted around ports from ships sitting idle for weeks on end.
In addition, when a barge became lodged in the Suez Canal, multiple ships had to expend their fuel and dump waste in and around the canal, causing additional environmental pollution. In addition, a ship’s anchor punctured an underwater pipeline while the ship was waiting to enter the Port of Los Angeles and caused millions of dollars of damage to the beach and surrounding waters.
Ultimately, 2021 helped bring a new awareness to everyone about the importance of a well-run supply chain. Just about every aspect of the daily human experience can be traced to a smoothly run supply chain. The year 2021 helped companies rethink efficiencies, develop new partnerships, and harness new methods to keep goods and services moving from suppliers to retailers to customers.