The global supply chain is in crisis because of the COVID pandemic. The world is facing supply shortages caused by reduced labor availability and increased (albeit, necessarily increased) regulatory actions. Issues persisted throughout 2021 and despite best efforts from raw material suppliers, manufacturers, and logistics companies, as we go into 2022, everything from supermarket shelves to car showrooms continues to face shortages.
Supply chain issues are complex and widespread. Many industries still face challenges more than two years after the pandemic initially disrupted logistics.
Prior to the pandemic shipping and logistics operated on a “just-in-time” basis. That is, parts and material were moved to the manufacturing process only when they were needed. This strategy brought about greater efficiency and created leaner logistics. Cash balances realized by lower in-house inventories allowed investment in other areas of business.
Just-in-time logistics work great when the supply chain is not faced with challenges. However, when the supply chain is disrupted as it has been, suppliers can no longer provide manufacturers with materials in a timely manner. Suddenly, part availability drops. Demand vastly outstrips supply. Priority is given to certain products—like consumer electronics—over others. Manufacturers who have no available inventory sitting around must now wait until their orders are filled.
Just like that, the supply chain crumbles.
Shipments slow considerably.
Of course, the problem is more complicated than a simple lack of materials. Shipping itself hit a bump. The speed at which trucks, ships, trains, and planes manage to deliver goods slowed. Even as materials shipped, scheduling and labor shortage issues at major ports all around the world meant that goods sat in the port and moved to their destination at slower rates. Air freight capacities were severely impacted as passenger flights were dramatically cut back. In some situations, products in route to their destination can sit on a plane or ship for weeks on end. And shipping logistic experts have no answer as to why or as to when the product is expected to move.
Labor shortages cause issues.
Lack of labor has also impacted the supply chain. COVID disrupted the workforce and resulted in soaring unemployment rates in the U.S. during early 2020. The unemployment rate has since rebounded. In January 2021, the U.S. unemployment rate stood at 6.4%. By January 2022, it had fallen to 4%.
Beyond the effects caused by the pandemic, labor shortages have been brought on by increased competition. Demand for goods has gone up. Suppliers all over the world need more labor to help meet demand. As the need for labor has gone up, so has cost as companies compete for staff from the available labor pool.
Chip shortages cause major problems.
Shortage of microchips have halted manufacturing across many industries. Materials needed for chip manufacturing became unavailable for months at the start of the pandemic as producers of these materials shut down. At the same time demand for consumer electronics skyrocketed. Orders piled up, but without enough supply, manufacturers struggled to create the chips needed to meet demand. This has caused production delays and prices have risen as supply has become limited.
Other sectors that rely on microchips are affected by the demand for consumer electronics. In general, the market has given preference to consumer goods. Where possible, chips are first put towards the manufacturing of TVs, phones, computers, and the like. Manufacturers outside of the consumer electronics industry must wait even longer for goods as their needs are considered lower priority.
Adding to that is the fact that producing these chips, or semiconductors, is a long process. It can take up to three months to process raw materials into chips. As mentioned, in the early stages of the pandemic, some countries shut down their chip manufacturing plants. In Fall 2020, 83% of respondents told the Semiconductor Industry Association that they experienced disrupted operations due to lack of chips.
Virtually all manufacturers who produce something electronic have hit a snag (and so many of the goods we buy nowadays have chips built in). The industry most visibly affected is the auto industry. Car companies like Ford cancelled their orders for semiconductors at the start of the pandemic, thinking that demand had evaporated. But the auto industry soon realized that the demand was there. The problem: they could no longer produce enough cars to keep up. This has thrown the car market out-of-whack—new car inventory is low and used car prices are high. Similar market pressures have been felt across different industries.
Industrial manufacturers have been impacted by supply chain troubles.
Consumer goods are one thing, but what about business-to-business products—the items that make consumer product manufacture possible? Like consumer goods, industrial equipment manufacturers have hit the same problem; lack of availability of raw materials and components and supply chain logistics holdups.
It starts at the top. Again, the chips that are available have been routed for consumer goods. The more sophisticated the product, the longer the delay. Deliveries on some goods that industrial manufactures need are delayed up to a year or more. Shipping logistics have caused further issues. Even when goods are on their way, shipments themselves face delays.
Faced with these ongoing issues, manufacturers look to speed up production.
At this stage it is clear that product delays are inevitable. Out of necessity, companies like Rheonik and Kemtrak, manufacturers who provide various industries with meters and probes, have looked at ways of speeding product delivery. Let’s examine their efforts in greater detail.
So-called “blind” units, without display readouts, keeps the product moving.
Rheonik is a manufacturer of mass flow meters. These meters are microprocessor based. Some models of their mass flow meters have an LCD-readout screen. But the chips, and the LCD screen itself, are now hard to come by. Rheonik have begun shipping “blind” mass flow meters without the screen. Fortunately, the devices can be connected to a computer system via USB. No information is lost, and updates can still be completed. This strategy has helped Rheonik produce and ship flow meters much more quickly.
Spot buying can help ease the burden, but it comes with risks.
Several manufactures have turned to spot buying, or spot purchasing. This method is used when sourcing goods ahead of time is not possible. These types of purchases are usually unplanned and made up of small orders.
In some respects, spot buying is unavoidable. If manufacturers like Rheonik find an opportunity to procure a good, they have no choice but to act. Purchasing ahead of time is much more difficult now. This has helped fulfil orders in a timelier fashion. But it comes with risks. For one, because demand is high, costs go up. In addition, when spot buying, questions linger—is the product fake? is it new? is it the wrong spec?
If a good that is procured is not new, problems can persist. Manufacturers will not be certain of the component’s reliability. This means more overhead is necessary to ensure quality, a fact that has led to further delays. Reclaimed components—if they are available—are not as consistent as new ones, so failure rates go up.
Stockpiling goods helps—in the short term, at least.
There is no doubt that stockpiling goods can provide some insulation against ongoing logistic nightmares. Kemtrak has employed this method to some success. They have stockpiled components and materials to reduce some of the pressure faced and limit the need to spot buy. However, that has had an impact on cash flow and some development projects have been idled as result, so it has not proven to be the ultimate solution either.
The supply chain shortage has affected industries across all sectors and consumers all over the globe. And economists say that issues can last well into 2022, with no immediate solution in sight. The chaos has forced manufacturers to find new ways to deliver their products. Rheonik, for example, have removed non-essential components to speed up delivery times. Spot buying has occurred more often, an effort that costs more, but that has helped ease the problem.
At South Fork Instruments, we continue to do out best to procure and supply products to those industries that need it most. Get in touch with our experts today to learn more.