Supply Chain Issues: 'There Really Are Problems Everywhere,' Even For Small Companies
(CBS Baltimore) -- Why are store shelves always half empty? Why do deliveries take so much longer than they used to? Why is everything more expensive lately? The short answer is supply chain issues. The long answer, explaining the various problems affecting the global network that transports goods from producers to your door, is not that simple.
It goes without saying that the once-in-a-lifetime COVID pandemic has exacerbated existing problems. That includes a shortage of workers along the path that products take from the factory to consumers, creating multiple bottlenecks in a system that depends on timeliness to function. And this has happened just as demand drastically increased for those products.
Even the more complicated explanation doesn't fully spell out why consumers can't buy what they want when they want. That's because there are no easy answers and no quick fixes.
What Is The Supply Chain?
The supply chain is the series of steps that brings a product to a customer. Martin Dresner, Professor and Chair of the Logistics, Business and Public Policy Department at the R.H. Smith School of Business at the University of Maryland, describes it as the "network of manufacturers, their suppliers, distributors, retailers that are responsible for getting products from point of origin to the final customer."
The network for any given company can start with suppliers of raw materials and other inputs, and include shipping those supplies to a manufacturing facility. Once inputs are transformed into a finished product, it is moved to a warehouse or a store and then ultimately to the final customer. Various agents, brokers, vendors, transportation companies, and distribution centers can play key roles along the way in ensuring a product gets made and reaches its final destination.
A supply chain for a large company can get very complicated very fast. Dresner describes just how complicated in an example of a typical packaged goods company: "A packaged goods manufacturer has many suppliers, and those suppliers will be supplying raw materials for use in the production process. And that could be farmers, or farmers can sell through distributors. Or the product used by the manufacturer might be manufactured themselves, so they may have other components suppliers."
"We think of the suppliers that sell directly to Procter & Gamble or Kellogg's as first-tier suppliers," he continues. "But then there are people who supply them, and we would call those second-tier suppliers. And there could be third-tier, fourth-tier suppliers as well, all the way back to where the components of the product originate. That manufacturer also may not do all the manufacturing themselves. They contract out some manufacturing. Those contract manufacturers are also suppliers to packaged good manufacturers. And they have their own supply chains."
Once a product is produced, it must find its way to the consumer.
"Manufacturers will often not sell directly to customers, but they will sell through distributors," Dresner further explains. "Distributors may sell to retailers, and manufacturers may sell directly to retailers. There can be other companies involved in the sale and distribution of products. There can be agents or brokers, transporters. There are all sorts of companies that need to be involved in getting the product to their eventual end user. All these companies, they're a part of that focal firm, that packaged goods manufacturer's supply chain."
So many steps along the way leave plenty of opportunities for slowdowns. And those slowdowns build upon each other to create growing delays for a company.
Multiple Elements Are Making Matters Worse
Now imagine that every company that produces and/or sells a physical product has its own unique supply chain. Some are more complicated, some are less complicated. But all of them have basic elements in common. And all leverage the same regional, national and global systems to (hopefully) deliver their products to their consumers in a timely manner. This broader global pipeline of goods is the "supply chain" that's garnering headlines for causing delays and inflating prices.
Cargo ships carrying approximately half a million shipping containers filled with goods from various countries in Asia await offloading at the ports of Los Angeles and Long Beach. Once they are offloaded, a shortage of truck drivers prevents those containers from moving out of ports in a timely manner. Railroad terminals, where trucks deliver goods for the next leg of the journey, are backed up with containers awaiting further transport, which, in turn, also block inbound trains. Should those goods somehow make it to a warehouse, worker shortages are limiting their timely processing. (These various bottlenecks also create delays in the other direction, as empty containers or containers filled with domestically produced goods destined for Asia can't return across the Pacific.) And, as if all of this weren't enough, the United States Postal Service has recently slowed its delivery times.
The COVID pandemic is certainly to blame for this cascading array of problems in the supply chain. But it isn't the only culprit.
A global microchip shortage, exacerbated by Texas winter storms that affected domestic production, is slowing the production of cars and various electronic devices. China, where many consumer goods destined for America are produced, is suffering through an ongoing energy crisis that's curtailing manufacturing. And manufacturers in many other countries with lower rates of vaccination have endured shutdowns and worker shortages brought on by the spread of the Delta variant.
One Small Company Suffering Big Supply Chain Problems
The Unemployed Philosophers Guild (UPG) is one of the many companies navigating the supply chain issues affecting the entire marketplace. The Brooklyn-based gift company specializes in creating and selling smart and funny gifts for smart and funny people or, as their website puts it, "fulfilling the people's needs for finger puppets, warm slippers, coffee cups, and cracking up at stuff."
Finger puppets of famous people, known as magnetic personalities, are among its most popular gifts, according to UPG Director of Sales, Trudi Bartow. Current bestsellers include former Supreme Court Justice Ruth Bader Ginsberg, former painter and television host Bob Ross, and President Biden's Chief Medical Advisor, Anthony Fauci.
"We partner with the manufacturer to physically make that product," according to Bartow. "I would say that 65 percent of our products are made overseas, which is a little bit different than if they're made in the United States. Supply chain issues for the most part right now are overseas issues, so I'll focus on that. Once our manufacturer has made the product, then we load it onto a container, load that container onto a boat. We ship that boat to the U.S. It goes to a port. It gets taken off the boat. The container is put on a rail. The rail goes into our warehouse. Our warehouse takes the container and puts it all on the shelf and marks it all as in stock. And then we sell it to physical stores or to online stores, doesn't really matter. And that product is then taken out of the warehouse, put on a truck, shipped to the store, and then put on that store's shelves, either physically, so someone can walk in and remove it and purchase it, or in some online stores purchase it and then it is shipped to them."
Those finger puppets, like many of UPG's other products and goods across the economy in general, are taking longer to get to market. "We are not unique, as is any gift manufacturer or any manufacturer of any product," says Bartow. "There are pretty much issues throughout the entire process, throughout the entire supply chain... There really are problems everywhere."
Where Are The Problems?
The United States is the world's largest economy. Individual consumer purchases account for over two-thirds of economic activity. Some of those purchases are services, like dry-cleaning or a meal at a fancy restaurant. Some of those purchases are goods, which could be anything from an Anthony Fauci finger puppet to a $45,000 SUV. Many Americans, particularly those with more discretionary income, shifted their spending toward goods, when stuck at home during the pandemic. Stimulus checks gave them even more money to buy things. Spending habits have favored goods ever since, stressing a supply chain that was calibrated for a more even split.
Around 90 percent of goods produced travel across an ocean to reach a consumer. For a magnetic finger puppet, destined for display on your neighbor's refrigerator, that trip begins at a manufacturing plant in China, alongside thousands of other little finger puppets.
And that manufacturing plant is likely experiencing problems. According to Bartow, "it can start at the factory overseas, rising costs of goods, an increase in electric fees on the Chinese power grid particularly, COVID cases shutting down warehouses, while they do cleanings. Keeping distance on the manufacturing floor has created delays there."
Once that little Anthony Fauci is created, it must find its way to a port, where a boat can take it across the Pacific Ocean. "There's physically a lack of drivers everywhere, so getting containers to ports is tricky, because now there's a backlog," Bartow explains. "Then things are sitting on ports for an extra long time, because there's delays in seafarers and boats. So now instead of sitting there for a week or two, you could sit there for multiple weeks waiting to even get a booking. And once you get a booking, there's even more delays with dock workers getting your stuff onto boats."
The time for that Anthony Fauci finger puppet to cross the ocean hasn't changed. But the time for him to connect to the next leg of the trip has. "Now you've arrived at, say, the Port of LA," Bartow continues. "And instead of taking a week to clear and get off, it could be two, three weeks maybe even more, because there's a long queue in the Port of LA. Once again these are all restrictions on the supply chain. There's not enough dock workers. The dock workers that are there are under safety restrictions. There are shutdowns for COVID. There's increased or decreased hours depending on labor. So that adds delay."
Eventually the Anthony Fauci finger puppet and all his finger puppet friends find their way into the Port of Los Angeles and off the boat. But the delays continue. "There's a shortage of drivers. There's a shortage of trucks. There's a shortage of physical containers to move things back and forth."
After a long road trip from the port, the finger puppets arrive at the warehouse. "The warehouse is subject to the same hurdles as everywhere else," Bartow points out. "The shortage of labor causing a shortage in packing containers. Containers can sit outside a warehouse for one to three weeks."
But the trip still isn't over. When an online or physical retailer places an order for 100 Anthony Fauci magnetic personalities, a box is sent to the store. Once there, a customer can buy the finger puppet in person or online. At that point, the U.S. mail system takes over. The U.S. Postal Service has started slowing deliveries in an effort to cut costs. The inevitable result for consumers will be more delays in the last leg of that finger puppet's journey.
With problems all along the supply chain and no slack to absorb them, consumers are experiencing increasing shortages, higher prices, and delivery showdowns for a wide range of goods. That could mean wine from northern California, as producers try to procure bottles and the paper for labels. That could also mean food items at the local grocery store, as retailers struggle to stock shelves, or furnaces and furnace parts needed for heating homes this winter. It could even mean artificial Christmas trees and decorations, which are currently stuck in ports around the country.
All the supply chain issues don't bode well for shopping during the upcoming holiday season. Expect extensive delays as potential gifts move slowly across oceans, through ports, along highways and railroad tracks to warehouses and stores.
So if you're looking to give an Anthony Fauci finger puppet to remind friends and loved ones to wear a mask, ordering early is probably a good idea.
(Note: The author's wife works at the Unemployed Philosophers Guild.)
Originally published Tuesday, October 19 at 1:04 p.m. ET.