Supply Chain Issues: How We Got Here and What Needs to Change

The ongoing supply chain issues are impacting what you can buy this holiday season.

From toys, chicken tenders and bottles of wine, to the rubber tires in wheelchairs, so many products have been affected by it.

Now, we're getting a better understanding of how we got here and what can be done to avoid past mistakes.

“The fragility has always been there and we’ve always had somewhat major disruption, even more so in the last couple of decades. But they’ve usually been pretty localized to one region of the world,” said Morgan Swink, a professor and executive director of TCU’s Supply Chain Innovation Center. “This is the first time in a long time, maybe ever, that we’ve had such a massive global disruption to supply chains.”

A Fragile System

Swink said the past two years have been a wake-up call for the industry. It’s something his program has been tracking since March 2020.

He's also using this experience as an opportunity for teachable moments for students, who will become the future of change in the industry.

"We're helping them to understand what are the underlying reasons why most supply chains have evolved to that state and what can we do to maybe prevent that from happening in the future," he said.

Swink explained the problem with the current supply chain is that it operated the same way for decades. For years, many companies saved money by sticking with just a handful of low-cost suppliers and manufacturers, mostly overseas. That made processes as efficient and profitable as possible, which helped keep prices lower for consumers.

“That’s the most fragile system because if something happens to that one supplier now I’m out of luck,” he said. “Fragility has always been there, I just don’t think it’s been tested in the way that it has been right now and for the last 18 months or so.”

Once the pandemic struck, factories shut down, cargo planes were grounded and workers became sick. The pandemic was a wrench that fell into a tightly wound system.

“[These] networks are very complex. They’re adaptive, they emerge over long periods of time through millions of interactions between independent decision-makers. Market systems like ours, that works really well in stable times,” said Swink. "Because of that – the fact that you have independent actors working together in a highly connected system – when something goes wrong in one part of the system, it has a tendency to ripple throughout.”

The world was in lockdown for months but movement of consumers and demand for goods exploded once vaccines and re-openings rolled out mere months later.

"We saw a bullwhip effect. Massive shifts in demand over the last 18 months. Stable demand, then no demand, and then all of a sudden this huge spike in demand because of all the pent-up need to consume,” said Swink. “People had saved a lot of money up and they were ready to spend. The supply chain couldn’t keep up with it.”

Businesses, suppliers, manufacturers and every level of the global supply chain has struggled to keep up.

"Talking about global supply chains, everyone focuses on China and Asia. They’re still trying to catch up from all of the lost production that happened because of the shutdowns and labor shortages," said Swink. "One of the things I don’t think people realize is the supply chains, the lead times -- we're talking about for larger durable goods -- are easily six to eight months. So if you have a disruption, even though it was nine or 10 months ago, it’s just now cascading through the system."

Ongoing issues with labor shortages, especially in the trucking industry and at major ports, have continued to feed the problem.

“That part of the supply chain is still in trouble. It’s labor shortages in terms of transportation that’s really the key bottleneck,” said Swink. “We’ve got to work through this labor mismatch right now. A lot of people for whatever reason have exited the world labor force not just in this country but in other countries as well. So that’s going to take time to work through that.”

Future Change

In the future, Swink said companies will need to focus less on globalization and relying on manufacturers overseas, and instead invest more in localizing their supply chains.

"The basic issue I think that managers are going to learn and what we’re trying to teach our students is that the current system has certain incentives in place and ways of operating in a place that emphasizes obvious costs and visible costs without really taking into account the long-term risks or other costs that might happen," said Swink. “We need to start thinking about supply chains, not today, but in the longer term. And maybe make choices that are not as efficient as they could be for today, but preserve some flexibility in a sense, like buying insurance and hedging against risks, for the future."

He said businesses should also look into finding multiple suppliers in multiple areas or countries to broaden their options in case something happens.

“We’ve seen regional examples of that, such as with the Japanese tsunami and nuclear meltdown in 2011, where regional suppliers in the area had to shut down,” Swink said. “They suffered because they had very restrictive choices, whereas companies who had multiple plants or suppliers in different regions were somewhat buffered from those kinds of impacts.”

Companies will have to wait years for contracts to expire before negotiating new ones, so concrete change will take time and may be difficult to implement.

“I don’t know if we'll actually be able to do that or not, because the way companies are incentivized and the way managers are compensated and rewarded, it’s all about short term benefits and short term gains. So hopefully we will learn a lesson from this,” Swink said.

NBC News compiled a list of products that are being impacted by the supply chain struggle, including:

• Beer: Ingredients and parts for machinery are difficult to find.
• Wine: Winemakers lost vineyards to forest fires.
• Glass bottles: Hitting bottlenecks at U.S. ports, glass manufacturers in Italy and France having Covid-related export issues.
• Chicken tenders: Rising market costs, increase in costs for shipping, plastic and packaging, lower-quality product, severe labor shortages.
• Medical supplies like crutches, oxygen tanks, and wheelchairs: High demand, some component parts come from Asia and are stuck at ports.
• Furniture: These are oftentimes manufactured overseas and have a much longer lead time than other products.
• Toys & video game consoles: Extremely high demand, heavy reliance on production in Asia and importing items across the Pacific.
• Sweatpants: High demand from remote workers, most U.S. apparel is made in other countries experiencing outbreaks/lockdowns.

Additionally, the strain from labor shortages has caused companies to accelerate their use of automation and artificial intelligence in an effort to fill the labor gaps in the future.

“There’s a lot of investment in automation to replace some of that lost labor. That doesn’t happen overnight but it will eventually return or build back the capacity that we need to get back to producing at normal levels,” he said.

Swink said it really could take years for the supply chain blockages to unravel but he's optimistic for 2022.

“It just takes time. It will work itself out, it’s just going to take until the end of next year I think at the earliest before we start to see some real normalcy,” he said.