When you’re on vacation in Hawaii, a little uncertainty doesn’t kink things up too much. When you’re still trying to navigate a pandemic, though, sufficient predictability translates to survival.
That’s true right now for both customers and business owners alike, with both groups looking at the supply chain and wondering what will be affordable and available.
Although nobody has a perfectly clear crystal ball for the future, there are clues about what we might see over the next few months. Here’s a look at what to expect.
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The woes in context
To understand where we’re going with the supply chain, we first have to grasp where we started. Much of the issue ties to the production of microchips, which you’ll find in everything from computers to your washing machine. Even before the pandemic, a soup of factors (political embargos, the rise of 5G and differences in costs for different sizes of silicon wafers) had chip manufacturers struggling.
Then, the pandemic hit. Suddenly, people were home and bored, and they needed to work remotely, too. That drove up the consumer demand not just for microchip-dependent technology products like laptops but also for other goods people wanted, like desks and fitness gear.
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Companies simply couldn’t get the chips they needed as easily, whether those chips went into the companies’ manufacturing tools or products. Prices started skyrocketing.
This situation would have been chaotic enough, but then psychology and labor shortages created even worse kinks. Company leaders saw there was a shortage of items across the board. Scared they’d come up short with inventory, upset customers and lose money, they started overbuying to guarantee production could go on.
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The only trouble was that everybody overbought. Demand soared even higher, all while workers caught the COVID-19 virus and had to duck out of shifts. Businesses began to face labor problems, which slowed production and distribution even more.
As the cherry on top, business is global, adding complexity to the manufacturing picture. A “simple” notebook might have ink from one country and paper from another. If even one area in the network has trouble, your production can still screech to a halt.
What’s likely going to play out
Because of all the moving parts outlined above, one trend that’s likely to happen is companies will try to pull operations back home and create more local supply pathways, not for a big nationalistic political statement but so they don’t have to depend on outsourcing with international partners to complete their production.
This includes building new regional plants and developing new exclusivity agreements. Ford is a major company already committing to this strategy, investing heavily to bring new automotive jobs to Michigan as the company shifts to electric vehicles.
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Companies also will likely start allocating. If you’re a business leader who normally buys 100 units of something from another company, that company might tell you that now you can only get 80 units.
That’s a punch by itself. But what if you want to grow this year and have your heart set on 250 units instead of the usual 100?
Your regular supplier might tell you the best they can do is 150, and you should be happy about it. It’d be logical in this scenario to look for a new supplier. But that might mean settling for inferior supplies or items that, while keeping costs down, don’t satisfy your customers.
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You can also expect debt prices and everyday commodities to keep rising as people try to keep up with the surging inflation rate.
Let’s say you want to go to a concert or fair, and you plan to buy three sodas from a vendor outside the event. That vendor might have charged $3 per soda before, but now, they’ll charge you $5, not to take advantage of anybody but because they have to pay more for gas, their insurance, the sodas other their workers.
In the same way, if you need a loan, your interest rate might be 4% instead of 3%. Bloomberg Economics asserts that a typical American family will feel this inflation hit to the tune of $5,200 for the year, meaning you have to spend that much more annually just to maintain the same level of living you had last year.
It won’t be pretty, but we won’t break
Things aren’t going to be pretty through the summer, regardless of whether you’re on the business or consumer side of the equation. You’d be wise to put on some great shoes to brace yourself. But the summer won’t go on forever.
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Some of the elements contributing to the supply issues, such as the war in Ukraine, will end. We also have some tools that can keep us from slipping deeper into the mud, such as the ability of the Federal Reserve to play with interest rates to encourage or discourage spending.
Don’t expect the next few months to be comfortable, but remember: This is one moment in time. And just like we’ve overcome difficult economic and supply situations before, together, we’ll overcome this one, too.
Brendan P. Keegan serves as Chief Executive Officer [CEO] at Merchants Fleet and was recently named the world’s Most Innovative CEO by CEO World Awards®; Executive of the Year, silver winner by Best in Biz Awards; and a Stevie Awards® bronze winner by American Business Awards®. He has been involved with Merchants since 2009 — as a client, board member, and strategic advisor.