Why You Should Expect More Suez-Like Supply Chain Disruptions and Shortages at Your Local Grocery Store

A big problem early in the pandemic, for example, was simply a lack of flexibility. While consumers were having trouble tracking down toilet paper because of panic buying and hoarding, there were plenty of rolls sitting in warehouses but intended for offices and restaurants. Companies had trouble diverting the toilet paper to the retailers, which kept only a very lean inventory of the product.

Supply chains for this and most every other product have been increasingly designed to be as lean as possible in terms of cost and efficiency, rather than resiliency. As customers demand ever cheaper products delivered faster, supply chains have given up every bit of slack. As a result, a disruption of any magnitude creates significant consequences through product shortages and rising prices.

It’s easy to think of a supply chain like it’s a linear conveyor belt, as disparate parts turn into a product that is then shipped around the world to your door. But it is more like a massive intertwined highway system.

Consider the path and massive disruption caused by shortages of a simple chip, known as a display driver. Its only purpose is to convey instructions for illuminating a digital screen like the one on your phone, laptop monitor or navigation system in your car. There is a huge shortage of the chips – caused by supply problems and soaring demand. And this in turn has triggered a shortage of liquid crystal display panels, as well as a jump in prices, forcing automakers, airplane manufacturers and refrigerator makers to all scale back production. All because of a shortage of a $1 chip, in part triggered by minor disasters like the recent winter storm in Texas and a fire in Japan.

And a problem like the Suez Canal traffic jam is even worse because it is represents an intersection – and bottleneck – for so many supply chains, including oil, parts and finished products. As cargo is shipped, there is a complicated choreography of vessels, ports, distribution centers and other modes of transport.

A Little More Slack
The obvious solution is to add resiliency or slack into supply chains – to expect the unexpected. This would require moving away from aggressive “lean systems” that have virtually no excess inventory.

It doesn’t have to be terribly costly. As my own research shows, companies need only selectively add extra inventory, suppliers and capacity for certain critical items or at key chokepoints, such as for products identified as being in short supply, where there are few suppliers or where lead times are extra long.

For example, coffee roasters generally do not have inventory to handle a two- or three-week delay. Delays in shipping raw beans from Brazil and the Ivory Coast to Europe due to the Suez blockage mean consumers will likely soon experience the impact of a lack of coffee availability in stores and cafés.

This is not a recommendation to stock huge amounts of inventory. Rather, it is to say that there are advantages to being highly strategic – almost surgical – to ensure that the greatest resiliency can be achieved with only a small amount of additional slack.

Otherwise, the trends that led supply chains to become so lean and efficient will likely continue, leading to more and bigger disruptions for the global economy and more shortages and higher prices for consumers like you.

Nada R. Sanders is Distinguished Professor of Supply Chain Management, Northeastern University.This article is published courtesy of The Conversation.