How to Solve the Supply Chain Shortage

The recent Covid pandemic has “exposed vulnerabilities in the production strategies and supply chains of firms just about anywhere” (Shih 1). It has also highlighted the “extremity of the problem” and “the world’s failure to find a quick fix” (Murray 1). The economy jump starting again has resulted in one of the largest traffic jams in history. Many producers have been caught off guard by the rebound of decreased production after consumers stopped spending last year. Most factories also had to reduce production due to workers going back home out of fear of Covid spreading. Even large scale companies like Apple and Amazon are struggling to keep up. Amazon said it’s fourth-quarter profit could be lost having to pay labor and transport fees and Apple lost $6 billion by not being able to meet demand (Murray 5). 

However, there are ways for you to protect your business from supply chain shortages without losing competitiveness. First it is important to understand where risks lie in your company, including distribution facilities and transportation (Shih 4). This process helps identify which suppliers can be categorized into low, medium, and high risk. You should also consider if your operations and manufacturing capacity is flexible or requires more sophisticated materials, such as smartphone chips from Taiwan or sensor technology from Japan or China. This information can be used to diversify your sources of materials. 

It is also a good idea not to rely on production from only one area. The U.S. trade war with China has caused some companies to shift to a “China plus one strategy” of having production in China as well as one other Southeast Asian country. Shifting production from China for goods like furniture and clothing will be easier than for electronics and tech. It would not be smart to completely stop production in China as it’s the world’s second largest economy and has a widespread presence in the global market. 

A company should also be able to determine how much extra stock they should have in case of supply chain shortages. Developing innovations are allowing more companies to reduce costs, switch between producers, and become more environmentally sustainable. 

Although there needs to be a long term solution for making the global supply chain more efficient, which would be getting Covid under control, building new infrastructure, and better technology for transactions and faster communication. More time and investment is necessary to add more logistics capacity. President Biden recently signed a $1.2 trillion dollar Infrastructure Investment and Jobs Act. The American Trucking Association’s President and CEO Chris Spear states it will create a 38% increase in road and bridge funding, and an infusion of highly trained, younger talent into our work-force” (Fuller 2). About $100 billion will be added to discretionary funding for grant programs addressing supply chain efficiencies and as well as 2.5 billion in funding for cities to address port congestion and improved transportation of goods. It is foreseeable that by prioritizing the nation’s fundamental transportation network the problems businesses are facing with supply chains will be addressed.

Picture Credits:https://www.qualityassurancemag.com/article/managing-risk-in-the-global-supply-chain/

Sources:

Fuller, S.L. “Biden signs $1.2 trillion infrastructure bill.” Supply Chain Dive,  8 Nov. 2021.

Murray, Brendan. Orlik, Tom. Roye, Bjorn Van. “Supply Chain Crisis Risks Taking The Global Economy Down With It.” Bloomberg, 1 Nov, 2021.

Shih, Willy C. “Global Supply Chains in Post-Pandemic World.” Harvard Business Review, 2021.

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