why is there a supply chain shortage?

Even before the pandemic hit, the supply chain was a complex process that included multiple steps and layers. Just one disruption in this process can lead to significant shortages. So, when the pandemic hit, many businesses were left unprepared.

While COVID-19 may be considered the catalyst of the current supply chain crisis, that’s much too broad of a topic to fully explain the current issues. There are several reasons spurring the ongoing supply chain disruptions.

travel restrictions

China is responsible for producing nearly 29% of all global products. So, when it was the first country to face travel restrictions, the impact on the supply chain was noticed almost instantly. This caused a ripple effect throughout the world as organizations struggled to find new suppliers to meet demand. Brexit, which took effect less than two months prior to the start of the pandemic, also impeded the movement of both product and talent throughout Europe.

Cargo ships were literally unable to dock to offload goods and trucks were stopped at the borders with full loads. With globalization at an all-time high, the lack of international trade disrupted supply chain processes in nearly every industry throughout the world. These disruptions also significantly impacted many businesses’ ability to obtain the materials necessary to meet their production demands.

While borders are now reopening and international trading is inching towards pre-pandemic levels, businesses are still experiencing supply chain shortages and delays due to border controls. While some of this is likely to ease with time, it could take years to reestablish some of these broken supply chains.

talent shortage

The ongoing talent shortage combined with the growing skills gap certainly plays a role in the current supply chain crisis. Having the right workers in the right roles is critical for supply chain efficiencies.

At the onset of the pandemic, quarantines and shutdowns led to a loss of 114 million jobs in 2020 alone. While COVID-19 restrictions are starting to subside and markets reopening, employers are still struggling to acquire and retain the talent they need.

This talent shortage has its own set of unique causes including the aging population, continuing COVID-19 concerns, the great resignation and shifting workers’ demands. Despite the reasons, the lack of workers is significantly impacting organizations' abilities to mitigate supply chain disruptions.

For example, the United States has seen a labor shortage of 80,000 truck drivers. This problem isn’t limited to just the U.S. The International Road Transport Union reports that 20% of trucking jobs went unfilled across 20 Eurasia countries in 2021. Without truckers, the ability to move products between locations becomes even more challenging.

When it comes to the supply chain industry, filling vacant jobs isn’t an easy task. Not only are we dealing with an ongoing labor shortage, but many of these roles also require specialized skills and experience. For example, truck drivers must have the right licensing and experience. Alternatively, workers handling supply chain management must have experience in material planning and forecasting.

Additionally, the supply chain is more tech-driven today than ever before. Even production lines and warehouses are equipped with robotics and automation technology. For this technology to operate efficiently, organizations need tech-savvy workers. And not just software coding specialists and data analysts. They also require lower-level workers with technical skills and experience. Unfortunately, a recent study shows that only 1% of companies believe that they have the digital in-house talent they need.

limited inventory

As supply chain planning, management and forecasting have become more sophisticated and accurate over the years, businesses began incorporating a close to capacity supply chain business model. This means that many organizations store less on-site inventory. Instead, they depend on their complex supply chain network to deliver the supplies they need, when they need them.

Prior to the pandemic, this new business model worked fairly well, and organizations were often able to mitigate most supply chain disruptions. This model allows businesses to cut costs and improve workplace efficiencies without sacrificing quality or impeding the production process. However, when COVID-19 suddenly halted various stages of the supply chain process, some companies found themselves only days away from significant supply shortages.

The problem is that this type of business model requires accurate forecasting, which advanced technology allowed for up to this point. It didn’t, however, prepare organizations for a global pandemic or the level of supply chain disruptions it caused. This unpredictable global crisis also made future forecasting, at least during the pandemic itself, even more challenging.

Additionally, businesses that relied heavily on trade with national and international distributors found themselves stuck when shutdowns and travel restrictions hit. These organizations were forced to transfer to local and regional distributors, who were also strained trying to meet increased demands.

As a result, business leaders pledged to build more local and regional supply chain networks to protect themselves from future disruptions. According to one study, 38% of global businesses intended to regionalize their supply chain network. Despite this pledge, however, a follow-up study revealed that only 25% took steps to build a supply chain network that focused on local and regional suppliers. Instead, 61% of these businesses increased their on-site inventories.

This could be just a short-term solution because 90% of the businesses surveyed still have plans to regionalize their supply chain networks at some point in the future. This shift could be a golden opportunity for smaller, more localized businesses to fill in the gap.

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