Everyone has stories over the past year about hard-to-find items: the dog’s kibble of choice, a bicycle or a kayak. Out of stock. The store can’t say when more will arrive.
Many are now scratching their heads and asking: “Where’s my stuff? What’s taking so long?”
For me, it was a caster wheel for my outdoor ping-pong table. It broke. So, I ordered a new one. Pretty straightforward. It took six months for my wheel to arrive from Asia.
That’s because global supply chains have been out of whack — sometimes with devastating effects.
My friend John Mulliken, former chief technology officer at Wayfair, the world’s biggest online furniture retailer, and the founder of Carbonware.org, which develops and invests in decarbonization strategies, said six months is a really long time — but he’s not surprised.
“Everything was taking forever,” he said.
He pointed the finger at consumers as the problem.
“It’s your fault. It’s my fault. It’s all of our faults. We didn’t go anywhere for 15 months, and people substituted experiences for stuff … stuff, stuff and more stuff. ... There’s only so many factories in the world, and only so many boats and planes in the world.”
“It’s your fault. It’s my fault. It’s all of our faults. We didn’t go anywhere for 15 months, and people substituted experiences for stuff … stuff, stuff and more stuff,” Mulliken said. “There’s only so many factories in the world, and only so many boats and planes in the world.”
Thomas Roemer said that manufacturing for sophisticated goods like ventilators was being held up by the delivery of the right bolts. He co-directs MIT’s Leaders for Global Operations program, which partners the MIT School of Engineering and the MIT Sloan School of Management.
“We’re talking bolts — we’re talking about something that is actually fairly easy to manufacture,” he said.
Academics call this problem the “bullwhip effect.” Just a little movement of the handle creates large movements at the other end of the whip. It’s the same with supply chains. A little movement at the retail level creates lots of movement upstream — scrambling to produce enough parts or raw materials to supply more products.
At MIT, they run an academic exercise known as “the beer game” to illustrate how sudden changes in demand can create big production challenges.
“So, you have a retailer, then you have a wholesaler. The retailer needs to estimate demand for the wholesaler. The wholesaler has a distributor, and behind that there is a factory or brewery,” Roemer said.
Using the hypothetical beer example, it’s easy to see what happens when everybody suddenly wants to try THE new brew. Suppliers struggle to react quickly enough.
But the real-world pandemic magnified the hypoethetical beer phenomenon.
“It’s like a conductor basically saying, ‘Now we all play the beer game with 20,000 different products — not just with beer,’” said Roemer.
And things have gotten a bit out of control.
Everybody wanted hand sanitizer, toilet paper, individual ketchup packets and patio furniture, like — yesterday. Factories and businesses simply couldn’t keep up.
Then, add this to the mix: Modern businesses have gotten really good at running lean. Holding excess inventory is expensive and warehouse costs add up.
After World War II, car manufacturing giant Toyota pioneered “just in time” delivery, where inventory is replenished as needed. It was crafted out of necessity in 1940s Japan, where supplies were limited, and businesses were in turmoil. Toyota’s model: Avoid waste, stay nimble, save money.
Willy Shih, a professor at Harvard Business School, said his students know these lessons well: “I look at students in the school, and they’re all allergic to carrying inventory because it can all be turned into cash.”
For decades, the global supply-chain system has mostly worked really well. But for things to go smoothly, businesses need to accurately forecast demand — and have a reliable delivery system.
Throw a big wrench in the system — like a deadly global virus — and things get chaotic.
“All those assumptions about easy movement of goods, reliability, dependability, low costs — those have all gone out the window. ... If you look at ocean container-shipping reliability, and schedule reliability, it’s at an all-time low.”
“All those assumptions about easy movement of goods, reliability, dependability, low costs — those have all gone out the window,” said Shih. “If you look at ocean container-shipping reliability, and schedule reliability, it’s at an all-time low.”
“It’s fairly simple economics, actually,” said Myrto Kalouptsidi, an economist specializing in trade and transport markets at Harvard, who said it’s a matter of supply and demand with ships, too.
Put simply: Boats aren’t where they need to be.
Factories in Asia haven’t been able to get access to sea transport. Then, at US ports, container ships have been backed up, partly because fewer dock workers have been available during the pandemic. Now, a fresh wave of COVID-19 infections at some Asian ports is causing further disruptions.
“So, you’re going to have a lot of people looking for ships,” said Kalouptsidi. “Prices are going to spike, and there won’t be enough ships.”
Why not just build more ships? If only it were that simple.
“Shipping companies — when they make their decisions to buy ships — they don’t just look at current conditions. ... They know they are going to own and operate these ships for the next 30 years, and so they do care about the long-run returns they can get.”
“Shipping companies — when they make their decisions to buy ships — they don’t just look at current conditions,” said Kalouptsidi. “They know they are going to own and operate these ships for the next 30 years, and so they do care about the long-run returns they can get.”
Many economists and business leaders add: Don’t blow up the system because of one wild year.
So, about that ping-pong table wheel ...
Maybe the factory temporarily closed due to labor shortages. Maybe they were missing a key part. Maybe the company shifted its efforts to building more important, or high-value, items.
Put in perspective, is that delayed caster really a big deal?
“Well, for a ping-pong table, yeah, I think you are kind of whiny. You could’ve used a book,” Mulliken told me.
“But for many pieces, like vital equipment to make equipment to make hospitals do what they’re supposed to do, they had the exact same problems. And that’s not whiny. The reality is that we’re used to behaving in a certain way. The whole economy has been spending decades trying to get leaner and leaner. And so, that’s all fine, as long as everything goes exactly as predicted. And the reality is, once there’s a hiccup in the system, you’re stuck.”
So — where’s your stuff? It’s coming. But, expect further delays.
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