What Is Causing Ongoing Supply Chain Issues?

At one point in time, it seemed that news headlines were filled with the term “supply chain”. But what actually is a supply chain and why does this term not seem to be going away anytime soon? In short, supply chain issues are still impacting us, both globally and domestically, leading to higher gas prices, limited goods and more. And there’s no one cause.

By Mariah Flores

Microchips (tech goods), gas, groceries, baby formula and even clothing … just a few commodities impacted by recent supply chain disruptions and inflation.

At this point, we have all likely heard of the term “supply chain”, along with the seemingly endless supply chain issues affecting us as consumers and businesses. But what exactly is a supply chain and why does it exist in the first place?

Understanding the pieces that make up global supply chains is integral to recognizing why the shortages matter (and have such big impacts). Additionally, it can help us as working professionals determine how our careers and personal lives may be affected by such issues.?

You may have already made this determination, leading to career pivots into higher-paying jobs or even a return to college. Whatever your future or present professional plans may be, understanding more about the economic uncertainties affecting the global community will help you along the way.?

What is a Supply Chain?

According to Investopedia, “A supply chain is a network of individuals and companies who are involved in creating a product and delivering it to the consumer. Links on the chain begin with the producers of the raw materials and end when the van delivers the finished product to the end user.”

The key steps of a supply chain are as listed:?

1. Planning the inventory and manufacturing processes to ensure supply and demand are adequately balanced.
2. Manufacturing or sourcing materials needed to create the final product.
3. Assembling parts and testing the product.
4. Packaging the product for shipment or holding it in inventory until a later date.
5. Transporting and delivering the finished product to the distributor, retailer or consumer.
6. Providing customer service support for returned items.

When you think about it, the supply chain process has been around since essentially the dawn of civilization even before the term “supply chain” was coined, as people navigated the handling and distribution of various goods.

“For example, in an agrarian supply chain, a farmer would cut the wheat, send it to a mill for grinding into flour, then send it to a baker to make into bread, and finally it would be sold at a market stall,” writes Blume Global.

You may also be familiar with the term “supply chain management”.?

This is a crucial process because optimized supply chains result in lower costs and a more efficient production cycle. “Companies seek to improve their supply chains so they can reduce their costs and remain competitive,” writes Investopedia.

Supply chain managers deal with procurement, operations, and logistics, says Eddie Davila, a supply chain instructor working at Arizona State University - W. P. Carey School of Business, in his LinkedIn Learning course, “Supply Chain Foundations”.?

“These are the primary parts of a modern supply chain. Every product has a story. It's a supply chain manager's job to write that story and give it a happy ending.”

One popular example of a supply chain in action is the Apple supply chain, which has over 200 suppliers that it relies on for procuring components for product assembly.

Now, with continued supply chain digitization, the modern supply chain is becoming more efficient and collaborative. Of course, with major global events like pandemics and wars, even the most modern supply chains can face issues.

Today’s Supply Chain Disruptions

The COVID-19 pandemic greatly disrupted several global supply chains, as different countries and companies operated on varying guidelines and reopening/normal operation timelines. Even the biggest names in supply chain and commerce were impacted.?

“More than 90% of Fortune 1000 companies experienced supply chain disruptions following the pandemic. The auto industry and semiconductor industries were hit particularly hard by pandemic supply chain disruptions. China's aggressive zero-COVID policy has been extremely disruptive for U.S. companies that rely on Chinese suppliers. More than a year after many U.S. companies returned to full capacity in 2021, China continues COVID-19-related restrictions and economic shutdowns,” reports U.S. News.?

Dubbed the “Great Supply Chain Disruption”, the current supply chain issues are viewed by some as a crisis, as it continues into 2022.

“It will require investment, technology and a refashioning of the incentives at play across global business. It will take more ships, additional warehouses and an influx of truck drivers, none of which can be conjured quickly or cheaply. Many months, and perhaps years, are likely to transpire before the chaos subsides,” says Peter S. Goodman of The New York Times.?

And that’s all unlikely to happen in 2022, resulting in continued supply chain disruptions and rising prices. Mayhem at factories, ports and shipping yards, as put by Goodman, are key drivers for rising prices — plus market dominance of major companies.?

Big name businesses are struggling, like Whirlpool and Tesla, which are both experiencing supply chain difficulties. The former is having to warn customers that their household appliances would continue to experience delays.

Another disruption that is causing alarm? Microchips.?

The chip shortage is limiting the worldwide production of vehicles, medical devices, and the latest Sony game system. During the height of the pandemic, many of us turned to remote work and learning, increasing the demand for work-from-home technology like PCs, tablets and webcams.?

According to CNET, this demand “soared beyond the semiconductor manufacturing industry's ability to supply chips — not just the big CPU brains of a laptop but also the host of supporting chips required to produce things like dishwashers, baby monitors and LED light fixtures.”

To boost the domestic production of semiconductors, President Joe Biden signed into law the CHIPS and Science Act of 2022 in August, providing U.S. semiconductor makers with $52.7 billion over five years to ramp up processor manufacturing.

Amazon is synonymous with the phrase (and promise) of 2-Day delivery. It’s the company’s Prime promise, making it arguably one of the most popular subscription services in the U.S. How would you feel if the company couldn’t fulfill that promise, due to supply chain issues?

The rising e-commerce trend hasn’t helped the ongoing supply chain issues, as retailers now have to ship individual orders directly to homes and businesses. Major companies and businesses, like Amazon and Lowe’s, now have packed warehouses in areas with the most demand to fulfill this somewhat complicated endeavor and satisfy consumers.

“The tightness in warehouses helps explain why American ports remain seized by dysfunction, especially the busiest one, the complex of terminals at Los Angeles and Long Beach,”?writes Goodman. “With limited room to stash goods offloaded from inbound vessels, containers have piled up on docks uncollected. That has prompted port overseers to force ships to float offshore for days and even weeks before they can unload.”

As consumers deal with a delay in their online orders, once goods are finally able to be unloaded, there are still not enough truck drivers and a shortage of chassis used to haul containers.

As you can see, there are several causes for our global and domestic supply chain issues. Beyond microchips and gas, we’ve also seen shortages hitting the most unexpected products, from lettuce to sriracha sauce.

What’s Next in Supply Chain

While it seemed that supply chain issues would resolve alongside the pandemic, Russia’s invasion of Ukraine and subsequent Russian-Ukraine war have sparked a whole new set of problems.

Per CNN, “Russia is a major producer of commodities, everything from oil and natural gas to palladium and wheat. Ukraine is also a major exporter of wheat as well as neon. The crisis is casting doubt on the availability of a sizable chunk of those vital supplies.”

A sizable chunk of oil, natural gas, wheat and neon (a component used in chip production) are all off the market now. This ongoing crisis is just another shock to the global supply chain system.

"The greatest risk facing global supply chains has shifted from the pandemic to the Russia-Ukraine military conflict and the geopolitical and economic uncertainties it has created," wrote Tim Uy, an economist at Moody’s Analytics.

Fortunately, those once high gas prices are predicted to fall after Labor Day, with some U.S. states possibly seeing prices below $3. In Africa, a U.N.-brokered grain deal between Russia and Ukraine should bring much-needed relief to certain parts of the continent, which faced devastating grain shortages and rising food prices due to the war.

Overall, we may never have a “normal” supply chain system, but we are making modest and slow improvements. However, the next concern on the economic horizon is a possible recession, as global consumer demand for goods slows.

Top Takeaways?

Understanding the supply chain process brings you one step closer to understanding the ongoing supply chain issues. Here’s what you need to know:

• Supply chain refers to “the network of companies and people that are involved in the production and delivery of a product or service”.
• Global crises, like the COVID-19 pandemic and the Russia-Ukraine war, create a ripple effect when it comes to the distribution of certain materials and goods.
• Supply chain issues are slowly on the mend but could lead to a possible recession.