By Ed Brennen
It’s been fairly easy this semester for Operations and Information Systems
Asst. Prof. JM Song
to get his students to understand how global supply chains affect their lives.
All he has to do is show them ongoing news coverage of hundreds of fully loaded container ships waiting weeks to deliver goods at bottlenecked U.S. ports, and point out the empty store shelves and delayed delivery times.
“For most of us, supply chain is no longer an abstract concept,” Song says of the manufacturing, transportation and logistics system that gets goods from producer to consumer.
Global supply chains have endured enormous disruption during the pandemic, with sudden shifts toward delivering COVID-19 vaccines and personal protective equipment, surging consumer demand, labor shortages and overseas manufacturing delays leading to higher transportation costs.
“Global supply chain organizations are directly and indirectly dependent on each other,” Song says. “The pandemic raised awareness of the interdependence of this economic system.”
Song, who joined the Manning School of Business faculty last year
, researches supply chain coordination. His research on how online sellers such as Amazon and third-party shippers like UPS and FedEx can cope with unpredictable spikes in demand, such as those caused by online shopping holidays like Cyber Monday and Black Friday, was recently published
in INFORMS (Institute for Operations Research and the Management Sciences), a top business journal.
The government and businesses have taken steps in recent weeks to ease the supply chain logjam. President Biden addressed the issue with other world leaders at the G-20 summit in Rome. Major retailers like Walmart, Target and Home Depot are chartering their own container ships. And regulations have been loosened to allow for around-the-clock operations at the Ports of Los Angeles and Long Beach, where nearly 40% of all shipping containers enter the United States.
But with the holiday shopping season upon us, Song sat down to share his insights into the roots of the disruption, potential fixes for the bottlenecks and the prospects for getting your holiday gifts on time.
Q: Just how big is the global supply chain, and what has created such a disruption?
In 2019, global supply chains moved more than $19 trillion in exported goods. The production and sale of many items we need and use, including toys, clothes, food, electronics and furniture, are essentially dependent on global supply chains.
The cost of moving containers from China to the West Coast of North America is estimated to have risen 650% since the pandemic, due to unforeseen problems such as labor issues, raw material shortages and clogged ports. As a result, shippers are facing soaring rates and delays in trying to send goods to the U.S., which can lead to such problems as product shortages in retail stores and semiconductor shortages in the automotive industry.
About 70 container ships have been anchored in the waters outside Los Angeles and Long Beach ports, waiting to unload their goods. Before the pandemic, it was unusual to see even a single ship waiting to dock.
Q: Did the pandemic cause this, or did it just expose preexisting conditions and weaknesses?A:
It’s easy to blame the pandemic for the current supply chain problems. But, in fact, the pandemic only made a bad situation worse. The pandemic has revealed the fragility of global supply chains, and many experts warn of the impact of continuing supply chain bottlenecks on the global economy. So, it can be said that there are global factors driving this situation and it occurs both on the supply and demand side. On the supply side, factory closures and labor shortages have disrupted production and delivery hubs. On the demand side, there has been a surge in demand driven by online shopping and comfort purchases during the pandemic.
Q: How will this affect the holiday shopping season? What advice would you give to shoppers?A:
Peak season planning has become a 24/7 operation for parcel carriers, and shippers were trying to meet rising consumer demand even before the pandemic. But this year presents new supply chain challenges for both carriers and shippers. Difficulty in obtaining parts, stumbling blocks in the production process, and prolonged shipping delays can result in uneven and unpredictable volume flows from shippers to last-mile carriers during the peak seasons. Shoppers are encouraged to plan their shopping in early November to make sure the item they want is available. Retailers are activating holiday promotions earlier in response to uncertainty and wanting to ship products in stock as quickly as possible.
Q: Is the supply chain disruption affecting the United States differently than other places in the world?
The situation in the U.S. may be worse than other places, as the U.S. and Canada entirely rely on international sourcing because of their high labor costs, and Southeast Asia can provide significant cost benefits compared to other regions. The problem, however, is that it is not easy to turn the trend of outsourcing and offshoring manufacturing for more than 30 years into emerging market countries or domestic sourcing.
Q: How long will supply chains be disrupted, and what needs to happen for things to return to “normal”? A:
No one can predict exactly how long it will last, but I don't think it will end anytime soon. More importantly, it can happen again even after the current mess is over. Resolving this problem structurally requires investing trillions of dollars in global infrastructure, expanding ports and shipping fleets, and investing in better management, better working conditions and better trade deals. Expanding operational capabilities and workforces can help businesses overcome the worst. So, one way to ease congestion in West Coast ports may be to add the capacity needed to support port movements, providing new incentives for weekend container unloading and encouraging shippers to move cargo by rail instead of trucks.
Q: What lessons can we learn from this situation?A:
I think the most valuable lesson we can learn is the importance of “global” supply chains, especially during a pandemic. Over the past few years, most businesses have learned to better prepare and compete better for the unprecedented situation we face now.