As widely reported in the media, a shortage of semiconductors has led to financially painful production delays in automotive, IT equipment, medical devices and other industries. Now, with spring approaching and the pandemic easing in the U.S., demand is surging for a wide range of products—and this demand spike is combining with other factors to create supply constraints for raw materials such as metals, lumber, rubber, plastic polymer, petrochemicals, as well as thousands of parts and components produced from these materials.
“Stay-at-home consumers have been snapping up Chinese-made furniture and appliances, toys, exercise equipment, bicycles and other items,” writes Tom Ryan, managing editor of RetailWire. Consumers have more cash to spend on such products, says Ryan, because they’re spending so much less on vacations, movies and restaurants.
While the supply-demand imbalances haven’t yet resulted in semiconductor-style shortages, commodity price increases are being experienced by “major retailers and makers of everything from Peloton spin bikes and La-Z-Boy recliners to Kia Sorrento SUVs,” Reuters reported recently.
Manufacturers have endured a year of unprecedented demand volatility since the pandemic was declared March 11, 2020. More than a year later, odd quirks in consumer cravings continue to pop up, catching manufacturers—and their suppliers—off guard.
The Wall Street Journal recently reported on a Minnesota roller skate maker, Riedell Shoes, that lost more than 40% of its revenues at the beginning of the pandemic when roller rinks shut down. But by last summer, skaters like Oumi Janta were gathering huge followings on social media, and “orders for skates started pouring into Riedell and other manufacturers.” But supply chain bottlenecks quickly followed, and today Riedell is facing backlogs of three to five months from its suppliers of rubber wheels in California and Texas and four-month delays in shipments of boots and other parts made in Asia. According to the Journal, such shortages are common among manufacturers of all types of exercise equipment.
Logistics problems are compounding the supply-demand imbalances. “The nation’s ports [are] struggling with congestion and container shortages,” according to RetailWire’s Ryan. He predicts “long delivery waits and higher consumer prices in the months ahead.” Indeed, Riedell’s supply chain manager Danny Johnson told the Journal that the firm’s containers of boots from Asia were “sitting out in the ocean waiting to come in.”
Building Boom 2.0
Early in the pandemic, homeowners with time on their hands went on a pandemic project spree, sending demand for building materials through the roof and leading to spike in the prices of lumber and other goods. Now with the “busy spring project season” arriving, Home Depot is “tangling with surging costs for goods and transportation, on top of tariffs that cost it and other U.S. importers billions of dollars,” according to Reuters.
The price increases across such a wide range of products, combined with rising oil and gas prices and $1.9 trillion in stimulus spending flowing into the economy, are raising fears of inflation—which could lead the Federal Reserve to raise interest rates and set back the recovery. But a Wall Street Journal poll of economists found 85% predicting that the Fed won’t raise rates until next year at the earliest.
Writing in Bloomberg, Conor Sen of Peachtree Creek Investments echoes the sentiments of many manufacturers in saying “we should be focused on addressing the supply shortages instead of worrying about how much transitory inflation is generated by doing so. … The way out of a supply shortage is through producing more, not less.”
For supply chain managers who will be struggling with price increases and shortages for some time, it could be said that the way out begins with a robust and sophisticated supply chain risk management program. Given the extraordinary turmoil caused by the pandemic, an SCRM program might not have completely helped companies like Riedell avoid shortages of skate wheels. But as the recovery continues, the better supply chain intelligence a company has, the better it will be able to pivot for competitive advantage in changing times.