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Are supply chain woes being exaggerated?

It began with cleaning supplies and toilet paper in early 2020. Baby formula shortages created concerns among mothers with infants. Most recently, tampon shortages have surfaced. Automobile parts and computer chips available from multiple providers scattered around the globe have supply chains that are particularly fragile. Energy prices are at record levels. All these shortages are driving prices higher, which in turn are impacting numerous other consumer products and services.

Some argue that this is just the beginning of an inevitable cascade of supply chain challenges driven by the Ukraine war and COVID-19 disruptions. However, to establish causality requires more than connecting the most obvious low-hanging fruits.

Shortages occur when demand exceeds supply.

This imbalance may arise when demand becomes unpredictably high, or when supply becomes unpredictably low. Either can elicit shortages that impact product availability, driving up both prices and consumer anxiety.

For products with stable demand, like many consumer goods, suppliers can plan appropriately. For example, turkey demand surges ahead of Thanksgiving and Christmas. As such, turkey farms plan the entire year to ensure that their supply of turkeys is adequate when demand peaks, although COVID-19 disrupted holiday events making such forecasting more difficult. The same type of planning occurs with pumpkin demand surging around Halloween and egg demand surging around Easter. Predictable demand makes it easier for suppliers to provide products, even when such demand is high.

Supply availability disruptions can occur for numerous reasons. Online supplier inventories and store shelves do not get replenished whenever a major manufacturing plant shuts down, there is a significant product recall, there is inadequate staffing available to operate machines or there are transportation logistics and shipping delays.

The supply chain complexities are hidden from most consumers, who only see the “last mile” displayed on e-commerce sites and grocery shelves. For example, the Food and Drug Administration (FDA) and the U.S. Department of Agriculture (USDA) regulate various food processing plants in the United States. If a missed safety protocol is uncovered, unanticipated shutdowns or recalls may occur that precipitously reduce supplies, as seen with the recent baby formula shortages. 

COVID-19 and the Ukraine war have certainly injected a new element of uncertainty into supply chains, creating supply chain risks that are shaking consumer confidence that products will be available when needed. This means when products that are perceived to be in short supply become available, consumers tend to overbuy, creating their own individual inventories, which adds to and exacerbates the supply shortage perception.

The challenge is that it takes just one or two product shortages for consumers to fear that all products will become unavailable, pushing some to stock up with anything that they use or may need. This self-perpetuates the perception of shortages, further fueling anxiety and more panic buying. This also creates unpredictable and artificial surges in demand, increasing inflationary pressures and the perception that the nation’s supply chain is collapsing.

In reality, it is not. It may be strained, with the current economic environment contributing to it.

Some products are indeed in short supply, at least temporarily. This can be seen by rotating waves of empty grocery store shelves. However, these shortages eventually get resolved, with ample supply becoming available. We are observing this with baby formula and will see it with tampons. Most certainly, other consumers products will become unavailable or in short supply in the future.  

The good news is that by standing back from the myopic view of a single product that is in short supply, we can see that the preponderance of consumer goods are widely available. What may be more limited is the variety of choices within each consumer good product class.

COVID-19 has pushed many of us to reevaluate our work situation, our values and how we wish to spend our time. It also provides an opportunity to temper expectations. Behind every product shortage are people whose lives have been disrupted by COVID-19 as much as our own. If anything, COVID-19 magnifies every supply chain woe, shining a brighter light on it than it would normally have received.

These are indeed no ordinary times, and supply chain risks are ubiquitous. But a reality check on the entire gestalt of the supply chain reveals that it is not as dire as some make it sound. Evidence of this can be found at how supply chain problems are being used in political ads, citing supply chain gloom and doom that is far from reality. Such one-sided diatribes distort the truth, fomenting anxiety and dissent that have no useful purpose (except perhaps to influence voters), when what is needed is a calming reassurance that the sky is indeed not falling. 

Sheldon H. Jacobson, Ph.D., is a founder professor of computer science at the University of Illinois at Urbana-Champaign. He applies his expertise in data-driven risk-based decision-making to evaluate and inform public policy.

Tags economy shortage Supply chain

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