Why is there Scarcity in the Land of Plenty?
By: María Alejandra Pulgar
Land of plenty (Noun): A utopia that provides for all one’s needs.
America, the Land of Plenty, is experiencing scarcity due to the disruption in the supply chain, which is causing delays on the manufacturing, transportation, and delivery of products worldwide.
For Latin Americans and other immigrants, who have suffered shortages of goods in their country of origin, empty shelves are a painfully familiar sight; but for Americans, it is an eerie situation that only happened during preventable disaster preparedness or that occurred early in the pandemic when people went crazy buying toilet paper and cleaning products. Unfortunately, the scarcity of goods and supplies that is been experienced recently, and the rising prices, are here to stay for longer than anybody could have foreseen. And there is nothing consumers can do to solve it. Holidays will definitely be different this year.
What is the global supply chain and how did it “break”?
A simple definition of Supply Chain would be “the sequence of processes involved in the production and distribution of a commodity”. The processes on the sequence are plan, source, make, deliver and return. Supply chain management is a complex field, moreover in the current globalized markets. It only takes a disruption on the timing of one of those steps to have the whole sequence desynchronized with dreadful consequences.
“The scarcity we are experiencing is a direct result of the confluence of increased demand meets decreased supply, coupled with a logistics chain worldwide that has weak points along the way that led to a slowdown in the timely arrival of goods”, explained Ivan Jimenez, financial expert and CFO of the portal Buskeros.com
“The origin of the problem was pandemic induced,” says Jimenez. “We were told to hunker down, stay home; [..] That led to a consumer behavior manifest in consumption that resulted in shortages. Spikes in demand well over the historical averages led to perceived shortages.”
The control of inventories in the developed nations worldwide was “based on the ‘just in time’ model”, where industries dedicate their financial resources to obtain their products and supplies when they needed them; “it was perceived as inefficient to have excess inventory just laying around, not to mention the cost of storage, [..] thus having excess inventory was not part of our economic model […] With the pandemic we experienced something mostly reserved to nations in development: scarcity. As a result, part of the backlog we are witnessing is a result of increased demand to offset any potential gaps in the supply chain in the next 12 months” explained Jimenez.
“Supply chain accurate functionality is very similar to home chores or oxygen, no one really notices unless they are lacking. What we are experiencing is the direct result of rapid disruption, along multiple touchpoints of the supply chain.”
The pandemic only showed how globalized the world economy is and how much countries depend on each other’s wellbeing. Whereas on developed countries vaccination deployment and other public health measures have been effective to help open economies, poorer countries are still behind. “Although we have come a long way from the beginning of the pandemic, we are still in the midst of the ultimate goal of achieving herd immunity worldwide. […]That implies structural weaknesses in the labor force that leads to delays. Unlike many other sectors of the economy, logistics we now realize is quite complex.”
Flexibility and context to cope with Holiday disruptions
With the End-of-the-year Holidays approaching, consumers have to mentally prepare to not having available products typical of the season. “Expect disruption” is the grim advice Jimenez can give consumers.
“Forty percent of imports from China to the US come in to through the ports in California; there is a tremendous backlog at the port of entry, partly due to the shortage of truck drivers.” Toys, electronics, and other items are still packed in containers either in cargo ships ashore or staked up in ports waiting for trucks to pick them up. “Expect disruption at least in toys made in China.”
Major retailers have made efforts to circumvent the bottlenecks in transportation hiring their own transportation solutions, flying in the products or enhancing their warehouse capacity to have the merchandise readily available for consumers. That measure coincides with Jimenez’s opinion that it is probable that consumers will decide to pick up their purchases at retailers in person, to avoid shipping delays. “Internet shopping works only if they can deliver the product on time.”
If last year online shopping saved the holidays, looks like this year brick and mortar stores will do it, provided that they manage to bring in the products on time.
However, consumers need to be prepared when the product they look for is not available. “Flexibility and context compensate for any scarcity that does not involve subsistence,” says Jimenez. “Flexibility as it relates to time as well as other offerings. If there is the difficulty of availability get something else […] Context: we have just lost in the last year more people than those that died in the wars of recent history, a little inconvenience [lack of toys or other goods] given that context is not a big deal”.
How long will it last?
“The logistics disruptions should continue for the next 12-18 months, as world demand increases further, and the logistics chain untangles. It should be a gradual, continuous improvement” says Jimenez. “The US has lived through what may be considered almost an un-American experience: empty shelves. As long as competition exists in the US, leadings towards incentives for timely execution throughout multiple sectors of the economy, we should see things get back to normal.”