In 2022, supply chain bottlenecks will persist, but too much inventory will be a problem for some suppliers

In 2022, supply chain bottlenecks will persist, but too much inventory will be a problem for some suppliers

We shouldn’t expect a quick resolution to the supply chain crisis in 2022, either. As workers take time off sick and vendors navigate new limitations, the omicron variant is causing increasing workforce shortages. As a result, some businesses may find themselves with an excess inventory. To avoid this, they’ll have to match demand with production rates.

So are we facing another year of shortages or will the supply chain crisis abate in 2022? It’s worth reflecting that the shortages have happened for many reasons. During the early 2020 lockdowns, a sudden run on essentials such as toilet paper and pasta left shelves around the world bare. Singapore ran out of eggs as consumers hoarded them, for example. Retailers ordered more eggs, desperate to satisfy demand. But once the demand had been satisfied, there was suddenly an oversupply. In June of that year, distributors threw away 250,000 eggs.

By Sarah Schiffling, Senior Lecturer in Supply Chain Management, Liverpool John Moores University & Nikolaos Valantasis KanellosLecturer in Logistics, Technological University Dublin Liverpool, Jan 8 (The Conversation) Everything was about shortages in 2021. COVID vaccine shortages at the start of the year were replaced by fears that we would struggle to buy turkeys, toys, or electronic gizmos to put under the Christmas tree. For most of the year, supermarket shelves, car showrooms, and even petrol stations were emptier than usual. Some shortages were resolved quickly, others linger.

This is what happens when demand temporarily changes. The effect magnifies with each tier of the supply chain as every supplier adds an extra buffer to their order to be on the safe side. Minute changes in customer demand can therefore result in huge extra demand for raw materials. This is called the bullwhip effect. As with a whip, a small flick of the wrist can lead to a big crack at the other end. The bullwhip effect can be from demand suddenly falling as well as rising, and during the pandemic these forces have sometimes combined. For instance, a combination of the crash in demand for new cars and higher demand for devices like laptops and games consoles for lockdown entertainment contributed to the semiconductor-chip shortage.

With modern cars sometimes containing 3,000 chips, car makers are major customers for chips. But as car sales plummeted in 2020, supplies of chips were redirected to manufacturers of smaller electronic goods. When demand for cars picked up again a few months later, there were not enough chips to go around. Carmakers were forced to stop production lines and couldn’t make enough cars to satisfy demand. They also started hoarding chips, making the shortages worse.

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