Do you ever have the feeling that items keep disappearing?
Just kidding! Let's get started.
In this video series we'll be providing actual,
in-depth information on subjects affecting the Texas economy.
Many of us only think about supply chains when seeking out a hot new toy at Christmas.
That was before 2020. Since then shortages in bicycles,
automobiles, cream cheese, chicken wings, glass, ketchup packets, candy canes, pet food...
Almost any product you can think of have us all turning into armchair experts on the supply chain.
The following three characteristics are key to supply chains giving us
lower costs and less waste.
They are also key reasons, though not the only reasons, why we're seeing shortages.
The benefits are mixed up with the risks.
One:
Intermediate goods. Intermediate goods are all the parts that go
into a final good that you, the consumer, buy.
During the process of assembling a vehicle the individual parts — think of the engine, bumpers,
seats, the foam inside the seat that helps keep you comfortable through a Texas road trip —
are made in different places and get traded back and forth across borders.
The importance of intermediate goods to global supply chains is difficult to overstate.
Advanced manufacturing industries, such as automotive, rely on this system.
Global trade in intermediate goods is twice as large as trade in final goods. Plus,
a worldwide market can allow countries to specialize in doing what they're best at,
giving them an advantage and a competitive edge. And keep costs lower for consumers.
The industries that rely on large global trade
networks are also particularly vulnerable to economic upheavals.
Recent events have prompted business leaders and policymakers to consider
ways to strengthen supply chains, especially for sectors critical to
the country's competitiveness and security, such as semiconductors.
Two: Just-in-time manufacturing.
Legend has it that this type of manufacturing was inspired by the
Piggly Wiggly grocery store, which first opened in 1916.
The story goes that in the 1950s Toyota executives visiting from Japan saw the
Piggly Wiggly model of self-service shopping and applied those principles to their own factories,
developing the Toyota Production System.
There's a lot that goes into this system, but for our purposes,
the key characteristic is "just-in-time" manufacturing, which relies on low inventories.
It's kind of like buying on demand.
Products are created only as they're needed,
eliminating the waste that comes with having surplus inventory.
During good times, it runs smoothly because companies have gotten pretty
good at understanding people's shopping habits.
But when demand exceeds expectations, products can become difficult to find.
Three:
The bullwhip effect.
The bullwhip effect happens every day in a supply chain
and is also closely tied with economic recessions.
That's because lots of events can cause a bullwhip effect,
even say ... a pandemic.
It's a temporary change in consumer demand,
which then leads to real changes in production and available inventory.
Say more people buy chocolate bars for some reason.
Retailers and wholesalers each place larger orders, causing factories to make lots of
extra chocolate bars which, in turn, can lead to farmers needing to supply lots and lots more cacao
all because of high demand for chocolate bars. Or the reverse happens
when a decrease in sales causes retailers, then wholesalers, then producers and finally suppliers
to decrease orders and production in ever greater quantities. But remember, the bullwhip
effect always starts with a temporary change so when sales pick back up, items go out of stock.
Essentially, each person's reaction at one step of the supply chain
sparks a bigger reaction at the next.
And that is the whip cracking graph.
That's it. Three characteristics that are a normal part of the modern supply chain.
As for all the shortages there are far more than three reasons for these.
Labor shortages,
port congestion,
weather events,
the pandemic,
consumer buying habits and more have been contributing factors.
There is mostly consensus that supply chains will balance again as the world returns to normal.
Nobody really knows when though.
Importantly businesses have been adapting so that we can all find the items we need. Or want.
Just in time manufacturing. Sorry, I could like, in the end of it all i could feel was like,
it like falling in my face and that's what i was thinking of that whole last...
And I'm saying cacao correctly right? That is the correct pronunciation?