By Travis Decaminada
Key Takeaway: Limited inventories and disrupted supply chains are reportedly causing shortages across numerous industries. These shortages may prompt some companies to reassess their business strategies.
By all appearances, the word “shortage” may define the summer of 2021 as many different industries are reportedly coping with severely limited inventories and restricted supply chains, reports the New York Times. Per the article, a major reason for these shortages has to do with just-in-time or lean manufacturing: a practice wherein manufacturers keep only a limited amount of resources, raw materials, or other necessary supplies on hand. Notably, when demand suddenly increases, and/or shipping lines are disturbed, companies practicing just-in-time manufacturing may have difficulty keeping up.
On the other hand, the potential benefits of just-in-time manufacturing may be attractive to some businesses, despite the risks. Companies can reportedly save money by reducing warehousing costs while at the same time gain a degree of flexibility; potentially allowing them to act faster in response to market changes. In the retail space, the practice allegedly frees up floor space for other products and allows the opportunity to stock and sell more bespoke goods as well. However, as noted, this practice may also leave manufacturers vulnerable to disruption, for instance, a global pandemic or a cargo ship shutting down the Suez Canal. Both of which can be blamed for the current shortages.
Some Affected Industries
The number of industries impacted by shortages appears to be growing, to list a few:
- Automobile manufacturers are reportedly coping with microchip shortages.
- Construction companies are reportedly having difficulty acquiring basic supplies.
- Sawmill closures are reportedly causing lumber shortages.
- Storms have reportedly caused some chemical plants to reduce their output. For example, chlorine for pools.
- Clothing brands and shoe manufacturers are reportedly having difficulty attaining raw materials.
- Increased demand for cereals and grains is reportedly causing disruption in the pet food industry.
The above list likely barely scratches the surface of which industries are or will be impacted by shortages. Whether or not companies will change their practices in response remains to be seen. Ultimately, this could prompt dramatic changes within some industries or companies, though other may simply move past it. Per the New York Times:
Some experts assume that the crisis will change the way companies operate, prompting some to stockpile more inventory and forge relationships with extra suppliers as a hedge against problems. But others are dubious, assuming that — same as after past crises — the pursuit of cost savings will again trump other consideration.