Mercado - Insight - How the Supply Chain Crisis Unfolded

How the Supply Chain Crisis Unfolded

Mercado - Insight - How the Supply Chain Crisis Unfolded

How the Supply Chain Crisis Unfolded

By Kayleigh Hansen     Dec. 6, 2021
Ships stuck at sea, warehouses overflowing, trucks without drivers: The highly intricate and interconnected global supply chain is in upheaval, with little end in sight.

The turmoil has revealed how the need to ship surgical masks to West Africa from China can have a cascading effect on Ford’s ability to put back-up cameras on its cars at factories in Ohio and delay the arrival of Amazon Prime orders in Florida in time for the holidays.

In one way or another, much of the crisis can be traced to the outbreak of Covid-19.
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Mercado - Insight - How the Supply Chain Crisis Unfolded
When the pandemic struck in early 2020, people and businesses were quickly forced to restrict their activity, sending the global economy into a brief but damaging free fall.
Mercado - Insight - How the Supply Chain Crisis Unfolded
As offices and stores closed, and factories from Asia to Europe and North America halted production, companies laid off workers en masse. That took spending power — an economic life force — out of people’s hands.
Mercado - Insight - How the Supply Chain Crisis Unfolded
With fewer goods being made and fewer people with paychecks to spend, manufacturers and shipping companies assumed that demand would drop sharply. But a far more complicated situation unfolded, challenging the global supply chain.
Mercado - Insight - How the Supply Chain Crisis Unfolded
In early 2020, the entire planet suddenly needed surgical masks and gowns and other protective gear. Most of these goods were made in China, which produced half of all protective masks the year before.

As Chinese factories ramped up to meet the new demand, cargo vessels delivered protective gear around the globe, even to regions that do relatively little trade with China, such as West Africa.

Empty shipping containers piled up in many parts of the world. The result was a shortage of shipping containers in the one country that needed them the most: China.
Mercado - Insight - How the Supply Chain Crisis Unfolded
China’s factories were pumping out goods in record volumes. Despite the worry that economic devastation would destroy spending in many countries, the pandemic merely shifted the demand: Instead of eating out and attending events, Americans bought office furniture, electronics and kitchen appliances.
Mercado - Insight - How the Supply Chain Crisis Unfolded
The pandemic sharply accelerated a trend that had been advancing for years: the shift toward online shopping. From April to June 2020, as the first wave of the virus spread, Amazon sold 57 percent more items than it had a year earlier.
Mercado - Insight - How the Supply Chain Crisis Unfolded
The spending in the United States was also encouraged by government stimulus programs that mailed checks to households, part of a record-setting effort to resuscitate the economy. Households collectively received hundreds of billions in recovery aid.
Mercado - Insight - How the Supply Chain Crisis Unfolded
As demand increased, a wave of factory goods swiftly overwhelmed U.S. ports. With too many ships arriving at once, boats had to wait at times in 100-vessel queues off the ports of Los Angeles and Long Beach.

Swelling orders also outstripped the availability of shipping containers, and the cost of shipping a container from Shanghai to Los Angeles skyrocketed tenfold.
Mercado - Insight - How the Supply Chain Crisis Unfolded
Even once unloaded, containers piled up on docks unclaimed, because of a shortage of truck drivers needed to haul cargo to warehouses. Truck drivers had long been scarce, with wages steadily eroding over the years amid grueling working conditions.

Businesses across the economy struggled to hire workers: at warehouses, at retailers, at construction companies and for other skilled trades. Even as employers resorted to lifting wages, labor shortages persisted, worsening the scarcity of goods.
Mercado - Insight - How the Supply Chain Crisis Unfolded
Shortages of one thing have turned into shortages of others. A dearth of computer chips, for example, has forced major automakers to slash production, while even delaying the manufacture of medical devices.
Mercado - Insight - How the Supply Chain Crisis Unfolded
As businesses and consumers have reacted to shortages by ordering earlier and extra, especially ahead of the year-end holidays, that has placed more strain on the system.
Mercado - Insight - How the Supply Chain Crisis Unfolded
Even as the pandemic catalyzed it, the crisis has roots in a production model pioneered by Toyota at the end of World War II, and disseminated throughout the business world by leading consulting companies.

Under the model, called “just in time” manufacturing, companies stockpile as few raw materials and parts as possible, instead buying what they need as they need it.
Mercado - Insight - How the Supply Chain Crisis Unfolded
That works only when they can get what they need when they need it. For years, some experts have warned that the global economy is over-reliant on lean production and faraway factories, exposed to the inevitable shock. The pandemic has seemingly validated that view.
Mercado - Insight - How the Supply Chain Crisis Unfolded
With the holiday shopping season underway and the Biden administration pressing to force major ports to expand operations, the supply chain has become a central political issue.

It is also a key factor in rising inflation, which is deepening concerns about the fate of the global economy and its recovery from the lockdowns of the pandemic.

The supply chain issues are likely to last for many more months — if not years.
About Mercado
Here at Mercado, we have first-hand experience with the issues a disconnected and siloed supply network creates. With internal teams disconnected from each other and vendors, it comes as no surprise that importers across the globe are feeling the strain of the current pandemic aftermath.

Designed by importers for importers, we’ve created an import order management system (iOMS) that connects and automates the global supply chain, connecting the 80% that remains “offline” to make it easier for importers to buy and ship the products they sell.

With enhanced supplier collaboration, real-time production management, and production controls, Mercado’s built-in features enable enterprises to re-prioritize supply chain convergence and harness the benefits of a unified business, including increased resilience, improved risk management, and accelerated innovation.
Create a digital first mile for your business
Discover more about how Mercado’s digital supply network helps businesses to transform their supply chains and improve time to market, increase sales, and reduce expenses. To find out more, get in touch with us directly here.
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