🇪🇺Just in Time is running late: The current supply chain problems explained

The Story

Lack of products

What is missing?

There is a shortage of supply in many branches. A selection of products that are currently in short supply: semiconductor chips, diapers, chicken, lumber, toilet paper. The pandemic has disrupted nearly every aspect of the global supply chain.

What is a supply chain anyway?

The usually invisible pathway of manufacturing, transportation and logistics that gets goods from where they are manufactured, mined or grown to where they are going.

What caused the problems?

The pandemic has changed demand behaviour. During the lockdown, many people took on new home-improvement projects. That is why the home sales market skyrocketed. More generally, there is a trend away from service (too contagious); instead, people prefer to spend their money on products. In addition, the pandemic is not over. The effects show up very differently around the world. In a networked world, this has a wide range of effects.  

Explain!

Think of manufacturing a car. It might contain parts from ten different countries. Each company in each of these countries specialises in making just one of those essential pieces. If just one company can’t deliver on time, production slows to a crawl.  

A Just Not In Time production, then. 

Toyota, the Japanese automaker, pioneered the so-called Just In Time manufacturing. Parts are delivered to factories right as they are required, minimising the need to stockpile them. Companies of almost every branch embraced that concept, allowing them to adapt to changing market demands while cutting costs. But if there is a problem in the supply chain, the whole system quickly stops working. If one thing is missing, production slows down overall. That is the negative consequence of how our modern world is constructed. 

Tell me more.

The industry that invented Just In Time is hit the hardest. The automakers have been crippled by a shortage of computer chips that are vital car components and primarily produced in Asia. In India, Brazil, the United States, and Europe, factories have been forced to halt assembly lines.  

What are the consequences?

Growth is weakening, prices are rising. When workers cannot work, less can be produced. As a consequence, the economic recovery in Europe lost steam in autumn. And if manufacturers have to pay more for materials in short supply, they’re likely to pass at least some of these costs to their customers. At any case, selling prices advanced at the fastest pace for almost two decades. Subsequently, within the Euro area, annual inflation was 3.4 per cent in September 2021, up from 3.0 per cent in August 2021.

The Upside

Companies are capable of learning. They will stockpile more inventory and forge relationships with extra suppliers as a hedge against problems in the future. The companies will also adapt quickly to the changing needs. The current difficulties could therefore remain temporary. In addition: The global supply chain network is not only the reason for the current problems, it can also be the solution. With an infinite number of supply chains, these chains can change quickly. There are millions of participants in the global market economy looking for solutions. I am pretty sure they will find them.


This post is part of the mailing Good Morning Europe – a daily comprehensible five-minute reading for a better understanding of a diverse continent. Subscribe here for free to get your daily mailing every morning in your inbox.


Notes:

https://www.ft.com/content/6250d2dd-5536-4d45-b123-dc98a64a26d1

https://www.bloomberg.com/news/articles/2021-10-22/europe-s-top-two-economies-sound-alarm-over-absent-supplies

https://www.forbes.com/advisor/personal-finance/consumer-spending-supply-chain-shortages/

https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Inflation_in_the_euro_area

https://www.dw.com/en/germany-opel-plant-to-shut-over-global-chip-shortage/a-59362189


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