Supply Chain Breakdown: Its Causes and Effects

Supply chains typically aren’t something the average person needs to think about too much. When they’re working, these high-tech, globalized networks of parts suppliers, assemblers, shippers, and distributors allow companies to make and move goods around the world so quickly and cheaply that it’s tempting to take them for granted.

That is, until a pandemic hits and exposes the fragility of this whole enterprise. Early on, essentials such as toilet paper, surgical masks and nitrile gloves suddenly became unavailable as surging demand gave way to panic-buying and hoarding. Later in the pandemic, lumber shortages caused wild price spikes, ruining many COVID-era home-improvement projects. More recently, news headlines report how a semiconductor shortage is driving up the price of consumer electronics and cars.

With retailers’ deadlines for ordering and stocking goods for the holiday season rapidly approaching, it’s possible shoppers just won’t be able to get everything on their list this year.

To be clear, this isn’t likely to become the new normal—though, when it might end is still uncertain. Many familiar features of modern life are implicated: Global shipping, COVID-linked worker shortages, extreme demand for limited supplies leading to price surges and inflation, and bigger transformations in our economy, including the shift to working from home, the rise of electric cars, and the potential for new infrastructure spending. So, the question now is what—if anything—can the average shopper or investor do in response?

What’s wrong with the supply chain?

Starting in the 1970s, the rise of the shipping container revolutionized global trade. These standard-sized corrugated steel boxes can stack on ships and fit on truck beds—and dramatically lowered the cost and time to transport goods. This enabled businesses to shift production to lower-cost destinations overseas and source materials and components from just about anywhere.

The steady and stable flow of inputs led companies to adopt lean “just-in-time” manufacturing, a system under which parts and materials are timed to arrive from suppliers right when they’re needed for production. This was another savings strategy, aimed at cutting the cost to store inventory.