Local professors address supply chain’s ‘perfect storm’

Solutions to complex issues not coming overnight

Depending on your perspective, the phrase “supply chain” is among the global economy’s most pressing concerns, an oft-repeated phrase to summarize a variety of product shortages – or, as Lake Superior State University’s annual list suggests, it’s among the top 10 terms of 2021 that should be banished because people are sick of hearing about it.

No matter the point of view, however, it’s clear that while supply chain problems are improving in some ways, the underlying issues of product shortages, lack of available employees and transportation bottlenecks are challenging, substantial and likely to persist for the near future, economic experts at two Cedar Rapids colleges said at a pair of presentations Jan. 20 and 21.

In an online presentation Jan. 20 titled “Did the Grinch Steal Christmas,” Todd Hutcheson, MBA program coordinator and assistant business professor of business and leadership programs at Mount Mercy University, came to a pre-emptive conclusion.

“Here’s a spoiler for you,” he said. “The situation that we’re in, or have been in, is not going away soon. There’s a lot of things that are still going on.”

Mr. Hutcheson summarized the supply chain concept as “all functions that are involved in receiving and fulfilling a customer’s request, from raw materials through the supplier, to the manufacturer, the distributor, the retailer and all the way to the consumer.”

Focusing his presentation on the holiday shopping season, Mr. Hutcheson said supply chain snarls became glaringly evident months before Christmas. He referenced a television news report from October regarding the backup of 81 cargo container ships at that time outside the Port of Long Beach, one of the nation’s largest shipping gateways.

To put those 81 ships’ cargo loads in perspective, Mr. Hutcheson noted that each ship would carry an average of 6,200 containers.

“Do the math,” he said. “That’s half a million containers, half a million truckloads of goods that were stuck offshore at that point. That’s a pretty incredible number.”

Combined with a shortage of truck drivers, production delays exacerbated by a lack of raw materials and available workers, inadequate warehousing capacities and reliance on “lean” production and inventory principles prior to the COVID-19 pandemic that left suppliers unprepared to respond nimbly, the table was laid for a nearly perfect economic storm.

Did the Grinch steal Christmas? The surprising answer, Mr. Hutcheson said, is no. According to a New York Times report, as of Dec. 22, Americans were on track to spend 11.5% more this past holiday season than the previous year, holiday shoppers received most of their gifts by shopping early and in person, and UPS and the U.S. Postal Service delivered nearly 99% of their packages on time between Nov. 14 and Dec. 11.

Yet troublesome factors continue to plague the supply chain, he said, and many of the concerning factors before the holidays remain concerning today. The COVID-19 pandemic is not subsiding as expected, with surges in cases of the omicron variant leading to dramatic increases in illnesses and hospitalizations. Inventories of some items remain limited on retail shelves, with little in the supply pipeline to replenish them. Shipping remains constricted, and container shortages are throttling the ability to deliver goods. The ongoing worker shortage shows little sign of improvement. And with inflation at 7% for 2021, U.S. consumers haven’t seen prices soar so quickly since the early 1980s. 

“The bottom line: Stay tuned,” he said. “The supply chain issues are not going to go away soon. We’re going to be seeing them for some time. I do think some of the changes that have been made have been good, and there are things that will continue to benefit us, but I believe we’ll still continue to see supply chain disruptions for some time.”

Rick Eichhorn, Ph.D., Henry B. Tippie Professor of Business Administration and Economics at Coe College, echoed many of the same themes in a presentation to the Cedar Rapids Daybreak Rotary Club on Jan. 21.

Titled “Persistence in Supply Shocks,” Mr. Eichhorn’s presentation centered around negative trends in the current economy, including an adverse supply shock that’s been spurred by the confluence of increasing inflation and a low unemployment rate, leading to “stagflation,” or inflation during stagnation.

“For supply shocks, we’re really talking about productivity and costs,” he said. “That’s what affects the supply curve and the ability to produce output. If you have something that makes it harder to produce output or to get output to the user of that output, then that’s a supply shock, which we’re obviously enduring right now and trying to find our way through.”

The last time inflation was significantly higher than unemployment, Mr. Eichhorn noted, was during the “Great Recession” of 2009.

“And it never was ever since then, until now,” he said. “And now we’ve got this weird impact that unemployment is dropping like a rock.”

More to the point, Mr. Eichhorn said, is that the participation rate – the percentage of the non-institutionalized, working-age population that’s employed – has trended sharply downward during the pandemic.

“It dropped off a cliff because we sent everybody home, but a lot of them decided, ‘I’m not coming back,’” she said. “Some of it’s just the psychology of work. If you’re in your job for 10 years, you think, ‘this is what I’m supposed to be doing.’ You’re not thinking about other opportunities. When you get sent home for a pandemic, all of a sudden you think ‘maybe I should do something else.’”

Some solutions are being presented, including infrastructure proposals from the Biden administration to improve cargo handling at crucial U.S. ports. However, Mr. Eichhorn cautioned that current trends won’t be reversed overnight no matter the measures taken.

“If we (could) move the short-run aggregate supply curve back out to the right, that would be a beneficial thing,” he said. “That’s not something you can do today and tomorrow. It’s something that takes months and years. But it’s a right-headed thing to do, and they are trying to solve these problems.”