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June 11, 2021

The Global Supply Chain Broke — What Happened?

The ChiCom Virus infected the widely used “just-in-time” inventory system.

If you’re like most people, something doesn’t seem right in the marketplace.

Before the ChiCom Virus pandemic, Americans were accustomed to having shelves fully stocked, and today’s sparsely-stocked shelves are a wakeup call.

From furniture to bikes to lumber, we can’t get the products we want. If we do manage to find a store with stock, it’s just about impossible to find employees to answer questions or load up our cars. Employers simply can’t find enough workers. It’s not that there aren’t people. It’s just that the federal government is paying them to not become workers.

One of the factors that made products so plentiful in recent years is known as “just in time” inventory, developed by Toyota in the 1970s. The idea was to limit inventory overhead by having parts arrive “just in time” when they were needed. Impressed by Toyota’s efficiency and profits, other companies jumped on board and implemented the same inventory system.

When a certain product was running low, more was delivered to meet the demand. This prevented companies from buying too much of what they didn’t need or having too much stock taking up floor space, all of which costs money.

In reality, it only seemed that stores had large surpluses because products that customers demanded were always there to be purchased.

Over time, companies and consumers came to enjoy the benefits of the lean and cheap just-in-time system, but events from floods to earthquakes to COVID-19 interrupted the supply chain and left us where we are today — paying far higher prices for fewer products.

The only problem is that just-in-time only works when everything’s running smoothly, and right now there are other factors revealing the flaws of just-in-time, including that some companies have embraced the inventory system without understanding what made it work so well for others. For one, a company can’t rely on one source or one country to supply all of its needs. Otherwise, a natural disaster can break the supply chain.

Now that we’re all experiencing the painful result of a system that can’t work in all situations, it’ll be interesting to see whether or not consumers are willing to pay still higher prices if it means having goods on the shelves whenever we want them.

But the imperfect just-in-time approach isn’t the only reason for product shortages.

Take microchips. In today’s technological world, microchips once produced for cars and computers are now critical components in many different products. As a result, car companies bought up as many as they could get their hands on.

CNBC reports, “The severity of the global chip shortage has gone up a notch over the last few weeks and it’s now looking as though millions of people will be impacted. As technology has advanced, semiconductor chips have spread from computers and cars to toothbrushes and tumble dryers — they now lurk beneath the hood of a surprising number of products.” And according to The Daily Wire, this lead to “Ford taking over 346,000 vehicles out of production, while General Motors has reduced its production total by over 277,000.”

To address concerns over the lack of products and critical components such as microchips, the Biden administration has created a task force to identify ways to mitigate supply chain issues currently impacting our economy.

But again, getting products back on the shelves isn’t going to solve the problem of finding workers, many of whom are making more staying at home by cashing unemployment and stimulus checks. Even some Democrat lawmakers are beginning to put pressure on the Biden administration to think twice about expanding benefits in order to get people back to work. Biden himself indicated that September might be a good time to let those benefits expire.

To some degree, we’ve been living in a false reality with access to cheap and plentiful products, but maybe the current shock to our system will inspire consumers and companies to think more critically about the long-term stability of the marketplace instead of adopting a one-system-fits-all approach to supply and demand.

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