Virus fallout causes kinks in supply chains
When COVID-19 started spreading and state and health officials restricted nonessential businesses and activities, the owners of the Colorado Boat Center in Johnstown sat down and wrote three different budgets to prepare for the economic fallout.
“None of them forecasted anything like what we did. They were all worst-case scenarios,” said Eric Smith, general manager of the family-owned dealership.
The worst didn’t come. Instead, business in 2020 boomed and hasn’t slowed down.
“For the first time in 30 years, we ran out of boats last year,” Smith said. “We’ve presold 80% of our allotment for the year already. We’re taking preorders for 2022.”
Boats and recreational vehicles are among the goods whose sales have skyrocketed during the pandemic as people have turned to the outdoors for socially distanced activities.
But the soaring sales are also indicative of the idiosyncrasies of the pandemicinduced recession. Pent-up consumer demand is colliding head-on with the impacts of lockdowns and factory shutdowns that occurred to curb the spread of the disease. More of the wheels of commerce are turning again and the distribution of vaccines is feeding hopes of returning to some sort of pre-pandemic normal.
However, supply chains that deliver cars, boats, raw materials and other items are still feeling the ef fects of the COVID-19 crisis, resulting in limited supplies and waits for goods. Exper ts and business people aren’t sure when that will change.
The latest kink in the supply chain is a global shortage of semiconductor chips that has led Ford to cut production of the F-150 pickup, one of the country’s bestselling vehicles. President Joe Biden has ordered a review of critical supply chains and wants to explore boosting manufacturing in the U.S.
“I think we got caught flatfooted, thinking this was going to be a long drawn out downturn in manufacturing, production. The data suggest just the opposite,” said Gregg Macaluso, a faculty member of the master’s program in supply chain management at the University of Colorado-boulder Leeds School of Business.
Unlike the financial crash of 2007 and 2008, consumer demand during the pandemic has “shifted in ways that no one predicted,” Macalusosaid.
“They acted like we were getting ready for another cold winter, like the Great Recession,” he added. “So they started to shutter (plants) and within 60 days a new pattern of demand that they didn’t expect hit and they got caught flat. Now they’re chasing it.”
Macaluso said when the economy took a dive about a year ago, manufacturers across a variety of categories slowed or ceased production and laid off workers. “Then unexpectedly in May, demand star ted to rise and it hasn’t stopped since.”
Data from the Institute of Supply Management shows a growing gap between orders and delivery by suppliers. A rating of above 50 indicates demand is exceeding supply, Macaluso said. The rating was 58.2 at the end of August and rose to 68.2 by the end of Januar y.
The decades-long move of a lot of production to other parts of the world makes responding to quickly changing conditions more difficult. Economists also point to what they call the “bullwhip effect,” when small changes at one end of the supply chain get amplified as they ripple through, sending distorted signals. Macaluso likened the ef fect to the telephone game.
“Labor shortages are also causing issues. Mexico — the United States’ largest trading partner — is still being impacted badly by COVID,” said Patrick Penfield, a professor of supply chain practice at the Whitman School of Management at Syracuse University.
Many U.S. companies are still experiencing staff shortages because workers are infected or are in quarantine because they were exposed to someone who is,
Penfield said an email. Besides boats and semiconductor chips, he said houses, furniture, appliances and major electronics are in shor t supply. He expects the list of items to expand as more people get vaccinated and want to return to their pre-pandemic lives.
“Consumers were saving money during the pandemic (if they were working) and are now looking for things to go back to normal and want to buy products,” Penfield said. “Also, another impetus to spending will be COVID relief money that will be passed by Congress.”
People will likely see shortages of various consumer products similar to ones involving food and paper products early in the pandemic, Penfield added.
When it comes to cars and trucks, it’s not clear when supply will catch up with demand. The problem is a global shor tage of semiconductor chips that are crucial to making vehicles go but are also necessar y for products that people working, learning and playing from home are using more of: laptops, tablets and smartphones.
The cutback in production of full-size Ford pickups has gotten a lot of attention, but Donalson said the semiconductor chip shortage is af fecting dealers regardless of their product.
Since COVID-19 restrictions were lifted on Colorado dealerships, allowing them to reopen their showrooms, dealers haven’t always had vehicles to display on the floor.
“When our showrooms were closed, so were the factories, not only in the U.S. but around the world. When they were able to reopen, that didn’t mean they got back to 100% production,” said Tim Jackson, CEO and president of the Colorado Automobile Dealers Association.