Navigating Supply Chain Holiday Conversations

Editor’s Note: Kimberly Becker is Senior Research Director for Gartner Supply Chain

This holiday season, have you noticed a change in conversation around the dinner table?

If you are like me, many of your friends and family are showing a new level of interest in your profession. Over the course of the past several months, supply chain has come front and center in people’s lives, impacting everything from what is stocked or not on grocery shelves to how high-tech that new car they’ve been eyeing will or will not be.

The news has been bombarded with labor scarcities, supply shortages and port congestion. Often there is a lot of finger pointing, but limited explanation of what is happening and why.

As you prepare to gather with your loved ones, I thought I’d share some suggestions on ways to explain the situation better to people who — unlike us — haven’t been living and breathing supply chain most of their adult lives.

How did we get here?

Hardly a day goes by without someone asking me when “it” is going to end. When will everything be available again? Most people recognize that manufacturers have become more global over the past decade and import a considerable number of raw materials and finished goods from overseas. This strategy is based on driving efficiencies, but it does increase lead times, which can negatively impact an organization’s agility and flexibility in responding to demand changes. When the pandemic started in 2020, it affected manufacturers across the world as shutdowns occurred globally and production was stopped. Consequently, supply was significantly delayed. Companies might have rebounded quicker if key materials were sourced or manufactured locally, but alternatives were limited as the pandemic spread across the world and all regions were impacted at some point.

Is it just a supply issue?

To start, availability of supply was a challenge. The issue was quickly compounded by unprecedented demand changes. Outside of the panic buying that occurred at the onset of the pandemic, your friends and family may not be aware of just how much demand has changed in the past 20 months. They may also be unaware that manufacturers have finite capacity and often don’t have the ability to increase that capacity significantly if demand spikes significantly. Most capital investments must be budgeted and can take time to implement. Most consumer product companies have excess capacity to cover some upside of demand, but what we’ve experienced with COVID-19 is unprecedented.

Global lockdowns also caused a major shift in demand. Spending that previously went to services, such as entertainment and travel, shifted overnight to physical goods. Instead of spending on vacations (hotels, amusement parks, transportation), sporting events and eating out, consumers began buying products to support this new “socially distant” lifestyle. Demand for some items soared way beyond their norm. People couldn’t go to gyms or fitness classes, so demand for equipment to use at home skyrocketed — consumers waited months for Peloton bikes and free weights that were out of stock everywhere. With kids home, parents were buying recreational toys for use around the house, as well as computers and tablets for online learning. In-home food and beverage demand increased dramatically, as people were cooking at home more than before. Even as lockdowns relaxed, a large percentage of people were continuing to work from home (and still are) and focusing on home improvement, which has driven a huge demand in durable goods — including building products, appliances and furniture — most of which have very long supply chains. All this increased demand triggered the need to produce more products and more raw materials up the supply chain.

It’s the bullwhip effect in action, everywhere.

If you studied supply chain in school, you probably know what the bullwhip effect is. Prior to Gartner, I used to facilitate a supply chain training course that included “The Beer Game” to demonstrate the bullwhip effect to participants. Simply stated, the bullwhip effect is a supply chain phenomenon describing how fluctuations in demand at the retail level can cause progressively larger fluctuations in demand at the wholesaler, manufacturer and supplier level.

The bullwhip effect can have a major impact on a specific manufacturer and its customers when it occurs with just a single product, like beer. Imagine this bullwhip effect occurring across multiple value chains and industries. We essentially are experiencing a “ecosystem bullwhip,” a perfect storm that has wreaked havoc in our supply chain.

What is being done to address the problem?

The supply chain gridlock is not going away overnight. We will feel the effects well into 2022 as some changes to consumer behavior and demand may be permanently altered. When asked what is being done to improve the situation and prevent this from happening again, here are some strategies and capabilities that manufacturers are focused on to transform their supply chains that may help ease concerns:

• Re-assessing their global supply network to better balance agility, resilience and efficiencies. This includes potentially holding more inventory, souring high risk raw materials closer to their markets, and potentially producing key products locally
• Increasing supplier network diversity to avoid single sourcing as well as increasing supplier relationship management to reduce risk.
• Implementing end-to-end visibility technology to identify issues sooner to counteract disruptions and allow faster resolution.
• Utilizing advanced planning capabilities that incorporate real-time data to improve demand prediction rather than relying on historical demand patterns that were often used in the past.

With these tips, I hope you can have productive conversations with your family and friends this holiday season about challenges facing supply chains. If all else fails, I highly recommend engaging your family in The Beer Game to really experience the bullwhip effect. Wishing you all Happy Holidays!

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