It’s more a story of demand
But a closer look reveals that the real story is one of demand. Demand for goods is higher than it has ever been, and it is exposing the supply chain as hyper-efficient, and we are looking at a process of adaptation.
The pandemic has shifted some spending in the US from services (excluding restaurants and travel) to products. Spending far more time at home, consumers have looked to electronics for entertainment and productivity, home renovation and furniture to improve their surroundings and appliances to improve domestic experiences. This shift was fueled in part by extensive public spending to provide support during the pandemic. The result has been a demand for physical goods that is unprecedented, accompanied by an imbalance of trade with Asia.
On the B2B side, there is some understandable shortage gaming that is going, where companies inflate their true demand out of fear of not having enough. Increased inflation (caused in part by supply shortages and increased freight costs) has increased willingness to hold inventory, further increasing baseline demand.
Physical supply chains were already used to peaks in demand around Christmas. In 2013, the global supply chain had not fully adopted to the new realities of e-commerce and there were high-profile stock shortages at the holidays. Companies like Amazon reacted by adding dedicated shipping capacity under their control, and a new balance was found.
It’s not surprising that supply chains had their capacity stretched, with some misses, at the holidays. If that were not the case, it would mean that supply chains had excess capacity during the rest of the year. That is a sign of supply chains being very efficient, not broken or fragile. What is happening now is as if every day were Christmas for supply chain.
Management implications
The current supply chains issues are due to a lack of anticipation of profound shifts in demand profiles. These shifts go far beyond what a general manager should expect of his demand planning process. The failure to anticipate them show how demand planning is more than a supply chain process, it is a business planning process, one that is a fundamental strategic role in the enterprise.