Everyone is feeling pinched these days. Grocery and restaurant prices continue their march upward, and we all feel that pang of regret when we pull up to the gas pump.
Supply chain issues continue to be at least part of the reasons for gas prices and Texas Comptroller Glenn Hegar outlined these reasons in a video this week.
We used to only think of supply chain issues, a comptroller’s office employee explains, when there was a hot new toy at Christmas-time, and it was difficult to find. Now, we find shortages in everything from cars to candy canes.
He explained three characteristics of supply chains that all have an effect on squeezing the end product.
Intermediate Goods — In our global economy, parts of things like cars are assembled all over the world and shipped to a central location for final assembly and distribution steps. That allows specialization to play a part in the efficiency of what parts are produced and where. But it can also lead to upheaval when there are disruptions.
Policy makers are considering changes to help alleviate some of these disruptions, but we’re all still feeling its limitations for now.
Just-in-Time Manufacturing — The comptroller’s office said Japanese business executives came to America to look at the Piggly Wiggly grocery store to learn about consumer self-service and keeping inventory at levels demanded by the consumer, which reduced waste. They applied it to business production in Japan.
Michael Dell in the 1980s and ’90s — the early days of the personal computer — is credited for refining it even further, reducing waste and lessening money tied up in inventory with “Justin-Time” manufacturing. Consumers could place an order for a desktop computer, and Dell employees would assemble it with any customized parts that were needed.
During good times, it works well because companies have learned consumer habits. But during times of high demand, products can become difficult to find.
Bullwhip Effect — This is a temporary change in consumer demand, such as during a pandemic, which leads to changes in production and consumer inventory.
When spikes in demand are noted, retailers and wholesalers put in orders for many more, say chocolate bars, which makes the manufacturers pump out more product. Suppliers of that product, like the cacao bean farmer must keep up with this increased demand.
A decrease in sales can have a similar effect, meaning those chocolate bars are no longer desired, not ordered by suppliers, produced by manufacturers, and the farmer is left with a crop fewer people want. That means fewer manufacturer employees and a decrease in the price of the crop.
When sales do pick back up, of course, items are out of stock.
Our global marketplace has brought many blessings with it, but things like weather events, changing consumer tastes, or a pandemic can all affect the manufacturing process.
We’re all still adjusting and, hopefully, learning how to minimize the harmful effects to consumers to avoid price spikes, but as we know from our grocery carts, we’re still affected by these changes. — K.E.C.
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