Alessandria\u2019s experience is not unusual. Consumers in the United States and elsewhere have been having a difficult time buying lumber, potatoes, cream cheese, paper products, and cars, among many other items.<\/p>\n
As Alessandria points out, there were spikes in consumer demand for certain items at the beginning of the COVID pandemic. Then, once restrictions began easing, demand increased for other products, which put stresses on the global supply chains. And he says relief won\u2019t come quickly.<\/p>\n
Alessandra, an expert in international trade, explains how supply chain issues continue to reverberate through the American and global economies.<\/p>\n
\n
Q&A with George Alessandria<\/strong><\/h3>\n
\nWhat is a supply chain?<\/strong><\/h3>\n\n- The supply chain is the beginning-to-end process of getting products or materials to their final destination.<\/em><\/li>\n<\/ul>\n
Alessandria:<\/strong> Supply chain<\/em> is a catchall phrase to represent the movement of goods or parts from suppliers to the next stage of production. The product is adjusted, and then moves on to the next stage, which could be another producer or a retailer.<\/p>\nWhat\u2019s meant by supply chain disruptions?<\/strong><\/h3>\n\n- If it blocks the free flow of materials and products, it\u2019s a supply chain disruption.<\/em><\/li>\n<\/ul>\n
Alessandria:<\/strong> We\u2019re talking about things that make it difficult to get products along the path from one producer to another. It\u2019s like a river where stuff is heading downstream, but something blocks the flow of materials. It just takes longer for people to get the parts they need to produce. And that results in consumers not seeing items on store shelves.<\/p>\nHow bad are the current supply chain shortages?<\/strong><\/h3>\n\n- Supply chain shortages haven\u2019t been this bad since 1972, during the Nixon administration.<\/em><\/li>\n<\/ul>\n
Alessandria:<\/strong> This is the worst that it\u2019s been in 50 years\u2014and it\u2019s probably getting worse, considering that China has been shutting down cities and production facilities. The massive lockdowns in Shanghai and Beijing will eventually ripple through the system again.<\/p>\nHow did the supply chain issues start?<\/strong><\/h3>\n\n- Problems with the supply chain started with COVID-19 and were compounded by strong consumer demand in the pandemic\u2019s wake.<\/em><\/li>\n<\/ul>\n
![\"supply](\"https:\/\/www.rochester.edu\/newscenter\/wp-content\/uploads\/2022\/06\/supply-chain-issues-products.gif\" "\\"products")
Supply chain issues have led to shortages of a variety of consumer products. (University of Rochester illustration \/ Julia Joshpe)<\/figcaption><\/figure>\nAlessandria:<\/strong> It all started with COVID-19 and the shutting down of ports and factories, which slowed down the movement of goods around the world. And then it just became hard to partially reopen the economy, since public health issues remained in play. That\u2019s why we saw periodic closures of facilities and ports around the world all through 2021.<\/p>\nOn top of that, the bounce-back in consumer demand has been stronger than what was anticipated. It\u2019s like trying to push more and more stuff through a straw that shrank. It just doesn\u2019t work well.<\/p>\n
While the supply chain shortages started with COVID, they\u2019re also due to increased consumer demand, which was fueled by the federal stimulus checks that we probably didn\u2019t need to keep the economy recovering. We just didn\u2019t understand how consumer demand was going to shift, once the pandemic began to ease.<\/p>\n
Why are some products easier to find than others? <\/strong><\/h3>\n\n- The further away a product is manufactured, the more susceptible it is to a supply chain disruption.<\/em><\/li>\n<\/ul>\n
Alessandria:<\/strong> One reason is that some of the things we want are produced further away, which means there are more opportunities for disruptions. And part of it is just random. It could be that there\u2019s a $1 part in a $25,000 car that isn\u2019t available, so the car can\u2019t be fully manufactured and sold. In other cases, operations at a company that\u2019s the single supplier of a part\u2014such as a microprocessor\u2014may suddenly stop because of a fire or some other reason. Then, suddenly, capacity is offline, and rebuilding that capacity takes a long time.<\/p>\nWould it make sense to have more products produced in the United States in order to avoid disruptions aggravated by distance?<\/strong><\/h3>\n\n- Shifting production to the United States would be a mistake, in part because of the many ways retailers have of dealing with shortages.<\/em><\/li>\n<\/ul>\n
Alessandria:<\/strong> No, not at all. There are obviously efficiency gains from buying stuff where it\u2019s more cheaply produced, which is often overseas. Most of the time, retailers have ways of dealing with shortages. For example, a retailer buying bikes from a guy in California may have to place fewer, smaller orders, but he has the option of buying a large quantity of bikes from Taiwan. Then, when there\u2019s an especially bad shock like COVID, the retailer is able to adjust inventories because international trade provides an additional buffer.<\/p>\nEven in the case of essential products, it usually doesn\u2019t make sense to shift production to the US. When the COVID pandemic began, computer chips were in short supply because there was a demand for 50 million computers and tablets for kids who were suddenly working from home. But that demand eventually leveled off. When a city becomes the host for the Super Bowl, prices for hotel rooms go up, but it isn\u2019t cost-effective in the long run to build new hotels. By the same reasoning, we don\u2019t build new factories to address rare spikes in demand.<\/p>\n
Do supply chain problems cause inflation?<\/strong><\/h3>\n
- \n
- The supply chain is the beginning-to-end process of getting products or materials to their final destination.<\/em><\/li>\n<\/ul>\n
Alessandria:<\/strong> Supply chain<\/em> is a catchall phrase to represent the movement of goods or parts from suppliers to the next stage of production. The product is adjusted, and then moves on to the next stage, which could be another producer or a retailer.<\/p>\n
What\u2019s meant by supply chain disruptions?<\/strong><\/h3>\n
- \n
- If it blocks the free flow of materials and products, it\u2019s a supply chain disruption.<\/em><\/li>\n<\/ul>\n
Alessandria:<\/strong> We\u2019re talking about things that make it difficult to get products along the path from one producer to another. It\u2019s like a river where stuff is heading downstream, but something blocks the flow of materials. It just takes longer for people to get the parts they need to produce. And that results in consumers not seeing items on store shelves.<\/p>\n
How bad are the current supply chain shortages?<\/strong><\/h3>\n
- \n
- Supply chain shortages haven\u2019t been this bad since 1972, during the Nixon administration.<\/em><\/li>\n<\/ul>\n
Alessandria:<\/strong> This is the worst that it\u2019s been in 50 years\u2014and it\u2019s probably getting worse, considering that China has been shutting down cities and production facilities. The massive lockdowns in Shanghai and Beijing will eventually ripple through the system again.<\/p>\n
How did the supply chain issues start?<\/strong><\/h3>\n
- \n
- Problems with the supply chain started with COVID-19 and were compounded by strong consumer demand in the pandemic\u2019s wake.<\/em><\/li>\n<\/ul>\n
Supply chain issues have led to shortages of a variety of consumer products. (University of Rochester illustration \/ Julia Joshpe)<\/figcaption><\/figure>\n Alessandria:<\/strong> It all started with COVID-19 and the shutting down of ports and factories, which slowed down the movement of goods around the world. And then it just became hard to partially reopen the economy, since public health issues remained in play. That\u2019s why we saw periodic closures of facilities and ports around the world all through 2021.<\/p>\n
On top of that, the bounce-back in consumer demand has been stronger than what was anticipated. It\u2019s like trying to push more and more stuff through a straw that shrank. It just doesn\u2019t work well.<\/p>\n
While the supply chain shortages started with COVID, they\u2019re also due to increased consumer demand, which was fueled by the federal stimulus checks that we probably didn\u2019t need to keep the economy recovering. We just didn\u2019t understand how consumer demand was going to shift, once the pandemic began to ease.<\/p>\n
Why are some products easier to find than others? <\/strong><\/h3>\n
- \n
- The further away a product is manufactured, the more susceptible it is to a supply chain disruption.<\/em><\/li>\n<\/ul>\n
Alessandria:<\/strong> One reason is that some of the things we want are produced further away, which means there are more opportunities for disruptions. And part of it is just random. It could be that there\u2019s a $1 part in a $25,000 car that isn\u2019t available, so the car can\u2019t be fully manufactured and sold. In other cases, operations at a company that\u2019s the single supplier of a part\u2014such as a microprocessor\u2014may suddenly stop because of a fire or some other reason. Then, suddenly, capacity is offline, and rebuilding that capacity takes a long time.<\/p>\n
Would it make sense to have more products produced in the United States in order to avoid disruptions aggravated by distance?<\/strong><\/h3>\n
- \n
- Shifting production to the United States would be a mistake, in part because of the many ways retailers have of dealing with shortages.<\/em><\/li>\n<\/ul>\n
Alessandria:<\/strong> No, not at all. There are obviously efficiency gains from buying stuff where it\u2019s more cheaply produced, which is often overseas. Most of the time, retailers have ways of dealing with shortages. For example, a retailer buying bikes from a guy in California may have to place fewer, smaller orders, but he has the option of buying a large quantity of bikes from Taiwan. Then, when there\u2019s an especially bad shock like COVID, the retailer is able to adjust inventories because international trade provides an additional buffer.<\/p>\n
Even in the case of essential products, it usually doesn\u2019t make sense to shift production to the US. When the COVID pandemic began, computer chips were in short supply because there was a demand for 50 million computers and tablets for kids who were suddenly working from home. But that demand eventually leveled off. When a city becomes the host for the Super Bowl, prices for hotel rooms go up, but it isn\u2019t cost-effective in the long run to build new hotels. By the same reasoning, we don\u2019t build new factories to address rare spikes in demand.<\/p>\n
Do supply chain problems cause inflation?<\/strong><\/h3>\n
- Shifting production to the United States would be a mistake, in part because of the many ways retailers have of dealing with shortages.<\/em><\/li>\n<\/ul>\n
- The further away a product is manufactured, the more susceptible it is to a supply chain disruption.<\/em><\/li>\n<\/ul>\n
- Problems with the supply chain started with COVID-19 and were compounded by strong consumer demand in the pandemic\u2019s wake.<\/em><\/li>\n<\/ul>\n
- Supply chain shortages haven\u2019t been this bad since 1972, during the Nixon administration.<\/em><\/li>\n<\/ul>\n
- If it blocks the free flow of materials and products, it\u2019s a supply chain disruption.<\/em><\/li>\n<\/ul>\n