How remote work disrupted global supply chains

Many experts thought COVID-19-related lockdowns would reduce demand for hard goods. The opposite happened.

More than two years after COVID-19 triggered a worldwide supply chain crisis, disruptions continue to make every trip to the supermarket or hardware store an adventure.

The problem contributes to inflation, and even shortages of products made close to home. Shippers and truckers have received much blame, but the root of the crisis can be traced directly to the business desktop.

Remote work, or the chain of unlikely events it kicked off more than two years ago, altered manufacturers’ expectations about demand.

Their misconceptions were compounded by a change in buyer behavior that upended the warehouse and delivery networks they had cultivated for decades.

As a result, this has been a supply chain crisis like no other, and the internet deserves a good share of the blame.

Bad bets

Supply chain disruptions began way back in the early days of lockdowns when many manufacturers made bad bets: They figured the pandemic would trigger an economic downturn that would throw millions of people out of work and cause a massive pullback in spending.

But, as The New York Times put it, “That calculus proved disastrously wrong…. The pandemic did not eliminate spending so much as shift it around.”

The internet had changed the rules.

While many people did lose their jobs, the economy as a whole bounced back faster and more robust than expected. Moreover, some sectors - particularly tech - even thrived during the worst days.

One reason the forecasts were so wrong was that corporations pivoted to remote work more adroitly than nearly anyone expected.

While more than 4 million jobs were lost between February 2020 and October 2021, most were in low-paying industries. Meanwhile, many middle- and upper-income office workers found themselves sitting on a windfall of cash that they used to buy exercise equipment, home entertainment systems, and furniture.

Manufacturers weren’t prepared for the surge of demand for hard goods.

Many of those products come from China, where a “zero COVID” policy was causing frequent and unpredictable factory and port closures.

A similar problem was playing out in U. S. ports, thanks to COVID-related absences and job cuts by shipping and trucking companies.

The net result was that trans-Pacific supply lines were throttled just as demand for goods from China exploded.

Southern California ports were overwhelmed with shipping containers and no trucks to carry them. Freighters idled off the coast for days. The cost of container rentals jumped more than five-fold.

A disruptive spiral

To make matters worse, many U.S.-based distributors and retailers decided to bulk up their inventories to hedge against shortages.

The surge of e-commerce contributed to the disruptive spiral by making two-day shipping a necessity.

In addition, the resulting shortage of warehouse space worsened bottlenecks by pushing supplies back to shipping docks and freight terminals.

While remote work isn’t entirely to blame for the supply chain crisis, it clearly kicked off a sequence of events that took on a life of its own.

Zoom, Google Docs, and Amazon undermined the assumption that history would repeat itself.

When is it all going to end? Experts disagree.

Most say things will probably improve for the rest of this year and return to something close to normal by the end of 2023.

But even the Federal Reserve Bank of Cleveland, in a recent report, said that its business contacts (or sources) have said that "that their expectations about the timeline for resolution are mostly based on hope rather than on concrete evidence."

In the meantime, the crisis has also cast the spotlight on the delicate interconnections that hold the world’s supply lines together and the effects that minor disruptions at the far end of the chain can have further upstream.

Take General Motors, for example.

Last February, it forecast that shortages of computer chips that had constrained supply for a year were finally easing. And that manufacturing capacity would return to near-normal by the end of this year.

Then Russia invaded Ukraine.

Since neither country is a significant source of semiconductors, the impact on GM should have been minimal. Or so it seemed.

It turns out that Ukraine is the world’s largest producer of neon, a gas that is critical to the lasers used in chip fabrication.

That, in combination with shortages of other supplies, caused GM and several other automakers to trim production forecasts for the rest of the year.

This shows that an educated guess is about the best we can hope for when it comes to predicting the ripple effects of IT-driven change.

Copyright © 2022 IDG Communications, Inc.

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