Retailers and manufacturers overorder in the supply chain crisis

Containers will be shipped at the Port of Los Angeles in Los Angeles, California, USA on Wednesday, October 13, 2021.

Kyle Grilot | Bloomberg | Getty Images

Industry insiders told CNBC that retailers and manufacturers were over-ordering or ordering too early in a panic over a major supply chain crisis, which made things worse.

“Suddenly, retailers and manufacturers are overordered because of these supply chain issues, which essentially only leads to even worse scenarios,” said Jonathan Savoie, CEO of supply chain technology company Quincus, on Monday. Speaking to “Squawk Box Asia”.

This year, supply chains everywhere have been hit by massive turmoil, from container shortages to floods and Covid infections that cause port closures.

It’s even worse as demand soars as the economy resumes after the worst pandemic.

The energy crisis in mainland China and Europe is the latest to shake the shipping industry.

China’s electricity crisis has caused widespread turmoil as local governments have ordered power outages at many factories. Europe is also tackling a major gas shortage.

However, Savoir said retailers’ overstocking conditions have created a major capacity crisis, leading to what he called the “Bullwhip effect.” This is a term that explains that small changes in demand at the retail level can gradually cause larger movements in demand that affect wholesalers, distributors, and manufacturers. Raw material suppliers will feel the greatest impact.

Well-known problems have led to faster orders for raw materials, components, and finished products, longer queues, and a vicious cycle.

The end result of this effect can include distorted forecasts and unfulfilled orders.

RBC Wealth Management also flagged a similar issue in its October 15th note.

“Because the problem is well known, raw materials, components and finished products are ordered faster than usual, queuing longer and creating a vicious cycle,” the company said in a memo.

As the holiday season approaches, people in the supply chain industry warn that goods may be in short supply, or prices may skyrocket due to high demand and low supply.

The supply chain crisis is expected to hurt global growth, and the International Monetary Fund dropped its global growth forecast last week. One of the factors was the disruption of supply chains in developed countries.

“It’s unlikely that the bottleneck will disappear overnight,” RBC Wealth Management wrote.

The company’s data analysis team, RBC Elements, conducted a survey in September and found that 77% of the major ports it monitored had “abnormally long” turnaround times, a problem with this entire global supply chain. I found it to be “obviously worse”.

Retailers and manufacturers overorder in the supply chain crisis

Source link Retailers and manufacturers overorder in the supply chain crisis

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