Home » This Is Why the Supply Chain Crisis Gives Businesses Reason to Worry

This Is Why the Supply Chain Crisis Gives Businesses Reason to Worry

Posted by Sean Murphy on Jan 28, 2022

If you’ve been reading this blog for the last year, you know supply chain problems have been a huge issue for many industries. You may also know that many of the experts quoted in stories say they don’t expect it to let up any time soon. Unfortunately, they’re right.

The supply chain remains as disrupted as ever. The world has not seen anything like this in recent times. It looks like it will definitely not get better in 2022. There are rumblings that the supply chain may finally start to right itself but not until the end of the year.

The Dallas Morning News quotes Dallas Fed economist Christopher Slijk who reveals over one-third of businesses were impacted by the supply chain problems in February 2020 and that leaped to 70% by November. That number was worse for the retail industry as 93% stated they’ve been dealing with disruptions.

Furthermore, more than one-fourth believe it will take more than a year for the supply chain issues to resolve.

Why Is the Supply Chain So Broken?

The pandemic is the first domino to fall in the long line of dominoes representing all the causes of the supply chain logjam. The pandemic is the cause of the following biggest contributors to the supply chain’s woes.

1. Worker shortage

No one is surprised by the pandemic causing a huge shortage of workers. Some had to cut staff to save on costs and prevent bankruptcy. Of course, many companies most likely experienced record-breaking worker absenteeism as people became sick, needed to take care of others who caught COVID-19 or had to care for young children.

Many companies require their workers to stay home at the first sign of illness. Even a harmless headache may force someone to miss work. Until they test negative for COVID-19, they have to stay home.

Thus, factories, lumber yards, and construction sites had to cope with not having enough workers. After the stay-at-home orders went away, companies had to rethink their processes to protect their workers and customers. If a company was lucky enough to be fully staffed again, it had to contend with a bottleneck that seems never-ending.

Before the pandemic, many industries had already been facing a worker shortage, especially construction. The pandemic exacerbated the situation.

2. Climbing costs of goods

The price of materials and goods continues to climb. The pandemic is entering year three with no relief in sight. Everyone notices the rising costs because it affects every aspect of everyone’s lives.

It could be shopping at the grocery store and watching your grocery bill increase. You’re paying more for the staples you buy every week. Or you’re filling up your vehicle and watching the dollar amount of gasoline climb faster than before.

NextAdvisor reports that in December 2021, inflation hit a 40-year high. Many goods have risen by 7% in 2021. With the increase of goods, it means consumers have less leftover for discretionary spending. The situation forces many families to redo their budgets. The article references Bureau of Labor Statistics data that says gasoline is up almost 60%, energy has increased by more than one-third, and proteins like meat, poultry, fish, and eggs are up almost 13%. Supposedly, once the supply chain issues disappear, the prices should drop.

The story sums up every single factor in this list in one paragraph.

“The COVID-19 pandemic caused a shock to the world economy, disrupting supply chains and contributing to major delays in shipping,” write Alex Gailey and Jason Stauffer. “Labor shortages and surging consumer demand have only exacerbated this problem. With many items in short supply and the cost of shipping going up, prices are increasing.”

3. Increase in cargo

One of the most surprising news topics is that the Port of Los Angeles has had a record cargo year in 2021. It has surpassed its previous record set in 2018 by 13%. This isn’t the news you expect to hear with the supply chain limping along. The Port has worked to improve the efficiency and optimization of its supply chain.

However, the port only makes up one portion of the entire supply chain. The cargo still has to travel from the port to its final destination. With a worker shortage, the cargo may not be delivered on time. However, the supply chain crisis is what compelled ports to find better ways of operating.

4. Texas power grid failure

Texas is home to many plants and manufacturing facilities including petrochemical plants. The electric grid failure in its 2021 winter storm put a big hit on the supply chain. Truck drivers could not transport anything as the roads were unsafe.

Together, these further disrupted the supply chain and the production of many goods including paint and restaurant to-go boxes. It also drove up the costs for many petrochemical-based items.

5. The law of supply and demand

As in the aforementioned quote, all of these factors together have created the perfect storm that also affects supply and demand. Factories struggled to get enough workers to produce what is needed to keep up with demand and to backfill the lagging supply chain.

The shutdown, the lack of workers, and shipment delays all drove up demand. Therefore, snarls won’t end anytime soon. It’s not just the shortage and prices of goods that are a problem. When there are things in short supply, it makes them more attractive to theft.

Sophisticated thieves and organized retail crime gangs know they will be able to get good money for anything they pilfer especially items that are short in supply.

Hence, cargo theft is becoming a serious problem. Despite the progress of global economic recovery, Moody’s Analytics explains that the supply chain gremlin will continue to plague businesses and consumers.

A Sluggish Supply Chain Leads to Growing Cargo Theft

While the Port of Los Angeles may break the record for cargo, it does not solve the backlog problem in the supply chain infrastructure. It’s not the only port as many haven’t worked out the kinks. The problem is also occurring outside of ports.

As if the shortage of goods wasn’t bad enough, cargo theft is aggravating it. Whenever something in demand gets stolen, it shrinks the supply. It’s a vicious cycle.

For instance, computer chips are in short supply. Savvy crooks are aware of this and make plans to find chips to pinch. After succeeding, the company responsible for the chips has to replace the stolen chips. Or they may have to cancel customer orders. Customers will buy from another company that can supply what they need.

Here’s where the vicious cycle becomes a big problem as it affects another industry. The automotive industry, like all others, had to deal with shutdowns, lack of workers, and absence of sales. Considering everyone stayed home, people switched from buying a vehicle to buying a computer, laptop, monitor, video cameras, and anything else they needed to get work and shopping done online.

Thus, with people buying more electronics and fewer vehicles, chip makers sent their chips to consumer electronics companies. Many vehicles depend on these chips. Once people started venturing out again and taking an interest in buying a vehicle, the price was much higher than expected.

According to Kelly Blue Book, , the average cost of a used vehicle in July of last year was more than $25,000. To make matters worse, dealerships have fewer used vehicles available for sale.

All of these factors justify a critical need to prevent cargo theft from happening. Additionally, if cargo theft happens, companies will have to pay more to replace the stolen item. The stolen object costs more than it did when the company originally bought it. And they will have to make more sales to make up for the loss.

A study cited in SupplyChainBrain tells the tale of stolen digital cameras that were valued at $200k. The company would need to make 10 times the number of sales to counter the loss. What costs $200k will require $2 million in sales to make up the difference.

In other words, taking steps to deter cargo theft is a must between the fragile supply chain and climbing costs. If they don’t, they’re at risk of losing business because customers will learn of the theft and buy from a competitor. This affects revenues and the company’s reputation.

What It Takes to Stop Cargo Theft

SupplyChain Management Review recommends companies diversify their supply chain through alternative sourcing, stockpiling, and backup partners. They also advise mitigating cargo theft by identifying vulnerabilities in the transporting of goods.

Invest in a system that can accurately track and monitor shipments. It’s also crucial to implement and follow policies and procedures. Requiring everyone to follow procedures isn’t enough. Test the process by doing surprise checks, random samplings, and self-audits.

Companies switching from just-in-time inventory to stockpiling will need to protect their assets. The best way to do that is by layering security. In addition to creating and following processes, train employees on the processes as well as security protocols. Make it a requirement to conduct background checks on all new employees and drivers.

Watching everything in your business with video surveillance remote monitoring could be a boon for businesses. This takes a proactive approach to security that can help deter crime. Using high-resolution cameras can help ensure you can get the identifying information you need to track trucks and suspicious individuals.

In investigating remote video surveillance systems, you’ll want to search for high-quality security cameras that combine video analytics and human monitoring operators. The alliance between video analytics and trained monitoring operators could multiply the chance of spotting something suspicious before anything happens.

With the right video surveillance system, you’ll get a fast return on your investment. To learn more about remote video surveillance and how it helps cargo theft, check out the guide to Remote Video Surveillance: More Than Just Catching Criminals. For a customized security plan that maximizes your ROI, contact us.