The Wall Street Journal published a story a few days ago that described some of the challenges that exist in the manufacturing supply chain.
“U.S. manufacturers aced the shutdown of their factories and warehouses last spring in response to Covid-19. They’re botching the recovery.
“After carrying out an orderly retreat from assembly lines as the pandemic arrived in the U.S., many manufacturers pulled out the playbook they followed in past recessions, cutting costs and preserving cash. That left them unprepared for the sharp rebound in consumer demand that began just weeks later and never let up.”
Anyone who has tried to order an appliance or other consumer products can attest to the long delays in receiving products. The authors describe it as a “bullwhip effect.”
As we have discussed in previous blog posts, the supply chain was certainly stressed in 2020 as the demand for some manufacturing clients skyrocketed and, frankly, their supply chains could not keep up. Manufacturers are looking closely at weaknesses in their supply chain all around the world in an effort to find the right balance between supply and demand.
However, I think the stories about manufacturers “cutting costs” and “preserving cash” are a bit overdone. In March/April of 2020, manufacturers were not even sure if they could operate and many were projecting significant losses in revenue. The demand put stress on manufacturers and their supply chains, and I think the more significant lesson learned is that manufacturers need to revisit their supply chain relationships and contracts moving forward.