In the year 2020, we endured a worldwide pandemic, local lockdowns, and the \u201cGreat Toilet Paper Shortage.\u201d The latter foreshadowed an ongoing sequence of shortages: lumber, refrigerators, meat, cars, and most recently, artificial Christmas trees.<\/p>\n
\u201cHistory is being made before our eyes,\u201d says Muge Yayla-Kullu, associate professor of supply-chain management at UCF. \u201cWhat we\u2019re experiencing is the result of an avalanche of problems.\u201d<\/p>\n
In lead-up to holiday shopping, we\u2019re sitting in the middle of an unprecedented lesson in basic economics. Demand is high and supply is low, or more specifically, it\u2019s stuck in factories, ports, and warehouses. The U.S. Department of Labor recently reported that the warehouse industry has a record 490,000 job openings. The American Trucking Association says it\u2019s short 80,000 drivers, which spells trouble when you consider that trucks transport 72% of our freight. Some trucking companies are offering $15,000 bonuses to recruit drivers.<\/p>\n
\u201cWe\u2019re accustomed to dealing with limited supplies of certain products this time of year, like PlayStations or certain toys,\u201d says UCF Associate Professor of Marketing Axel Stock, who\u2019s researched product scarcity for 20 years. \u201cBusinesses will create scarcity as a strategy to drive up demand, which allows them to increase prices. The scarcity today is different. It\u2019s due to external reasons, but for consumers the result is the same.\u201d<\/p>\n
Higher prices. Fewer choices. Tests of patience. Stock and Yayla-Kullu emphasize these words: Do not panic. Please. <\/em><\/p>\n \u201cPanic buying only make things worse,\u201d says Yayla-Kullu. \u201cWe\u2019ve seen enough mistakes already.\u201d<\/p>\n Yayla-Kullu has been teaching about possible crises in the global supply chain every semester for the past 18 years, and prior to that she worked in business and banking.<\/p>\n Yayla-Kullu merged her business experience with a passion for researching supply-chain operations, and now shares her findings with UCF students who will become the next global business leaders. She stresses the need for companies to invest in operational hedging, where a team envisions worst-case scenarios and prepares for disruptions in the supply chain \u2014 fires, labor strikes, ships stuck in the Suez Canal. In December 2019, she could sense we were on the cusp of a new lesson.<\/p>\n \u201cWhen manufacturing stopped in Asia because of COVID-19, I told my students to think a year, two years, five years ahead,\u201d she says. \u201cA major logistics problem is coming. Production will slow. Demand will slow. But then demand will go back up quickly, and the supply of products will be out of balance. Yes, the pandemic is once in a lifetime, but more business leaders should have forecasted the bottlenecks that we\u2019re seeing.\u201d<\/p>\n Stock had his suspicions in June, just as businesses in the U.S. seemed to be getting back on track. A month after ordering a new soccer uniform for his 9-year-old son, the team had to take the field in sponsorless jerseys. The new uniforms still hadn\u2019t arrived by early November.<\/p>\n \u201cMuch of my research is an outgrowth from personal experiences,\u201d says Stock. \u201cWhen we ordered our unforms, people all over the world were ordering products. The countries where most manufacturing takes place were dealing with vaccine shortages and occasional closures. The facilities were overwhelmed. Then everything shipped at the same time. Ports backed up and there weren\u2019t enough workers, but people are spending.\u201d<\/p>\n Computer chips are good examples. They\u2019re the brains in some of the most wished-for holiday presents: laptops. Phones. TVs. Cars.<\/p>\n \u201cIf a car is made with 30,000 small parts, but one computer chip is unavailable \u2026 you can\u2019t finish the car,\u201d says Yayla-Kullu. The same goes for kitchen appliances and video games. She urges for a second time: \u201cDon\u2019t panic.\u201d<\/p>\n And Stock reassures things aren\u2019t as bad as they might seem.<\/p>\n \u201cWe always come up with solutions to problems,\u201d he says.<\/p>\n At the start of the pandemic, Yayla-Kullu saw what Floridians see during a hurricane threat \u2014 empty shelves.<\/p>\n \u201cI begged people not to buy too much toilet paper or disinfectant. It\u2019s the same now with pumpkin-pie filling,\u201d Yayla-Kullu says. \u201cJust buy one of whatever you need, and we\u2019ll get back to normal faster.\u201d<\/p>\n Overbuying, as she tells students, causes \u201cthe bullwhip effect.\u201d A retailer plans to sell one box of stuffing to each customer. Instead, the customers buy three. The warehouse has to triple its orders. The manufacturer has to triple output and labor. The supply chain is stressed. Prices go up.<\/p>\n \u201cEveryone pays,\u201d says Yayla-Kullu. \u201cWhen I encourage companies to be more flexible with planning, the same goes for consumers. The entire system works better when we\u2019re all flexible.\u201d<\/p>\n Stock takes the optimistic view that a 30% shortage on a tablet, for instance, means 70% of capacity is available either in person or online.<\/p>\n \u201cThe products are out there. You might need to buy a different model or choose a different color,\u201d he says. \u201cOr you can buy from a private party \u2014 some of those products are still in the original packaging.\u201d<\/p>\n The key to stability goes back to the basics: a balance between supply and demand. The current surge in demand, on top of holiday buying, will cause more hiccups into the new year. Then, adjustments made to open the pipeline will have to be readjusted.<\/p>\n \u201cIt will be the second half of 2022 before prices settle and this all clears up,\u201d says Yayla-Kullu. \u201cBut business leaders will become better at risk-planning and the supply chain will be more flexible. Life will be better because we\u2019ll be ready for the next crisis.\u201d<\/p>\n The lessons for all of us: don\u2019t panic, embrace variety, and maybe buy gift cards for the holidays or make a donation to your favorite charity. Or do like Stock and invest in an experience instead of a product.<\/p>\n \u201cWe\u2019re taking a vacation for Christmas,\u201d Stock says.<\/p>\n","protected":false},"excerpt":{"rendered":" Two UCF experts tell us what\u2019s happening and how it will affect holiday shopping season.<\/p>\n","protected":false},"author":57,"featured_media":124421,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"lazy_load_responsive_images_disabled":false,"footnotes":"","_links_to":"","_links_to_target":"","_wp_rev_ctl_limit":""},"categories":[4],"tags":[7309,1490],"tu_author":[],"class_list":["post-124420","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-college-of-business","tag-economy"],"yoast_head":"\nWhat exactly is going on?<\/h3>\n
What should we do?<\/h3>\n
When will normalcy return?<\/h3>\n