Even well over a year into the pandemic chaos, we’re still seeing ripples on the water that are all the result of the world coming to a halt in 2020. COVID forced nations and manufacturers alike to either work less, compromise their production capacity or shut down altogether.
Yes, productivity lapse is playing a huge role in many of the shortages of goods we're seeing today. But it doesn't tell the whole story.
The issue goes deeper
Just In Time manufacturing, otherwise known as JIT, was popularized by Toyota back in the 70s and since adopted by industries across the world. It has its roots in the automotive industry, but at this point extends branches to all ends of the consumer product market machinery, servicing everything from food and fashion to pharmaceuticals.
It’s a noble system with the noblest of end goals—to keep the supply chains and stockpiles lean so that all participants in the channel can stay nimble, efficient, and avoid waste or excessive overhead costs. Businesses are about bottom lines, and becoming overstocked gluttons in case of a worldwide pandemic doesn’t exactly reinforce that mantra.
Every genius has a weakness or two
This method has left a lot of manufacturers, and subsequently retailers on the front lines, vulnerable and susceptible to becoming the victim of shortages. Of course, not many would have foreseen a disruption on the scale of last year’s events, but therein lies the issue—that efficiency does have its weakness.
Automakers are making the biggest headlines with the notorious chip shortage, a crucial aspect of building and programming modern vehicles. This has had a rippling effect on the market for both new and used cars, with the price of used vehicles making one of the biggest inflationary jumps this year out of any industry measured within the CPI.
Impacts on us
Other industries are also being impacted by this one shortage alone, as cars aren’t the only products that require computer chips for operation anymore, and it’s a safe estimate to suggest that over 100 different industries are feeling the effects. We also see shortages in foods, rental cars, shipping containers, lumber, pet food, new cars, and of course, homes.
All of this contributes to the levels of recovery inflation we’re already seeing as a result of stimulus and low rates. The demand didn’t go anywhere, but the supply is still low, and the effects of this are seen all too well in the housing market.
Our Take. With progressive easing of reopening measures, we should see both production facilities returning to full capacity and hiring picking up pace.