The pandemic has exposed weak links in the country’s supply chain. There was a hunt for toilet paper at the start of the pandemic. Masks, surgical gowns and gloves were hard to come by. These shortages have been in part blamed on a “just-in-time” inventory system that companies have used for decades, ordering just enough parts to arrive at the right time for sale or use on the production line.
But are companies planning to switch to storage of raw materials so as not to run out?
Say no to customers
Today, Tom Christie has to say no to his clients. He’s vice president of sales and marketing at Wieland Chase in Montpelier, Ohio, about an hour west of Toledo. Wieland Chase turns scrap copper and brass into rods. These are used in plumbing, construction and auto parts.
The company’s rod orders are skyrocketing as its customers rack up inventory.
“They are trying to overorder to fill their inventory in order to support their customers because they see such high demand throughout the cycle,” Christie said.
He said to them, “No, I cannot fill your order. I can only give you about 80% of the rods you want. He would like to start stocking up, but he can’t.
“Only because we really don’t have a place to put it,” he said.
Shortage of storage space
This is because it would need more storage space, which is expensive and scarce. The storage is hitting a roadblock, said Julianne Dunn, an economic analyst at the Federal Reserve Bank of Cleveland.
“I know this has some impact on the demand for warehouse space,” she said.
Without a warehouse to store their inventory, some businesses cannot give up the habit of just-in-time inventory. It’s not just a lack of space, it’s also costly to just keep inventory lying around. The materials could become expired in storage. Dunn said it now takes a lot longer to build up inventory because you have to wait longer for your raw material orders to be filled.
“Generally speaking, we hear at least double, sometimes triple, of what would have been normal before the pandemic,” she said.
Perhaps that’s why, in a survey this spring, less than half of manufacturers and construction companies told the Cleveland Fed they were changing the way they run their supply chains. Dunn said many of those who turn to storage are just passing through temporarily.
“I really feel like the feeling we’ve heard is that we really hope it’s over soon and we can get back to normal,” she said.
Just in time inventory system
“Normal” being a just-in-time inventory system, which can save money. Parts are delivered exactly as a factory needs them with minimal or no storage.
But the “just in time” did not work so well for many industries during the pandemic. Take the pharmaceutical industry. Hospitals were running out of essential drugs and more. Storage would be costly for the pharmaceutical industry, said Anna Nagurney, who teaches operations management at the University of Massachusetts, Amherst.
“But, if you can’t deliver, it could be a loss of life issue. It could lose your reputation, ”she said.
Nagurney said that right now, drug makers are importing their raw materials – and some finished drugs from China and India – to save money.
Nicole DeHoratius, who teaches operations management at the University of Chicago, said the Biden administration was stepping in to shift at least part of the drug supply chain to domestic sources and create a government stockpile.
“All of us in the supply chain were super excited that this caught the attention of the White House,” she said.
DeHoratius said the White House is looking at the most security-critical supply chains in the United States, “like pharmaceuticals and, you know, did we have it? [personal protective equipment], and what do we have to be thinking about, you know, having stuff closer to home. “
Pharmaceutical supply chains
In fact, the Biden administration is already paying an estimated $ 800 million to a Virginia drug maker to start manufacturing essential drugs and build a nationwide stockpile of key pharmaceutical ingredients.
“So it’s very important to be prepared for all kinds of different disaster scenarios,” Nagurney said.
However, the federal government does not help everyone build a stock. Manufacturers and construction companies are always on their own.