W e’ve all experienced it: You head down the aisles of your local grocery store to grab your favorite breakfast cereal, only to find the spot empty and the usual price tag covered by that darned yellow label with the dreaded message: “Warehouse out of stock.” In the past few years, it’s become a familiar sight as factory shutdowns and ships stuck in the Suez Canal have made headlines, bringing one term to center stage: supply chains.
Supply chains have existed for as long as farmers have taken their crops to market. But as carts turned to trucks, planes and cargo ships and the Industrial Revolution grew into today’s mass manufacturing, those chains have become more wide-reaching and complex as link after link has been added. In the 1980s, the term “supply chain management” was coined to describe the growing focus on coordinating every part of the increasingly lengthening chain.
Talk to Dr. Xenophon Koufteros, a professor at Texas A&M University’s Mays Business School and director of the school’s Supply Chain Consortium, and you’ll soon realize just how essential supply chains are to life as we know it. His eyes light up as he leans across the table and speaks, weaving an epic, intricate tale of collaboration, expectations, crises and successes that spans the globe and touches everything from cereal to smartphones.
Okay, we’ve all heard the term, but what exactly are supply chains?
They are the engine that drives organizations. It’s the process that takes a product from beginning to end: conceptualizing products, sourcing materials from suppliers, transporting the materials, assembling the product, storing it, transporting it to customers and taking returns.
Everything links to supply chains, and nothing happens without them. Because of that, there’s a lot of dependency within the chain. If there’s a failure at any one of those points, you won’t get your product on time, and then you’ll complain about it. For instance, the front light assembly of a Mercury Cougar contains a small reflector costing 10 cents. But if the manufacturers are short on that part, they can’t assemble the 1,000 or so cars they could produce in a day, losing them about $6.9 million in profit—all because of one tiny part!
It sounds like supply chains are pretty fragile.
The longer the chain, the more opportunity for something to go wrong. If you’re sourcing or manufacturing all the way in Taiwan, China or Brazil, that creates a greater vulnerability—a ship carrying your product could make an unexpected stop, or there could be a hurricane or political instability. Some companies are working to bring critical components of the chain back to North America to reduce the potential for disruption.
So what caused all the recent supply chain problems?
It was a perfect storm. When people stayed home during COVID, the demand for certain products, such as consumer electronics, skyrocketed. And when everyone started going out again, we went crazy buying all sorts of other products. The supply chain was too slow to keep up because many of the factories that make consumer products or critical parts in China had shut down. At the same time, people decided to stay home or retire, which led to a scarcity of factory workers and truck drivers. All this created havoc in our supply chains.
When will things get better?
There will be more pain in the short term, for sure. We may have a scarcity of certain products, but if you look a year or two down the road, things will eventually return to normalcy. We go through cycles; this is just another cycle that will help us learn from our mistakes.
But it’s hard to predict now, at the end of 2022, exactly what will happen by the time this article publishes next spring. It depends on what the national government does, and it depends on what happens in other countries. One simple incident can have catastrophic effects on our supply chains. Even something that seems unrelated, like new laws to help with global warming, can have unintended consequences for supply chains.
Wow, I never thought about how connected everything is before!
You’re not alone. Most people don’t think about it. We take things for granted as if there is some divine intervention that gets our products to us. But there’s no magic to it. Behind the scenes, there’s a supply chain that makes it happen.
About Dr. Xenophon Koufteros
Dr. Xenophon Koufteros is a supply chain management professor in Mays Business School’s Department of Information and Operations Management and holds the Jenna and Calvin R. Guest Professorship in Business Administration. The director of the Supply Chain Consortium, he works directly with corporations to help them address their supply chain issues and interact with Aggie supply chain talent.
