Business

Retailers and Manufacturers Increase Order Volume Amid Supply Chain Crisis

Sea containers at the Port of Los Angeles in Los Angeles, California, USA, Wednesday, October 13, 2021.

Kyle Grillo | Bloomberg | Getty Images

Retailers and manufacturers are placing orders too early or placing orders amid panic over a massive supply chain crisis, further exacerbating the situation, industry officials told CNBC.

“All of a sudden, retailers and manufacturers are increasing order volume due to these supply chain issues and this is leading to an even worse scenario,” Jonathan Savoir, CEO of supply chain technology company Quincus, told CNBC Squawk Box Asia on Monday. …

Supply chains have been hit by massive disruptions this year, from container shortages to floods and the Covid contagion that has caused port closings.

The situation has worsened as demand is skyrocketing as economies recover from the worst of the pandemic.

The energy crisis in mainland China and Europe is the latest shock to the shipping industry.

The drop in China’s power supply has caused widespread disruptions as local authorities ordered power outages in many factories. Europe is also struggling with huge gas shortages.

However, Savoir said the overstocking of retailers is causing more capacity cuts and leading to what he called the “whip effect.” It is a term that describes how small changes in demand at the retail level can gradually cause larger changes in demand, affecting wholesalers, distributors and manufacturers. The supplier of raw materials will suffer the most.

Because the problems are well known, orders for raw materials, parts and finished goods are now placed earlier than usual, increasing the queue, creating a vicious circle.

The end result of this effect can be skewed demand forecasts and backorders.

RBC Wealth Management also noted a similar problem in a message dated October 15.

“Because the problems are well known, orders for raw materials, parts and finished products are now placed earlier than usual, which increases line length and creates a vicious circle,” the company said in a statement.

As the holiday season approaches, supply chain industry officials warn that there will likely be shortages of goods or prices soaring due to high demand and low supply.

The supply chain crisis is expected to hit the world, and the International Monetary Fund cut its global growth forecast last week. He cited supply chain disruptions in advanced economies as one factor.

“It is unlikely that bottlenecks will disappear overnight,” writes RBC Wealth Management.

The company’s data analyst group, RBC Elements, conducted a study in September that found that 77% of the major ports it monitored had “abnormally long” turnaround times and that this general global supply chain problem tended to “unequivocally get worse.”


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