Backordered. Out of stock. Shipment delayed. Empty shelves. By now, everyone can relate. Stores around the world—both online and brick and mortar—are out of products. The global supply chain is out of whack. But pinpointing the exact cause is difficult. Most experts agree that supply chain issues have been building for some time. The pandemic was the spark that caused them all to converge at once. Economists point to several primary factors for the “Great Supply Chain Disruption,” contributing to our current supply chain woes.
For decades, manufacturers have employed the concept of lean or just-in-time inventories. Originally introduced by Toyota in the 1970s, the practice relies on ordering components just as they are needed for production, thereby eliminating the need for storing excess inventory. The focus is on maximizing efficiency by eliminating waste and unnecessary resources. However, this system leaves little room for error. A delay anywhere along the line way has a domino effect that disrupts the whole process.
Increased demand for goods
Stuck at home unable to go out for entertainment or travel, Americans used that time and foregone spending to go shopping. They remodeled houses, they bought office equipment, exercise equipment, outdoor recreational gear, kitchen gadgets, hobby supplies, games and more. From lumber to jigsaw puzzles to golf clubs, demand for goods soared at a time when production and transporting slowed.
Factory production and transportation disruptions
The spread of COVID-19 caused factories around the world to shut down at various times, halting or slowing production of goods that consumers desperately wanted. Early in the pandemic, consumption forecasts predicted decreased global demand, and shipping companies responded by cutting schedules. Demand for manufactured goods soared and supply chain transportation logistics went haywire. Because supply chains are so globally intertwined, a disruption anywhere can be felt around the world.
More recently, war in Ukraine and global sanctions on Russian goods have added to supply uncertainly—namely for oil and grain. In addition to states seeking to divest from Russian holdings, a handful have introduced bills prohibiting the sale of Russian goods.
Reliance on Overseas Manufacturing
America relies heavily on products made in other countries, particularly China. China accounts for 28.7 percent of global manufacturing, according to the United Nations. This compares to 16.8 percent for the United States, which is the second largest manufacturer. Furthermore, according to the US Trade Representative, the U.S. is the largest goods importer in the world and China is the top supplier.
Worker shortages complicate matters even more. Container ships wait days to be unloaded because there are no dockworkers or truckdrivers to unload cargo and transport items once they arrive. Port congestion and a lack of workers to move goods is a big part of the current supply chain problem.
Each of these factors has contributed to disruptions in the supply chain, leading to higher prices and long wait time for certain products. Disruptions are not just problematic for consumers. According to the National Association of Manufacturers, 88% of manufacturers cited supply chains as their primary business challenge. Now, the obvious question: what can we do about it? There are steps the United States is taking to make a long-term impact. Plus, states are taking short-term immediate steps.
In early 2021, President Biden issued an Executive Order focused on supply chain resiliency. Citing resilient, diverse, and secure supply chains necessary for economic prosperity and national security, the Order laid out a course of action to strengthen America’s supply chains. To begin, it called on key agencies to identify specific supply chain weaknesses. Those reports were released in February 2022 and the Administration plans to bring stakeholders together in coming months to develop multi-year strategies to address those weaknesses. Of course, focusing on buying American means American goods must be available to purchase. As a result, Federal efforts to bring manufacturing back to the U.S are gaining traction.
State Legislative Actions
State policymakers are also working to promote domestic production and bring manufacturing home. But that is a long game and requires investing in worker training, technology and infrastructure. In the short run, states are taking immediate action to help alleviate current supply chain woes. State legislatures are funding programs designed to improve infrastructure others are easing restrictions or regulations, in occupations like commercial driving. Below is a list of actions states have taken:
Indiana HB 1190: Removes and clarifies definition of “overweight divisible load” and allow the Department of Transportation to issue overweight permits for transporting overweight vehicles and loads carrying resources on certain highways in the state highway system.
Massachusetts HB 4269: Appropriates grant funds for immediate and projected infrastructure needs for farms, retailers, fisheries, food system businesses and food distribution channels. The program targets unique rural and urban needs to expand services and address urgently needed capital projects including, storage and processing equipment to adapt to supply chain disruptions.
Maine SP 577 a: Created an Agriculture, Food System and Forest Products Infrastructure Investment Advisory Board and investment fund to increase access to new markets, and establish technical assistance programs with an emphasis on underserved ad underutilized communities.
New York AB 952: Leverage the states land grant university system to produce advice, guidance and recommendations to improve the resiliency and self-reliance, and supply chain logistics of the state’s farm and food supply.
North Carolina SB 105: Allocated American Rescue Plan Act (ARPA) Coronavirus State Fiscal Recovery Funds (CSFRF) for meat and seafood processing grants to relieves bottleneck and other substantial impacts on the food supply chain ·
Washington SB 5092: Utilized $9 million of the states ARPA CSFRF for a grant program to improve food supply chain infrastructure and market access for farms, food processors, and food distributors.
State Executive Actions
Governors are also taking steps to address supply chain holdups. Fifteen governors signed onto the Operation Open Roads Initiative last fall. The joint statement calls on the federal government to suspend certain regulations related to commercial drivers, transportation and logistics stakeholders and manufacturing.
Additionally, governors in several states, including South Carolina, Iowa, Arizona, Tennessee and Ohio, loosened restrictions on the trucking industry to expedite transportation of goods. Actions included easing commercial driver’s license restrictions, lifting weight restrictions on cargo and increasing the number of hours truckers are allowed to drive.
California Governor Gavin Newsom issued an executive order last fall that aims to ease port bottlenecks. The order asks agencies to find sites that can be used for short term container cargo storage. It also urges temporary exemptions from weight restrictions on high-priority routes to move more goods quickly.
And in late 2021, Maryland Governor Larry Hogan (R), in partnership with the states Manufacturing Extension Partnership, announced a new initiative called the Maryland Supply Chain Resiliency Program. The program assists state manufactures adversely affected by operations, workforce, and sales impacts related to the pandemic.
Manufacturing and the supply chain are complicated. And despite the collective desire to bring manufacturing back, major obstacles stand in the way. The federal government has certain levers it can pull to elevate issues, and states can step in to ease bureaucratic barriers or provide direct relief to industry, however the scale is global. The intertwined nature of modern manufacturing, the entrenched emphasis on keeping costs low, and the widespread use of just-in-time inventories, makes it a complicated issue that will likely ripple through the economy for some time.
Mandy Rafool is the director of the Fiscal Affairs Program. Emily Maher is a senior policy specialist with NCSL’s Fiscal Affairs Program. She covers budget, tax, state-local, and economic development issues for NCSL.