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 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 contributing to our current supply chain woes:
- Lean inventories. For decades, manufacturers have employed the concept of “lean” or “just-in-time” inventories. Introduced by Toyota in the 1970s, the practice relies on ordering components just as they are needed for production, thereby eliminating the necessity of storing excess inventory. The focus is on maximizing efficiency by eliminating waste and unnecessary resources. However, this tightly coupled system leaves little room for error. A delay anywhere along the line way can have a domino effect that disrupts the whole process.
- Increased demand for goods. Stuck at home, unable to travel or go out for entertainment, Americans used their time and money to shop. 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 delivery 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 the 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.
- The 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, which accounts for 28.7% of global manufacturing, according to the United Nations. This compares with 16.8% for the United States, the second-largest manufacturer. Furthermore, according to the U.S. Trade Representative, the U.S. is the largest goods importer in the world, and China is the top supplier.
- Labor shortages. Worker shortages complicate matters even more. Container ships wait days to be unloaded because there are no dockworkers or truck drivers to unload cargo and transport items once they arrive. Port congestion and a lack of workers to move goods are a big part of the current supply chain problem.
- Inflation. The Bureau of Labor Statistics reported consumer prices rose 8.6% in May 2022, the highest since December 1981. To tame escalating inflation, the Federal Reserve raised interest rates by three-quarters of a percentage point in June 2022, the largest increase since 1994. Manufacturers are feeling the heat. In a recent survey, 53.6% of them noted that higher prices for raw materials, freight and transportation, wages and salary, and energy were making it harder to compete and remain profitable.
Each of these factors has contributed to supply chain disruptions for U.S. manufacturers, leading to higher prices and long waits for certain products for consumers. According to the National Association of Manufacturers, 85% of manufacturers cited supply chains as one of their top concerns. Small and medium-sized manufacturers are caught in the bottleneck. Once a relatively nuanced issue, supply chain disruptions have become familiar territory for business operations. Now, the obvious question: What can we do about it? The federal government is taking steps to make a long-term impact, and states are taking short-term steps of their own.
In early 2021, President Joe Biden issued an executive order focused on supply chain resiliency. Citing resilient, diverse and secure production and delivery of goods as necessary for economic prosperity and national security, the order laid out a course of action to strengthen America’s supply chains. 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 the coming months to develop multiyear strategies to address those weaknesses. National proposals include:
- Expanding access to capital for small manufacturers.
- Promoting use of new technologies.
- Investing in new infrastructure to help move cargo from ships to shelves.
- Investing in domestic production and processing of critical minerals.
- Revitalizing food supply and processing.
- Encouraging federal agencies to buy American.
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.
The National Institute of Standards and Technology’s Hollings Manufacturing Extension Partnership (MEP) is recognized as the “only federal program with a national footprint in small manufacturing.” The program consists of a national network of 51 MEP centers in every state and Puerto Rico, 1,400 advisors, and 385 service locations. In fiscal year 2021, the MEP National Network generated $144 billion in new and retained sales for U.S. manufacturers and retained or created one manufacturing job for every $1,193 of federal investment.
MEP’s National Network offers incentives to manufacturers through programs targeting workforce training, supply chain resilience, cybersecurity, and technology and innovation. Plus, MEP’s Supplier Scouting taps into small and medium-sized manufacturers’ second source of supply to minimize risk while increasing options. The strategy identifies critical supplies and connects manufacturers with larger supply chains.
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 supply chain woes. Some legislatures are funding programs designed to improve infrastructure; others are easing restrictions or regulations in occupations such as commercial driving. Below are some of the actions states have taken:
Indiana HB 1190: Clarifies the definition of “overweight divisible load” and allows the Department of Transportation to issue overweight permits for transporting overweight vehicles and loads carrying resources on certain highways in the state.
Illinois HR 740: Urges the Federal Motor Carrier Safety Administration to examine transportation restrictions and stalled production of parts such as semiconductor chips and materials including steel and tires to assist with eliminating supply chain shortages.
California AB 726: Adds manufacturing businesses engaged in the production of fuel, electrical parts and electric vehicles to the state’s Capital Investment Incentive Program so local governments can attract larger manufacturing facilities to their communities.
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.
North Carolina SB 105: Allocates American Rescue Plan Act Coronavirus State Fiscal Recovery Funds for meat and seafood processing grants to relieve bottleneck and other substantial impacts on the food supply chain.
Utah SB 212: Creates the $10 million Manufacturing Modernization Grant Program to award grants to existing Utah businesses to establish, relocate, retain or develop the manufacturing industry in the state and lessen dependence on manufacturing overseas.
Washington SB 5092: Utilizes $9 million of the state’s coronavirus recovery funds for grants to improve food supply chain infrastructure and market access for farms, food processors and food distributors.
Growing Markets and Workforce Development
Maine SP 577: Creates an advisory board and investment fund for agricultural, food and forest products to increase access to new markets and establish technical assistance programs with an emphasis on underserved and underutilized communities.
New York AB 952: Leverages the state’s land grant university system to advise, guide and provide recommendations to improve the resiliency and logistics of the state’s farm and food supply.
South Carolina HB 4831: Directs the Department of Commerce to evaluate the state’s business advantages, economic climate, workforce readiness and other relevant state assets to create a road map to effectively compete in attracting offshore wind energy supply chain industries to the state.
Virginia HB 565: Creates the $2.5 million Advanced Manufacturing Talent Investment to help schools and universities develop and award 25,000 new advanced manufacturing credentials.
Washington HB 1170: Requires the Department of Commerce to prepare and update a biennial report on the state of manufacturing that identifies workforce and economic competitiveness recommendations. The law also requires the department to develop regional tailored workforce strategies and establishes a manufacturing cluster acceleration subaccount.
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 the 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 Gov. Gavin Newsom (D) 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 Gov. Larry Hogan (R), in partnership with the state Manufacturing Extension Partnership, announced a new initiative called the Maryland Supply Chain Resiliency Program. The program assists state manufacturers adversely affected by operations, workforce and sales issues related to the pandemic.
Despite a 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 the 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 make the supply chain a complicated issue whose current effects will likely ripple through the economy for some time.
Mandy Rafool directs and Emily Maher is a senior policy specialist in NCSL’s Fiscal Affairs Program.