Supply-chain problems likely to continue, Behrend professor says

A portrait of Penn State Behrend faculty member Varun Gupta

Varun Gupta is an associate professor of supply chain management and analytics at Penn State Behrend's Black School of Business.

Credit: Penn State Behrend

ERIE, Pa. — Pandemic-related shortages — toilet paper, and then Lysol, lumber and anything with a semiconductor chip — have been complicated by what analysts call the bullwhip effect: Any change in demand for a product is amplified as it moves through the supply chain.

“Those problems build up and become increasingly more difficult to correct,” said Varun Gupta, associate professor of supply chain management and analytics in the Black School of Business at Penn State Behrend. “The supply chains had been very efficient. They were designed to work in a very specific way. Every part of that process is connected, so it takes some time to adjust to even a temporary fluctuation in demand. We’re seeing that now. And we’re going to keep seeing it, unfortunately.”

We asked Gupta what consumers can expect in the final weeks of the holiday shopping season, and into 2022.

Q: The first shortage most people noticed was toilet paper. Entire aisles of grocery stores were empty. How did that happen?

Gupta: Some of that was panic buying. That was at an early point in the pandemic, and people were afraid. We didn’t know what was coming, or how bad it would be.

There tends to be a stable demand for toilet paper. It’s not like buying a new phone, and buying two or three new cases for that phone. If I do that, I’m not likely to buy another case for a long while. But I’m still going to need toilet paper tomorrow.

What changed was our location. Many of us were working from home. We weren’t going to the office, and we weren’t traveling, and using hotels. The need switched, and it took some time for the supply chain to catch up.

Q: The work-from-home period also increased demand for laptops, gaming consoles and kitchen appliances. That exacerbated the shortage of semiconductor chips, which continues to be a challenge, particularly at automotive dealerships. Is that likely to improve soon?

Gupta: The supply chain is essentially a system designed with prongs: There’s the consumer, the retailer, the wholesaler, the manufacturer and the raw materials. Stress on any one of those components will affect the entire system.

The surge in demand for laptops and home computers increased the need for semiconductors. What complicated that was where those chips are made: Roughly half of the U.S. supply comes from China, and another 30% to 40% comes from Taiwan. When plants in those countries closed, because of COVID, that affected other suppliers, who were unable to fill orders. You’re seeing that, even now, on automobile lots.

Q: So, we’re stuck with our current car?

Gupta: You’re going to have fewer options, at least for a few more months. [For example,] Ford had to briefly stop production because of one part that couldn’t be put into its cars. That really affects the choices consumers have. If you go into a dealership now, you can buy a car, but the sticker price will be higher. And you might not have as many choices in color or trim packages. The cars will likely be higher-end, because the companies want to take advantage of those higher margins.

Q: The advice for holiday shoppers was to start early — and to ship early, to avoid the expected delivery delays. Any advice for those of us who are still searching for the perfect gift?

Gupta: You should expect to pay a bit more. Because demand is so high, we didn’t see the deep discounts we were used to seeing on Black Friday.

We also aren’t likely to see as many people standing in line for returns in January. When people have fewer choices, they’re maybe a bit more likely to appreciate what they do get. And maybe that’s a good thing.