SUPPLY CHAIN IMPLICATIONS IN REGARDS TO CONSUME...
SUPPLY CHAIN IMPLICATIONS IN REGARDS TO CONSUME... >>> https://tiurll.com/2tkLh7
Strains in global production networks, which started to emerge in late 2020, are a reflection of imbalances between the supply and demand of certain goods and are creating headwinds for the ongoing global economic recovery. Strains in global production networks, also commonly referred to as supply bottlenecks, are a multifaceted phenomenon. The decline and subsequent recovery in economic activity during the COVID-19 pandemic have been unprecedented, reflecting the massive shifts in demand and supply triggered by the closing and reopening of economies, and amid considerable monetary and fiscal stimulus and high levels of accumulated savings, especially in advanced economies. Moreover, as pandemic-related containment measures severely restricted consumption opportunities in the services sector (in particular travel, tourism and recreational activities), there was a rotation in demand towards merchandise goods, which compounded the already strong cyclical recovery in the goods sector. Faced with that strong surge in demand, suppliers of goods worldwide have been struggling to meet the increase in orders. In addition, idiosyncratic supply chain disruptions (owing to the waves of the pandemic and adverse weather events, for instance) have also played a role, capping activity and trade growth and ultimately pushing up prices. This box reviews the main features of the ongoing supply bottlenecks. First, it aims to disentangle supply chain disruptions from demand-side factors, claiming that while the latter are a manifestation of the current phase of the business cycle, the former may indeed curb the pace of the recovery and therefore warrant close monitoring. Second, it provides an empirical assessment of the impact of supply chain disruptions on global economic activity and prices, and the assumptions about how they will evolve going forward.[1]
Our empirical analysis suggests that supply chain shocks account for around one-third of the strains in global production networks. The historical decomposition shows that, even though demand factors played a primary role in driving the overall level of the PMI SDT, supply chain disruptions accounted for one-third of the lengthening in delivery times over the last six months, and their contribution has been growing (Chart B). By contrast, the greater contribution of demand factors is not surprising given the procyclicality of delivery times in periods of economic recovery and the unprecedented economic recovery that has followed the initial COVID-19 shock.[7]
Source: ECB calculations based on Markit, CPB and OECD data.Notes: The effects of supply chain disruptions on quantities and prices are obtained by means of a VAR in which a structural supply shock (recovered from a sign restricted structural VAR with PMI output and PMI delivery times) is plugged in as an exogenous variable. The effects are computed as the difference between the path of the variables obtained under the realisation of the shock and under a counterfactual scenario in which the shock between November 2020 and September 2021 is set at zero (i.e. no supply chain disruptions). In panel a) the dashed lines show the estimated evolution of exports and industrial production in the absence of supply bottlenecks. In panel b) the bars show the estimated effects of supply bottlenecks on the consumer price index and the producer price index. All global aggregates exclude the euro area. The latest observations are for September 2021.
While a fast pivot to growth is good news for businesses and workers, it also creates challenges. Entire industries that shrank dramatically during the pandemic, such as the hotel and restaurant sectors, are now trying to reopen. Some businesses report that they have been unable to hire quickly enough to keep pace with their rising need for workers, leading to an all-time record 8.3 million job openings in April. Others do not have enough of their products in inventory to avoid running out of stock. The situation has been especially difficult for businesses with complex supply chains, as their production is vulnerable to disruption due to shortages of inputs from other businesses.
The figure shows that while retailers had 43 days of inventory in February 2020, today they have just 33 days. Inventories of cars and homes are also at or near record lows, sufficient for just one month of car sales and 4.4 months of home sales, as compared to pre-pandemic levels of about two months for cars and 5.5 months for homes. These low inventories have caused cascading issues in industrial supply chains. In the latest U.S. Census Small Business Pulse survey, held from May 31 to June 6, 36 percent of small businesses reported delays with domestic suppliers, with delays concentrated in manufacturing, construction, and trade sectors, as shown in Figure 2. While no comparable survey data exist from before the pandemic, industry-specific surveys on input shortages suggest these levels are much higher than usual.
There is evidence indicating that the current disruptions are likely to be mostly transitory. Indices of current delivery times are at record highs in surveys of manufacturers by three regional Federal Reserve Banks, but Fed indices for future delivery times are in their typical ranges. While current indices report conditions at the time of the survey, the future indices report expectations about conditions in six months. Taken together, the data suggest that manufacturers anticipate current supply-chain issues will have abated within six months or so.
While markets will eventually adjust, they can be slow and the impact on producers and consumers can be costly. The public sector can play a valuable role in reducing these costs by facilitating short-term adjustments and by addressing vulnerabilities in U.S. supply chains. The U.S. government has, at critical moments, provided such support: helping Japan respond after the 2011 earthquake, for instance, or producing COVID-19 vaccines through Operation Warp Speed. Last week, the Biden-Harris Administration released the conclusions of its 100-day review of supply chains for four critical products: semiconductor manufacturing and advanced packaging; large capacity batteries, like those for electric vehicles; critical minerals and materials; and pharmaceuticals and active pharmaceutical ingredients. Guided by these reviews, the Administration will act to address both short-term strains and long-term vulnerabilities, such as those due to excessive concentration of production of key inputs in a few firms and locations.
The Administration has established a Supply Chain Disruptions Task Force to monitor and address short-term supply issues. This Task Force is convening meetings of stakeholders in industries with urgent supply-chain problems, such as construction and semiconductors, to identify the immediate bottlenecks as well as potential solutions.
For the longer term, the Administration proposes a variety of actions to strengthen our industrial base, increasing resilience and reducing lead times to respond to crises. It vows to reverse long-time policies that have prioritized low costs over security, sustainability and resilience. Because these policies ignored the costs of being unprepared for risk, the United States has ended up with brittle supply chains that are, adjusted for the costs associated with this risk, also quite expensive. The Administration proposes to reverse this damage by investing in research, production, workers, and communities that will rebuild sustainable manufacturing capacity across the country. In particular, the Administration recommends that Congress support at least $50 billion in investment to advance domestic semiconductor manufacturing and research. Another proposed action would address international vulnerabilities to supply chains. Because it does not make sense to produce everything at home, and because U.S. security also depends on the security of our allies, the United States must work with its international partners on collective approaches to supply chain resilience, rather than being dependent on geopolitical competitors for key products.
Notwithstanding the sustainability risks that lie in supply chains, relatively few companies are working with their suppliers to manage these risks. As an example, consider how businesses are addressing the climate impact of their supply chains. Of the companies that report their greenhouse-gas emissions to CDP, a nonprofit organization that promotes the disclosure of environmental impact data, only 25 percent say they engage their suppliers in efforts to reduce emissions.6 6.Committing to climate action in the supply chain, CDP, December 2015, cdp.net.
To understand the impact of making consumer goods, companies must determine how natural and human resources are used at every step of the production process, whether in the supply chain or in direct operations. Companies must also consider a wide range of environmental, social, and economic issues. The tremendous variety of consumer products means that these issues can differ significantly from one product to another. For example, manufacturing LCDs causes the emission of fluorinated greenhouse gases, while coffee plantations are prone to hire underage workers to cultivate and harvest coffee beans.
Some suppliers have set sustainability targets of their own, ahead of receiving mandates from their customers. For example, Cargill has committed to creating a transparent, traceable, and sustainable palm-oil supply chain by 2020.
Because supply chains overlap in many consumer sectors, companies have recognized the benefit of collective action and have begun working together to involve their supplier networks in sustainability efforts. For example, the Consumer Goods Forum (CGF), a global network of more than 400 retailers, manufacturers, and other companies, made a collective commitment in 2010 to achieve zero net deforestation by 2020. CGF members are pursuing that goal through the responsible sourcing of four key commodities: beef, palm oil, pulp and paper, and soy. 59ce067264
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