Panic orders by retailers to make the supply chain crisis 'even worse'

October 21, 2021: -Retailers and manufacturers are overordering or placing orders early between panic over the massive supply chain crisis, and that’s making things even worse, those in the industry told CNBC.

“Suddenly, retailers and manufacturers are overordering due to these supply chain issues, and that is leading to essentially an even worse scenario,” Jonathan Savoir, CEO of supply chain technology firm Quincus told CNBC on Monday.

This year, supply chains everywhere have been hit by massive disruptions, from container shortages to floods and Covid infections, setting off port closures.

That’s gotten worse because demand is rocketing as economies reopen after the worst of the pandemic. The energy crises in mainland China and Europe are the latest to roil the shipping industry.

China’s power crunch caused widespread disruptions as the authorities ordered power cuts at many factories. Europe is also grappling with a massive gas shortage.

Although, Savoir said the situation of retailers overstocking is causing a more significant crunch on capacity and leading to what he called a “bullwhip effect.” That’s a term describing its small changes in demand at the retail level that can progressively cause more significant movements to impact wholesalers, distributors, and manufacturers. The supplier of raw materials will feel the most significant impact.

The result of this effect includes distorted demand forecasts and unfulfilled orders. RBC Wealth Management flagged a similar issue in an October 15 note.

“Because the problems are known, orders for raw materials, parts, and finished goods are now being placed normal, which is lengthening the queue, creating a vicious cycle,” the firm said in the note.

As the holiday season approaches, those in the supply chain industry have warned that there’s likely to be a shortage of goods, or prices will rocket because of the high demand and low supply.

The supply chain crisis was expected to hit growth worldwide, with the International Monetary Fund cutting its global growth forecast in the previous week. It cited supply chain disruptions in advanced economies as one of the factors.

“The bottlenecks are not likely to disappear overnight,” RBC Wealth Management wrote.

The firm’s data analytics team, RBC Elements, conducted a study in September that found that 77% of the virtual ports it monitored were experiencing “abnormally long” turnaround times and that this global supply chain problem was trending “unequivocally worse.”