U.S. Manufacturers Struggling to Keep Up with Market Recovery
New York, NY, February 23, 2021-U.S. manufacturers aced the shutdown of their factories and warehouses last spring in response to Covid-19, reports the Wall Street Journal. “They’re botching the recovery.
“After carrying out an orderly retreat from assembly lines as the pandemic arrived in the U.S., many manufacturers pulled out the playbook they followed in past recessions, cutting costs and preserving cash. That left them unprepared for the sharp rebound in consumer demand that began just weeks later and never let up.
“Without restaurants to visit and trips to take, Americans bought out stocks of cars, appliances, furniture and power tools. Manufacturers have been trying to catch up ever since. Nearly a year since initial coronavirus lockdowns in the U.S., barbells, kitchen mixers, mattresses and webcams are still hard to find. A global shortage of semiconductors has forced many car makers to cut production in recent weeks.
“‘Everyone was caught flat-footed,’ said Jack Springer, chief executive officer of Malibu Boats Inc.
“The boating industry was preparing for a downturn but instead sales jumped, he said. Malibu’s orders were up by more than half last June from a year earlier and sales of recreational boats in the U.S. in 2020 were the highest in 13 years, according to the National Marine Manufacturers Association, a trade group.
“Consumer spending on long-lasting goods in the U.S. rose 6.4% last year but domestic production of those goods fell 8.4%, according to federal data, leading to shortages and higher prices.
“Supply chains typically get beaten up during recessions. As sales decline, companies draw down inventories to conserve cash instead of purchasing more parts and materials. Entire pipelines of supplies get cleaned out.
“When demand improves, even modestly, suppliers respond with an outsize increase in production to restock empty warehouses and assembly plants. The so-called bullwhip effect ripples all along supply chains, generating unusually large orders for suppliers that are far from end customers.
“This time, the bullwhip effect is even more pronounced because demand for consumer products has been extraordinarily high. At the same time, companies are placing supersize orders to compensate for the extra time it takes to procure supplies from factories and freight operators constrained by global efforts to contain the coronavirus. That’s exacerbating the strain on supply chains.”