The Supply Chain explained

The supply chain has been stretched to the limit over the last two years and there have been a number of reasons for that. From a lack of containers to surges in global economy activity, as consumers shifting from buying services to buying goods, the freight time and cost have increased significantly.

From the IMF – good video explaining how the supply chain works and the problems faced after two years of lockdowns. Has the supply chain got too complicated?

Automotive industry hardest hit by supply-chain disruptions

Of the industries that have been most effected by the supply chain disruptions the car industry has taken the biggest hit with 52% of automotive supply-chain managers saying that disruption from COVID-19 to supply was very significant. The reasons for the automotive problems are:

Production stoppages – 48%
Trade restrictions – 24%
Access to raw materials – 12%

According to The Economist Intelligence Unit the problems associated with the shortage of semiconductors could have been avoided. Automotive producers cancelled orders of semiconductors at the start of the COVID-19 as they assumed that their spare capacity could meet the demand. Although the industry realised their mistake the allocation of semiconductors was mopped up very quickly by other sectors. The consumer electronics industries boomed as more people worked from home and spent income normally prioritised for leisure activities to other forms of entertainment. Access to raw materials was a major disrupter of other sectors – healthcare and food. With people in lockdown there was a considerable demand for food with eating out not a viable alternative.

East v West
It seems that more traditional supply chains (West) that have been developed over many years have been harder hit than more recent supply chains (East). Regionalisation has been the focus in North America and Europe but less so in Asia. Smaller companies are now localising their supply chains as COVID has been the catalyst to rethinking strategies with a renewed focus on flexibility.

Source: DISRUPTION, DIGITISATION, RESILIENCE: The future of Asia-Pacific supply chains. The Economist Intelligence Unit. 2021

Shorter hours, higher productivity and yoga

According to surveys today’s millennial job applicants don’t want to work all hours – it seems that younger workers place a work-life balance ahead of career progression. During the GFC an applicant who asked a prospective employer about leaving work early on a Friday to go to yoga wasn’t taken seriously. However with the global economy growing at its fastest rate since 2011, qualified jobseekers are scarce so workers can start to make demands.

IG Metall – Germany’s biggest trade union – struck a deal that allows members to work 28-hour weeks for up to 2 years, typically when they have small children. Although Germany is unique, other national economies might follow suit if they have a limited supply of workers. It is important to note that in boom times the substitution effect comes into play as more people want to substitute money for leisure time – this is shown by the backward bending supply curve of labour. In most A2 courses income and substitution effects are examined. The textbook identifies each as follows:

Income effect – higher real wages might persuade people to work less hours and enjoy extended leisure time (see graph – SS2).

Substitution effect – people have an incentive to work extra hours because the financial rewards of working are raised, and the opportunity cost of not working has increased (see graph – SS1).

Work-life balance is typically discussed as a personal issue and again Germany has been leading the way:

1960 – average West German working year = 2,163 hours
2018 – average German working year = 1,363 hours

Furthermore once they leave work in the mid afternoon a lot of them are actually free of the office and more importantly emails. Daimler automatically erase emails to employees who are on holiday.

Workaholic countries slowing down

Countries that are renowned for working long hour – South Korea, China and Thailand – have already limited school homework. South Korea wants to reduce average annual working hours to less that 1,800 from 2,069 in 2016 – the most for any OECD high-income country.

Average wages are not above pre-crisis levels in all developed countries except the UK and Greece. The eurozone’s jobless rate is the lowest and US wage growth the fastest since 2009. Shorter hours won’t help the poorest paid workers, who can’t afford to work less but for the broad middle in rich countries a new working life is emerging. It could look like Germany – shorter workdays, high productivity and yoga.

Source: Why the 30-hour week is almost here – Simon Kuper – FT Magazine February 15 2018