When Supply Chains Go Wrong

From grocery stores to auto dealerships, to consumer electronic stores, to builder’s supplies, shortages are becoming common place across the market. As these shortages drag on and spread to more and more market sectors, we find ourselves asking what is causing this breakdown in our global supply chains? Unfortunately, it’s not just one or even a few problems leading to these conditions, nor are they easy or quick to fix. Like a chain of dominoes toppling over, shortages in one area can cause them in another, endlessly rippling out in other sectors.

One area that faces multiple problems and touches numerous areas of our economy is ocean cargo shipping. We rely on ships to move most goods that are imported from overseas. However, the companies that operate these massive cargo ships, some of which can move upward of 23,000 twenty-foot containers at a time, are facing new challenges. One of these has to do with the shipping containers themselves. More goods flow from China to the US than in the reverse, so containers bringing goods to the US. As a result, there is a surplus of containers on the American side and a deficit in China. It is not profitable to ship empty containers across the Pacific Ocean. As such, goods ready to ship to the US from China sit waiting for a container to carry them across the ocean. Next up there is a shortage of sailors to operate these vessels, even though there is a massive demand, due to various travel restrictions still in place across the global. It’s estimated that around 100,000 commercial sailors were stranded at see as of July 2021, leaving ships unable to rotate crews. Then there are record numbers of ships waiting off the West Coast ports, waiting there turn to unload their eagerly awaited cargo. The main cause of this is the increase of imports, and so the ports simply lack the physical capacity to process more ships. This can be exacerbated by delays in the rail system in other parts of the country, as trains move the much of the cargo processed through these ports makes the next leg of its Security journey via rail. Shortages in containers, sailors, and port capacity combine to lead to shortages in anything that makes it way to the US via port.

Further up the supply chain, more problems await. Some manufacturers have started attempting to stockpile the inputs they use to make their products, further exacerbating the shortages and driving prices up. In 2019, as the world’s economy slowed, many manufacturers slashed orders on components with long lead times, in an attempt to minimize costs and excess supplies on hand. One industry hit especially hard by this is the auto industry. They cancelled orders on semiconductors used in the construction of new autos as the market slowed, but the market bounced back faster than they expected. Now the auto makers are going back to their suppliers to increase their orders, but these items have long lead times, and by cancelling their prior orders, they had lost their place in line for their items to be manufactured by the supplier. This is exacerbated by the fact that many of these components are made using old processes which the suppliers are moving away from, further decreasing their ability to speedily ramp up production. The auto makers don’t have some of the parts they need, so they can’t complete construction of the new vehicles. This is stereotypical of the favored just-in-time inventory management system, which seeks to minimize the creation or holding of extra goods. These systems become highly specialized and are susceptible to supply and demand shocks. They are not made to quickly adapt to changes in market conditions, such as constraints on inputs or increases on demands. 

 Shortages across the economy are stemming from a supply chain breaking under stress in the current extraordinary world conditions. The reliance on ocean shipping gave the opening for a huge blow as shipping was dragged down by container shortages, labor shortages, and port capacity shortages. Additionally, there are issues on the manufacturing side. Stockpiling further drives up prices and lowers supply. Then highly specialized supply chains are struggling to adjust to the market movements, and in many cases the chase of efficiency via just-in-time inventory management left no slack at all for the system to weather the shock.

Now China is having energy shortages and some of their factories are only running a couple of days a week. Plus they and other countries have strict rules which make loading and unloading ships take days instead of hours.

The reason why this is a security problem is because A) There is a supply chain false inflation causing everything from food to autos to sneakers to cost 25% and more. Housing is going up due to the costs of materials to build. B) Materials, parts etc, are not undergoing the inspection processes, so many parts are failing causing more shortages C) Our country is only as secure as our economy this inflation causing serious inflation causing our COVID economy to come back slower.

This lack of resiliency in the supply chains is not just a threat to companies that deal with physical goods. IT companies have felt the strain of adapting to this new remote work environment. To enable working from home they are rapidly integrating new tools, that they may have not had the chance to properly evaluate, or have the ability or personnel to properly integrate. This can leave them vulnerable to cyber attacks such as ransomware. As there is a need to have visibility in there sprawling networks, firms bring in outside tools that touch virtually every segment of their network such as SolarWinds Orion. That name should sound familiar to you as SolarWinds Orion was the vector for the largest breach in US history that affected numerous U.S. government agencies and private firms. The full scope of the fall out of this breach is still not known. The malicious code was brought into these organizations through their software suppliers, who then unknowingly pushed it to their customers. These organizations used a large suite of SolarWinds products, so they the attackers had an easier time obfuscating their moves. The SolarWinds attack was a supply chain cyberattack, in which an adversary goes up the supply chain from their true target to make their initial breech, and then using that as a beachhead to reach their true target, the customers of the suppliers, in this case U.S. government agencies and large businesses. Even if the victims do everything correctly to secure their networks, it is already too late as a component coming from a trusted supplier has been compromised. While this type of attack is less common due to the higher level of sophistication and resources needed, it is harder to prevent and detect.  This is an example of consolidation of suppliers negatively affecting the security of the organizations.

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