Frederica Freyberg:

In economic news, whether it’s a new car or household goods, such things can be hard to come by and more expensive to buy these days. Shortages and resulting higher prices are being blamed on what’s being called a supply chain crisis. A very simplified version of it goes like this. The broken supply chain started when the world and especially China shut down due to COVID. Everything backed up. Then when consumers turned to the internet to buy stuff, there wasn’t enough capacity to handle the crush. Backed-up shipping containers at U.S. ports tell part of the story but what’s the rest of it. For that, we turn to Jake Dean, director of the Grainger Center for Supply Chain Management at UW-Madison. Thanks for being here.

Jake Dean:

Thanks for having me.

Frederica Freyberg:

Did I get that simplified version close in terms of how this happened?

Jake Dean:

Yeah. If you’re going to simplify it down to five or ten seconds, that’s not bad.

Frederica Freyberg:

Thank you.

Jake Dean:

Essentially March of 2020 the world went into what many people, many smart people thought was going to be a very big economic contraction from the perspective of many people losing their jobs. There were restrictions on what could be made because that involved bringing people together. The supply chain really went through a big contraction, let’s say in March. And then for many people not too much beyond that they realized that the economy for them wasn’t contracting. And I don’t want to gloss over the fact that it was very detrimental to a large number of people and I don’t want to skip that. But for many people, they realized I’m still employed, I’m not going anywhere. My house needs something. I need a new couch. I need something, something, something. So we came out of that. And I think we did admirably well in the early part of the pandemic. Let’s say through 2020, through even the fall of 2020. I think that’s because there were some levers left to pull then in terms of bringing in some excess capacity. But now we’re in this situation where those are gone and that, combined with a bunch of other kind of geographic, geopolitical things, have meant everything is in the wrong place and there just isn’t the extra capacity to get us all the stuff we want.

Frederica Freyberg:

Has the world ever seen anything of the magnitude of this break in the global supply chain?

Jake Dean:

No. Not that I know. It’s a little similar to what you would see typically coming out of a recession. So when the economy does contract as we saw in the late aughts, I guess we call that, the economy went into a big contraction. And the supply chair did contract and then it slowly expanded, expanded, expanded. Then we got to the place we are today. When you’re in a situation like that, everything can kind of step up incrementally and we can all sort of be okay. What happened here was we had a crater in everything in March of 2020 and then essentially not a ramp back but just a step function back. And that’s the situation we’re in and it’s global. It’s not confined to one region, one country. It’s all over the place.

Frederica Freyberg:

So the supply chain is a complicated matrix of purchasing, shipping, distributing, but is there a particular pain point right now?

Jake Dean:

I think the whole thing. It’s across the spectrum. I like that you said matrix. Some people use the word network. I think the word supply chain is nice from a simplified version but it’s definitely not a one hop to one hop to one hop. It’s a network. Things move all over the place.

Frederica Freyberg:

So what happens to consumers or the seller of goods in all of this?

Jake Dean:

It’s difficult. I mean, supply chains react to what customers want, right? Supply chains don’t respond in a vacuum. Supply chains respond to demand. Customers and sellers are just kind of stuck at this point. And it’s unfortunate. I feel for people because some people aren’t — it’s not conscious. It’s not bad behavior that we are necessarily experiencing. But it’s going to mean that there are these shortages we’re seeing and that means people don’t have things to sell or that means people can’t buy things they want.

Frederica Freyberg:

What about the overall economy? Does it put a drag on that?

Jake Dean:

It might. I mean, certainly the problem that’s happening right now is when everything is constrained, so I think we’re seeing a little bit of an overall reduction in output because there are so many shortages in all different places. It’s not like one particular sector is fine and other ones are having problems. When you have problems endemic to the system and you can’t find containers and you can’t find shipping routes and you can’t find truck drivers that means the whole thing slows down. I think there could be an impact to the overall economy.

Frederica Freyberg:

What’s the expectation about when the problem will ease?

Jake Dean:

If I knew the answer to that question. We’re going to be with this I think well into 2022. We had some members of our advisory board in a few weeks ago and they were saying, maybe being conservative, they were saying 2023, early 2023. It’s going to take a long time for things to normalize because what’s going to come out of this is such a backlog in demand of things that are yet to be made that those things have to work their way through and then we have to see where we come out on the other side.

Frederica Freyberg:

Wow. Lots more to discuss on this, but thanks so much for your expertise, Jake Dean.

Jake Dean:

You’re welcome.