Consumer Demand Snaps Back. Factories Can’t Keep Up. (WSJ)

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.

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