The Bullwhip Effect

This December issue completes another year of reporting on the coatings industry, and I have mixed feelings about 2021. It was certainly an improvement over last year, however things still feel very unsettled. Global COVID cases are on the rise again, and the supply chain is in crisis, with severe delays, skyrocketing costs and order rejections. We’re certainly not back to “normal”, but with tradeshows and conferences back in person this fall, it feels like we are getting closer.

I recently attended a very interesting keynote address at the Eastern Coatings Show in Atlantic City regarding the supply chain challenges. Michael Levely, Sr. Director of Supply Chain at Dow, gave an excellent timeline and explanation (with interesting statistics) of why the supply chain is so extremely stressed today. He noted that just like a bullwhip, a small signal or change in the economy can result in a much higher whipping effect down the line. The changes experienced in 2020 and 2021 were anything but small, which has resulted in massive repercussions. In a nutshell, the events that started and then intensified the bullwhip effect that has exploded around the world, are as follows:

In January 2020, businesses and manufacturing completely shut down in China due to the onset of COVID-19.
In March 2020, the United States experienced a massive shutdown.
Demand rebounded quickly as the world found new ways to work, shop and live.
At the same time, a labor crisis emerged. This was primarily the result of government relief offering more than paid jobs, as well as the need for parents to stay home with children who were attending school remotely.
The global semiconductor crisis escalated due to increased demand and slowed production. According to Levely, just two companies make 70% of the world’s semiconductors, and 2021 new vehicles have 40% more semiconductors in them than new cars in 2019. Semiconductor use is also up in computers and appliances.
On February 13, 2021, winter storm Uri hit the gulf coast, shutting down almost every chemical plant in the region. Up until this point, chemicals had not been severely impacted.
In March 2021, the six-day Suez Canal backup further disrupted the supply chain (75 ships per day normally go through the canal).
During the summer of 2021, COVID’s Delta variant became the dominant strain of the virus, creating new business shut downs, or as Levely stated, a “rinse and repeat” cycle.
August 26, 2021, Hurricane Ida hit Louisiana – the fifth most powerful storm to hit the continental U.S. This caused another big chemical disruption, the effects of which we are still feeling today.

All of these events have caused bottlenecks and a logistics nightmare. According to Levely, 90% of global trade is shipped by sea, and the largest ships can each fit 23,000 containers on them. Currently 77% of the world’s largest ports are reporting backlogs. On the day of his presentation, Levely said that there were 111 vessels backed up in the port of Los Angeles, which receives half of the U.S. import volume. Normally there are about 15 ships in port there each day. This has put added pressure on an already struggling U.S. trucking industry, which has a shortage of 80,000 drivers and an annual turnover rate of 92% due to poor working conditions.

Levely stated that the economy oftentimes overcorrects itself in extreme situations, so be prepared for this bullwhip effect in the opposite direction in the future. He added that companies also need to re-think things like “Just in Time” operations (increase inventory), as well as improve their systems and processes, and strengthen and increase partnerships with suppliers and customers.

I’m hoping that there will be more good news on the supply chain front when I write my Editor’s Viewpoint a year from now. Until then, I look forward to the new year and seeing many of you at industry events in 2022. Happy holidays and a happy, healthy and prosperous New Year to all of you!

In January 2020, businesses and manufacturing completely shut down in China due to the onset of COVID-19.
In March 2020, the United States experienced a massive shutdown.
Demand rebounded quickly as the world found new ways to work, shop and live.
At the same time, a labor crisis emerged. This was primarily the result of government relief offering more than paid jobs, as well as the need for parents to stay home with children who were attending school remotely.
The global semiconductor crisis escalated due to increased demand and slowed production. According to Levely, just two companies make 70% of the world’s semiconductors, and 2021 new vehicles have 40% more semiconductors in them than new cars in 2019. Semiconductor use is also up in computers and appliances.
On February 13, 2021, winter storm Uri hit the gulf coast, shutting down almost every chemical plant in the region. Up until this point, chemicals had not been severely impacted.
In March 2021, the six-day Suez Canal backup further disrupted the supply chain (75 ships per day normally go through the canal).
During the summer of 2021, COVID’s Delta variant became the dominant strain of the virus, creating new business shut downs, or as Levely stated, a “rinse and repeat” cycle.
August 26, 2021, Hurricane Ida hit Louisiana – the fifth most powerful storm to hit the continental U.S. This caused another big chemical disruption, the effects of which we are still feeling today.

In January 2020, businesses and manufacturing completely shut down in China due to the onset of COVID-19.
In March 2020, the United States experienced a massive shutdown.
Demand rebounded quickly as the world found new ways to work, shop and live.
At the same time, a labor crisis emerged. This was primarily the result of government relief offering more than paid jobs, as well as the need for parents to stay home with children who were attending school remotely.
The global semiconductor crisis escalated due to increased demand and slowed production. According to Levely, just two companies make 70% of the world’s semiconductors, and 2021 new vehicles have 40% more semiconductors in them than new cars in 2019. Semiconductor use is also up in computers and appliances.
On February 13, 2021, winter storm Uri hit the gulf coast, shutting down almost every chemical plant in the region. Up until this point, chemicals had not been severely impacted.
In March 2021, the six-day Suez Canal backup further disrupted the supply chain (75 ships per day normally go through the canal).
During the summer of 2021, COVID’s Delta variant became the dominant strain of the virus, creating new business shut downs, or as Levely stated, a “rinse and repeat” cycle.
August 26, 2021, Hurricane Ida hit Louisiana – the fifth most powerful storm to hit the continental U.S. This caused another big chemical disruption, the effects of which we are still feeling today.

In January 2020, businesses and manufacturing completely shut down in China due to the onset of COVID-19.
In March 2020, the United States experienced a massive shutdown.
Demand rebounded quickly as the world found new ways to work, shop and live.
At the same time, a labor crisis emerged. This was primarily the result of government relief offering more than paid jobs, as well as the need for parents to stay home with children who were attending school remotely.
The global semiconductor crisis escalated due to increased demand and slowed production. According to Levely, just two companies make 70% of the world’s semiconductors, and 2021 new vehicles have 40% more semiconductors in them than new cars in 2019. Semiconductor use is also up in computers and appliances.
On February 13, 2021, winter storm Uri hit the gulf coast, shutting down almost every chemical plant in the region. Up until this point, chemicals had not been severely impacted.
In March 2021, the six-day Suez Canal backup further disrupted the supply chain (75 ships per day normally go through the canal).
During the summer of 2021, COVID’s Delta variant became the dominant strain of the virus, creating new business shut downs, or as Levely stated, a “rinse and repeat” cycle.
August 26, 2021, Hurricane Ida hit Louisiana – the fifth most powerful storm to hit the continental U.S. This caused another big chemical disruption, the effects of which we are still feeling today.

In January 2020, businesses and manufacturing completely shut down in China due to the onset of COVID-19.
In March 2020, the United States experienced a massive shutdown.
Demand rebounded quickly as the world found new ways to work, shop and live.
At the same time, a labor crisis emerged. This was primarily the result of government relief offering more than paid jobs, as well as the need for parents to stay home with children who were attending school remotely.
The global semiconductor crisis escalated due to increased demand and slowed production. According to Levely, just two companies make 70% of the world’s semiconductors, and 2021 new vehicles have 40% more semiconductors in them than new cars in 2019. Semiconductor use is also up in computers and appliances.
On February 13, 2021, winter storm Uri hit the gulf coast, shutting down almost every chemical plant in the region. Up until this point, chemicals had not been severely impacted.
In March 2021, the six-day Suez Canal backup further disrupted the supply chain (75 ships per day normally go through the canal).
During the summer of 2021, COVID’s Delta variant became the dominant strain of the virus, creating new business shut downs, or as Levely stated, a “rinse and repeat” cycle.
August 26, 2021, Hurricane Ida hit Louisiana – the fifth most powerful storm to hit the continental U.S. This caused another big chemical disruption, the effects of which we are still feeling today.