How the Pandemic Is Affecting Supply in 2021
If you went to school to study economics, one of the first things you learned was the concept of supply and demand. In the not-so-distant past, economic supply and demand challenges were somewhat predictable and typically followed basic principles that were easy to observe and document. If the weather took out some of the orange crop, adjustments were made, and consumers would expect a rise in juice prices. Most of the time, businesses had some time to prepare for what was coming.
It’s not like that today. In the post-COVID economy, things can change rapidly. For example, today, we are seeing systemic breaks in supply chains across almost every business and industrial sector, from the rising cost of lumber to cars waiting on the (virtual) assembly line for computer parts. Even Apple, the world’s biggest buyer of semiconductors, had to delay the launch of the iPhone 12 for two months due to a shortage of computer chips.
CNN reported on May 6, 2021 that sawmills slowed or shut down last year, and as they waited, they noticed that the expected housing slump never happened. Demand continued, and supply was reduced. Other supply challenges were happening at the same time, including a drastic reduction in available labor. The result was that random-length lumber futures hit a record high of $1,615, a sevenfold gain over April 2020.
Because of the rising cost of lumber and other building materials, new homes now cost an estimated $36,000 more, according to the National Association of Home Builders. And the higher cost of materials affects the rental market as well, since builders of multi-family dwellings are also passing the cost on to the renter. It is therefore reasonable to expect new renters to pay $119 a month more in these new constructions.
As the lumber supply dwindled last year, the news wasn’t all bad. Building supply companies like Lowe’s and Home Depot saw a surge in business when restless, quarantined homeowners took on renovation projects.
What we have learned from all of this is that unforeseen delays and fast-changing markets can pull the rug out from under even the strongest of companies. Add to that the challenge of identifying who your primary customer is in a digital world where the payment is made by a remote click.
I advise companies to forge industry relationships that share information about supply and demand. Add a line in your business budget for a designated trend-watcher on staff. And of course, follow me on Twitter @shervin.
