During the crisis, companies around the world have switched to a new practice: in an attempt to avoid a possible shortage of materials, raw materials and components, the business buys them for future use, said Ethan Harris, an economist at Bank of America. The strategy pointed out by the specialist resembles buying up stocks of toilet paper in a supermarket, writes Bloomberg.
The publication recalls how last year, buyers around the world literally swept this product from store shelves: a sharp jump in demand created the appearance of a shortage.
“New technologies such as tracking systems have allowed the business to operate on very small inventory. This is great in good times, but makes the system very susceptible to outages. Worse, companies, faced with shortages, begin to double their orders to gain an edge. For business, this is the equivalent of emptying store shelves before a hurricane or building up gas and toilet paper supplies at the first sign of a shortage, ”the specialist noted.
According to Harris, one should consider the impact of supply shortages on the economy, rather than assume that such activity is solely a result of demand. Bloomberg notes that Goldman Sachs experts also point to similar patterns: Western economies are trying to create stocks of products in order to protect themselves from price fluctuations and shortages. Demand has far outstripped supply due to a mismatch between the needs of paranoid ordering consumers and the ability of suppliers to ramp up production.
Bloomberg previously also pointed to a supply chain crisis leading to disruptions in the global economy. The global growth in demand for food and equipment during the coronavirus crisis makes manufacturers fear a shortage of raw materials, and as a result, the current situation provokes a jump in prices.