Just when you thought things couldn’t get any worse, CHRISTMAS IS CANCELED! Will the chip shortage cancel Christmas and disrupt the 2022 giving season? Will retailers adjust in time to compensate?
No, we haven’t yet gotten dispatches from the North Pole or from Santa’s Elves, Inc. or from Sledengines.com. The Santa Supply Chain seems mostly in-tact…so long as the elves’ assembly line doesn’t need semiconductor chips.
But, unless folks have overstocked or nearshored production and procurement, it’s a roll of the dice to see if goods can be delivered here in time. And no amount of magic Santa dust can sprinkle away those woes.
When will the chip shortage end?
Most folks remember Summer of 2021 when the famous chip shortage reared its ugly head. If you tried to rent a car, you couldn’t. Why? Because a lot of the car rental companies sold off their stock during the Pandemic shutdown when no one was traveling. They thought they’d liquidate current stock and get new stock when things opened back up. But there was a problem. The chips needed for most of the on-board computer systems in cars weren’t available. So, auto manufacturers couldn’t finish building cars, which meant that rental car companies couldn’t stock their lots, which means you and I couldn’t rent a car in the event that we wanted to fly to Montana and drive to Yellowstone or Glacier National Park (if it sounds familiar it’s because it’s true!).
This Tech Wire article explains the shortage pretty well. In short (pun intended), production of the chips was down already. The Pandemic hit and created spikes in consumer activity from people with fresh cash injections and nothing else to do but shop online. Thus, we have an exacerbated semiconductor shortage. Also, the heightened digitalization of cars and need for even more chips created this shortage.
What does this have to do with the cancellation of Christmas, you ask? Well, this is but a single example of how shortages impact consumer activity and options. The chip shortage started in 2020 and is still being felt in parts of the world. The question now is how well have supply chains and their surrogates been able to adapt to anticipated shortages?
Will Chip Shortage Impact all Giving Seasons?
So, were we saying “Christmas is Canceled” in 2021? YES. Yes, we were. There was a massive freak-out in the fall about holiday disruptions. And indeed, a lot of shipping containers that were slated to arrive in time for the holidays got to America in time for Valentine’s Day. Fortunately, that helps in the gift giving department for your sweeties, but doesn’t do much for your kids! Nonetheless, companies are still feeling the sting from the shortages. While mega stores like Target and Walmart weathered the shortages just fine, other smaller retailers took a hit.
So what now? You may be thinking “why are you canceling Christmas in May?!” You’re totally right to think that. Absolutely. But, welcome to the world of supply chain when downstream events manifest themselves months after an acute disruption. And if the past 2 years have taught us anything, the world’s supply chains have been chock full of acute disruptions! Massive ships being stuck in the Suez canal and weather events are the norm for supply chain disruptions. But, when you add a Pandemic that shut down production and shipping for months at a time AND now a War? You have a witches’ brew of interruptions that has us planning for Halloween and Christmas in May. And here’s why.
The chip shortage continues. There are so many consumer items that contain these semiconductor chips that shortages are already being forecast. Additionally, access to the gas used to make the lasers that cut the chips has been reduced by the Russian war on Ukraine. Video games, remote control vehicles, game consoles, appliances, televisions, and on and on and on. The semiconductor shortage could delay all of these in and of itself. Factor in the zero COVID policy in China which has the world’s biggest ports, and you could create quite the retail panic!
Is Christmas Canceled?
That’s a very complicated question – and could also depend upon myriad non-supply chain factors of course. HOWEVER, we are pretty confident that enough retailers learned some hard lessons in 2021 and are already making changes.
Most companies will place orders for the holiday gift season around August or September. This allows them to read the room as far as trends and not have too much in stock. However, after the 2021 disasters, many of the companies that were burned by these shortages are already placing their orders.
When asked if Christmas would be canceled this year due to shortages and shipping issues, Peter Tirschwell, vice president within the Maritime & Trade division of IHS Markit,, quipped, “no but it does mean that holiday goods will arrive earlier than normal this year.”
Former Coca Cola supply chain VP, Chris Gaffney, adds that a lot of these companies will be overstocked with all the wrong stuff. “If you’re in the market for 20 left handed baseball gloves, this may be your year.” Gaffney continues by remarking that the choppiness of demand patterns coupled with shipping delays could result in poorly stocked shelves.
How are companies compensating?
The semiconductor shortage is only a small piece of the puzzle. But, because of it, retailers are taking somewhat extraordinary measures to ensure that their investments are protected. Typically, supply chain organizations operate on a “just in time” supply planning regimen. This tactic reduces waste and accounts for real time trends in purchasing and consumer behavior. However, “just in time” relies on adequate production and shipping timelines. If the past 2 years have taught us anything in the supply chain world, we can no longer firmly rely upon punctual production and shipping timelines.
In order to account for these potential delays, organizations will more than likely be overstocking. While some organizations will attempt re-shoring or near-shoring production, the vast majority will likely just order more, starting now. However, there really isn’t much that can be done to compensate for the semiconductor shortage. There either will be enough for auto manufacturers and electronics companies to fill their orders or there won’t be.
Unionwear’s Founder Mitch Cahn doesn’t believe the global supply chain will be stabilized until at least 2023. “People have always said that making things in America is cost prohibitive, but that’s just not the case. There are A LOT of hidden costs beyond just unit price.” Cahn goes on to cite costs like tariffs, product development costs, inventory level requirements, transportation and more as obstacles to affordable global supply chains.
What Can I do?
If it’s your turn at the plate to pull off Santa Claus in 2022, you might wanna start making plans now. Here are a few things to consider when loading up your sleigh:
- New cars could be tricky gifts due to the chip shortage. Consider buying used.
- Buy experiences as gifts.
- Buy local and then you won’t have to rely on shipping and manufacturing.
Is Christmas Canceled? We don’t know. According to some supply chain experts, it’s just gonna come a bit earlier than normal this year. We hope that you can take this stuff into account when shopping for that special someone during the gift giving season this year.