The Covid-19 pandemic has created changes in consumer demands for products with related impacts on the availability and prices of the inputs used to produce those products. * Please read the Wall Street Journal article "Consumers Open Wallets, And Factories Can't Keep Up" (February 23, 2021) located under Week 6 "Modules" [March 10] before answering the questions given below.*Note: Markets for inputs used to produce a final good or service are called that product's "supply chain." For example, a boat manufacturer might buy outboard motors produced by another company to install in the boat it is producing (see Wall Street Journal article). 1. The Wall Street Journal article reports that beginning in late spring and early summer of 2020, there was a "sharp rebound in consumer demand" for a variety of manufactured products (e.g. cars, boats, furniture, power tools and physical fitness equipment). Using furniture as an example and Simplicity Sofas as a representative producer of sofa furniture (see Wall Street Journal article):· Draw a supply and demand graph for the market for sofas being sure to label your axes and supply (S) and demand (D) curves properly. Also, label the initial equilibrium price and quantity of sofas before the "sharp rebound in consumer" demand.· Show in your graph the "sharp rebound in demand" for sofas that occurred in late spring/early summer of 2020 and explain whether the effect of this change in demand created a shortage or surplus of sofas. Clearly show the resulting shortage/surplus in your graph before the price of sofas has time to adjust from its initial equilibrium value.· With specific reference to the law of supply and the law of demand, explain the process by which a change in market price would be expected to eliminate the shortage/surplus you have shown in your graph assuming no "supply chain" disruptions. Be sure to define the law of supply and the law of demand in your answer and clearly label the new market equilibrium price and quantity of sofas in your graph.2. In fact, we learn from the article that producers of manufactured goods were beset by "snarled supply chains" and "labor shortages" following the "sharp rebound in consumer demand." For example, we learn that Simplicity Sofas could not "find enough skilled sewers" and depended on fabric produced by STI Fabrics who, in turn, depended on Drake Extrusion who "turns plastic pellets into colored yarn." Focusing on STI Fabrics:· Explain what hurdles it faced in meeting new orders for fabric from manufacturers.· Using a supply and demand graph of the market for labor inputs (labor market), explain in words and demonstrate in your graph how STI Fabrics attempted to increase production and explain why or why not it was successful. able to the distortions of the expand into more factory ufacturer is training replacebullwhip effect, economists space near its plant in High ments for about a quarter of year earlier. By May though, products to the U.S. as swiftlysay. To cut costs and boost Point, N.C., to cat delivery its hourly workers, who didn't CEO James Loree said those as usual. Beverly Semmann,40% a week last April from a competitors that aren't gettingThis time, the builwhip et- profits, US. companies out- times that have stretched to return after the company shut retailers were selling about owner of Rowe Pottery, saidfect is even more pronounced sourced operations and whit- eight months during the pan- down for two months last 30% more of the company's the Wisconsin maker of din-because demand for consumer tled inventories. Many of their demic. But Simplicity Sofas year. New recruits are less products than than a year nerware has seen sales jumpproducts has been extraordi- suppliers did the same.narily high. At the same time,companies are placing super- unexpectedly last year, the ers to staff new productionsize orders to compensate for same companies all placed or- lines, and that some fabries below capacity while demandthe extra time it takes to pro- ders at once into increasingly take months to arrive from has increased by 50% fromcure supplies from factories diffuse networks of far-flung suppliers.and freight operators con- suppliers.strained by global efforts tocontain the coronavirus. That's trated at the long wait for rec- fabric swatches that used to than double the usual. Hurri- wait for retailers to place Steel Wire Products LLC, aexacerbating the strain on reational vehicles, workout be free. "I'm basically discour- canes last fall also disrupted panic-size orders that Stanley maker of wire baskets andsupply chains.Tennessee-based Malibuwas preparing for a downturnas it stopped production. To Waiting for weights Fabries, is delivering many orthe company's surprise, withinweeks its dealers started re- Michigan closed campus gyms weeks before the pandemic. Everyone wasporting many new customers. last spring due to the pan- The 350-person Kings Moun- caught flat-footed'When Malibu reopened last demic, computer-seience stu- tain, N.C., maker of Revolutionspring, it ramped up produc- dent Jonny Chow set out to Fabrics has about 50 open jobs by the rebound intion of its boats for towing replicate his weightlifting rou- even after raising its starting consumer demand.water skiers and wake board- tine at home. But he said the hourly wage by about $2.50 toers. But some suppliers were. rubber weights he wanted to $15. Anderson Gibbons, theslow to respond. Smaller com- buy from Colambus, Ohio- firm's head of marketing, saidpanies with less cash have had based Rogue Fitness were al- STI bought equipment last plastic called polypropylene,reported a 57% increase in Drew Greenblatt, Marlin'sa harder time accelerating ways out of stock.production, acquiring materi-als and shipping components, to send him a Facebook mes- who were scheduled to helpespecially from overseas, Mal- sage when the weights were get it running were delayed by year," Drake's CBO, John Par-boost prices.ibu said, leading to shortages available on Rogue Fitness's travel restrictions.of components for outboard website. He said more thanengines and windshields as 1700 people are using the pro- ply chains and turn thein back gone wrong."well as wiring harnesses.founder Jeff Frank said that he productive than veterans, Mr. earlier, as homebound con- as foreign-made products haveWhen demand increased can't find enough skilled sew- Parkinson said.sumers tackled renovations been hard to get.Drake is running about 15% and yard work."I you walk into a lot of bigRetailers weren't placing retailers, the store shelves arenew orders with Stanley, really lind of empty," she said.customers that make cars and though. They were drawing "They are looking for ways toHe recently started charg- furniture, leading to wait down inventory instead. Exec fill the stores."Some customers are frus- ing prospective customers for times of three months, more utives weighed their options:Baltimore-basedMarlinequipment and other goods.aging people from buying," he production of the company's might not be able to deliver on racks used in medical-steriliza-main raw material, a type of time, or raise production on tion equipment, last yearsaid.One of his suppliers, STIthe belief retailers would soon started producing metal standsstart restocking. If they didn't, for hand sanitizers, intraveStanley would be stuck with nous medications and test-tubesix months of inventory.Mr. Loree decided to build plied from China in the past.$600 million worth of tools,including power drills, tablesaws and tool chests. It was China's basketthe right call. Tools were sell-ing out at stores by early sum- out that putting all their eggsmer. Stanley's tools business in China's basket is risky," saidWhen the University of ders in 16 weeks, up16racks that were mostly sup-"Companies have figuredyear to increase capacity by a leading to supply constraints profit for the fourth quarter president.Mr. Chow wrote a program third, but foreign engineers and doubling prices.Mr. Greenblatt said finding"This was a perfect-storm partly fueled by its ability to steel in the U.S. to increase hison a 25% increase in sales,production has been a chal-"The market went down so lenge. Prices for steel, copper"You can't just turn off sup- could have gone wrong has hard and then eame back so and other industrial commodi-kinson, said. "Anything thathard," Mr. Loree said.ties are at the highest point inyears. That is putting pressureon profit margins for Marlinand other manufacturers.Domestic steel companiesRetailers slashod orders for The Connecticut-based com aggressively curtailed produc-pany dispatched employees to tion last spring as customerspower tools, wrenches, tape io0 of its suppliers' plants in closed factories and canceledmeasures and utility knives by China and Mexico to press orders. Consolidation hason and there not be hiccups."gram today.Rogue Fitness said it is reg- Mr. Gibbons said.ularly making new suppliesbut they quickly get sold out. getting enough yarn from products.Some companies did recog-nize that the pndemic wouldAuto bottleneckSTI has also had trouble supercharge demand for their Mexico challengeThe build-out wasn't easy.Wanxiang America Corp, The company has more than Drake Extrusion Inc., whichthe U.S. arm of one of China's doubled its workforce and in- turns plastic pellets into col- Stanley Black & Decker Ine.'slargest auto-component mami- creased its minimum wage to ored yarn.facturers, quickly reopened its $25 an hour to make moreU.S. plants last spring. But equipment.transportationhave lengthened the lead was stressed in 2020 and istimes needed to get parts from still in a bad spot," founderits sister plants and other sup- Bill Henniger said.pliers in China to Chicago to10 weeks from four typically. reliant on foreign suppliers"With three, four or 5,000 have been particularly hurt bycomponents in a car, you only delays as shipping containersneed one to keep it from get- have been hard to get and U.S.ting out of the factory parking ports struggle to unload them.lot," said Pin Ni, president of Peloton Interactive Inc. addedIllinois-based Wanmiang Amer- two million monthly subscrib-ica. Mr. Pin resorted to air ers for its digitally connectedfreight for some smaller items, exercise bikes in 2020 but thewhich he said costs some 10 company said it was spendingtimes more than a year ago."The global supply chain is duce shipping times.not as strong as peoplethought," Mr. Pin said.A decadeslong devotion to domestically have been besetmaking factories smaller, with issues.cheaper and more efficientmade companies more vulner- Simplicity Sofas, is looking to Sepply MeragmentThe Martinsville, Va., man-them to make Stanley's com- given the remaining steelmak-ISM Supplier Deliveries Index ponents a priority. At a Stan- ers more pricing power duringbottlenecksThe entire supply chain Change from a year earlierley-operated power-tool plant the rebound.in Reynosa, Mexico, the com-20%The reduction in domesticpany challenged seven at- production of specialty metalstempts by government offi- including stainless steel iscials to idle production as a even more acute. By the end ofway to control the pandemic. the year, just three eompaniesThe company hired a chief in the U.S. will supply stain-medical officer for the plant to less steel. Gregg Boucher,help limit employees' exposure president of distribution forUlbrichride-shares to drive employees Stainless Steels & Special Met-to and from the plant to avoid als Inc., said decreasing avail-exposing them to the virus on ability of domestic stainlesspublic transportation. and steel will drive more stainlesshoused some in hotels to keep users out of the country or outPersonalSome companies who areconsumptionIndustrialproductionto Covid-19. Stanley paid for Connecticut-basedmore than $100 million to re-them from contracting it from of business.family members.Even US. manufacturers"Customers get concerned"You do whatever you could about availability," he said.do to keep the plants run- "They don't want to be in asituation where they miss aSome companies have delivery because they're short-602019who have focused on sourcing2012 14 161820ning," Mr. Loree said."Dusble goods, seasonaly adjustet infation diustedDimarmel Ine., the maker of Seures: Feleal keerve predutianl: Beree ef Ecosonk Anal tonptiank Istitute forgained ground on overseas on inventory." Consumers Open Wallets,And Factories Can't Keep UpSnarled supply chains and a labor shortage thwart manufacturersBY Boa TITA AND AUSTEN HUFFORDappliances, furniture and power tools. Manu-facturers have been trying to catch up eversince. Nearly a year since initial coronavirusU.S. manufacturers aced the shutdown oftheir factories and warchouses last spring in lockdowns in the U.S., barbells, kitchen mix-response to Covid-19. They're boteching therecovery.After carrying out an orderly retreat fromassembly lines as the pandemie arrived inthe U.S., many manufacturers pulled out theplaybook they followed in past recessions,cutting costs and preserving cash. That leftthem unprepared for the sharp rebound inconsumer demand that began just weekslater and never let up.Without restaurants to visit and trips totake, Americans bought out stocks of cars,ers, mattresses and webcams are still hardto find. A global shortage of semiconductorshas forced many car makers to cut produc-tion in recent weeks."Everyone was caught flat-footed," saidJack Springer, chieťibu Boats Inc.ecutive officer of Mal-The boating industry was preparing for adownturn but instead sales jumped, he said.Please turnto page AS• Biden eyes next package after aid bil. A2FactoriesCan't MeetDemandContinued from Page OneMalibu's orders were up bymore than half last June froma year earlier and sales of recreational boats in the U.S. in2020 were the highest in 13years, according to the Na-tional Marine ManufacturersAssociation, a trade group.Consumer spending onJong-lasting goods in the U.S.rose 64% last year but domes-tic production of those goodsfell 8.4%, according to federaldata, leading to shortages andhigher prices.Supply chains typically getbeaten up during recessions.As sales decline, companiesdraw down inventories to con-serve cash instead of purchas-ing more parts and materials.Entire pipelines of supplies getcleaned out.When demand improves,even modestly, suppliers respond with an outslze increasein production to restock emptywarehouses and assemblyplants. The so-called bullwhipeffect ripples all along supplychains, generating unusuallylarge orders for suppliers thatare far from end customers.

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The Covid-19 pandemic has created changes in consumer demands for products with related impacts on the availability and prices of the inputs used to produce those products. * Please read the Wall Street Journal article "Consumers Open Wallets, And Factories Can't Keep Up" (February 23, 2021) located under Week 6 "Modules" [March 10] before answering the questions given below. *Note: Markets for inputs used to produce a final good or service are called that product's "supply chain." For example, a boat manufacturer might buy outboard motors produced by another company to install in the boat it is producing (see Wall Street Journal article). 1. The Wall Street Journal article reports that beginning in late spring and early summer of 2020, there was a "sharp rebound in consumer demand" for a variety of manufactured products (e.g. cars, boats, furniture, power tools and physical fitness equipment). Using furniture as an example and Simplicity Sofas as a representative producer of sofa furniture (see Wall Street Journal article): · Draw a supply and demand graph for the market for sofas being sure to label your axes and supply (S) and demand (D) curves properly. Also, label the initial equilibrium price and quantity of sofas before the "sharp rebound in consumer" demand. · Show in your graph the "sharp rebound in demand" for sofas that occurred in late spring/early summer of 2020 and explain whether the effect of this change in demand created a shortage or surplus of sofas. Clearly show the resulting shortage/surplus in your graph before the price of sofas has time to adjust from its initial equilibrium value. · With specific reference to the law of supply and the law of demand, explain the process by which a change in market price would be expected to eliminate the shortage/surplus you have shown in your graph assuming no "supply chain" disruptions. Be sure to define the law of supply and the law of demand in your answer and clearly label the new market equilibrium price and quantity of sofas in your graph. 2. In fact, we learn from the article that producers of manufactured goods were beset by "snarled supply chains" and "labor shortages" following the "sharp rebound in consumer demand." For example, we learn that Simplicity Sofas could not "find enough skilled sewers" and depended on fabric produced by STI Fabrics who, in turn, depended on Drake Extrusion who "turns plastic pellets into colored yarn." Focusing on STI Fabrics: · Explain what hurdles it faced in meeting new orders for fabric from manufacturers. · Using a supply and demand graph of the market for labor inputs (labor market), explain in words and demonstrate in your graph how STI Fabrics attempted to increase production and explain why or why not it was successful.