Grocery Stores and Other Retailers Forced to Cope with Consumer Demand during COVID-19 Outbreak
By Keith Morelli
TAMPA (March 25, 2020) -- In normal times, shoppers browse the aisles of the grocery store, pick what they want or need, toss it into the cart and move on their way. They never consider the process it takes to get that product onto the shelf. But since the COVID-19 outbreak and spread, a greater importance and awareness has been placed on the pre-sale process known as supply chain management.
That’s the process that begins with gathering raw resources that make up the product, its manufacture, storage, distribution and ends with it being put on the grocery store shelf. No one takes note when the products are there, as they usually are. They do notice when the products are not there. Toilet paper, meats, pantry staples and other items deemed necessary in what may be an extended period of quarantine, have been missing and everyone is wondering why.
Faculty and staff of the USF Muma College of Business’ Monica Wooden Center for Supply Chain Management & Sustainability are keenly aware of the process and Director Elaine Singleton explains it all.
Q. Why are stores running out of some items and not others?
A. People are following orders – or strong suggestions – to “stay home.” Commodities such as paper goods, meat and dairy are flying off the shelves due to panic purchases (six to eight weeks of stockpile purchases in some cases) multiplied by millions of shoppers. Stores will slowly recover and replenish; however, this is a classic “demand shock” in the supply chain.
Are households really consuming six to eight weeks of paper towels in a one-week period?
Q. Why isn’t the supply chain for these stores keeping up with the demand?
A. The current demand has surged simply due to the complete change in lifestyle – “Stay home and stay safe” – that is driving radical change in shopping behavior.
The demand plan for these commodities, up until the COVID-19 event, was operating with inventory distribution based on classic demand-trend data. But, the shock of COVID-19’s arrival propelled demand to six to eight times the normal consumption. Unfortunately, the panic has driven unnecessary stockpiling when the reality is that the same demand exists, not the artificial spike.
People are doubling down on commodities deemed critical for long term home isolation and buying patterns driven by the “demand shock” are the root cause. There is no supply issue and supply is ramping up as manufacturers continue to increase production to meet the spike in commodity demand. This is temporary and short term.
Q. What lessons are to be learned from this crisis in terms of availability of products?
A. Here are some key points to consider: (1) Crisis planning must include multi-tier supply chains to implement alternative ways to meet “demand shock” scenarios. As an example, alternative outlets, such as restaurants (versus grocery stores), are experiencing the opposite effect with an overabundance of supply and the need to deal with surplus. Many have quickly pivoted to the e-commerce channel as a method to stay in business and relieve overstock. (2) Product distribution channels must include planning models that consider temporary “demand shock” and include methods of procurement and distribution that are multi-tiered.
Q. What are some of the challenges that must be overcome?
A. Can manufacturers diversify to produce consumer ready products? Can steps to market be eliminated? Can changes be made in packaging and ancillary branding that speed up product availability?
Q. As the supply chain industry meets the challenges posed by this crisis, is data being collected that can be used to create a new “crisis” model that will solve most, if not all, the problems this time around, like shortages of items?
A. Short answer ... no. Supply chains are so complex and varied that any data we collect would be out of date before we could share it. Companies will rethink inventory policies and sourcing agreements going forward to reduce out-of-stock situations on critical items, such as medical supplies.
Q. What’s the best way out of this retail problem?
A. We must make use of mass media and store-level controls to help people avoid panic purchases. We must remember that commodity supply is on the way. Unlike the historic depression era, the supply is available and will slowly replenish. Stores are already limiting quantities of high-demand items at point-of-sale to tamp down hoarding behavior. If third-party distributors are stockpiling inventory creating artificial supply deficiencies, they should stop. And, finally, manufacturers and distributors must focus on essential foods/household products.
Some distributors already are beginning to adapt. Last week, according to Reuters, “Amazon will only receive vital supplies at its U.S. and U.K. and other European warehouses until April 5, its latest move to free up inventory space for medical and household goods in high demand as a result of the coronavirus outbreak.”
Q. Will it get worse before it gets better?
A. As states issue mandates for citizens to stay home, buying patterns are likely to continue to clear the shelves of pantry items. However, if a combination of above steps are implemented, there is light at the end of the tunnel.
And, there are other options for consumers to cut down on the use of some commodities: Use cloth towels rather than paper towels. Go back to basics using recipes that call for scratch ingredients that provide nutrition and protein-based meals rather than buying canned or packaged food. Use regular soap and water for household cleaning.