Supply Chain Impacts What Happened to All the Toilet Paper?
– USF RESPONDS: COVID-19 –
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, greater importance and awareness have 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 and 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. 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. Shoppers are buying greater quantities of household staples less frequently. Are households really consuming six to eight weeks of paper towels in a one-week period? Of course not.
Additionally, in normal times half of American food expenditures were at restaurants and other such establishments and now almost all meals are being made in the home kitchen. A distribution system that was built to supply restaurants with bulk items is struggling to adapt to smaller packaging for home use.
Why? Unlike consumer-packaged foods, bulk wholesale foods do not endure the same rigid labeling disclosure requirements. There are plenty of restaurant-ready products (industrial-size single-ply toilet paper, bulk meats, dairy, bread) but require re-packaging for consumer grocery sales. The FDA has lifted labeling requirements for a short period to enable faster retro-packaging and distribution of these products.
While stores are slowly recovering and replenishment frequency has increased, this classic “demand shock” in the supply chain will change the selection and assortment of available grocery items for the foreseeable future.
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” – and this 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 for paper goods (as an example) and 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.
While supplies exist, the supply chain disruption is similar to a dam or blockage requiring new flows and outlets to release pent-up demand. There is no supply quantity issue but rather a complex supply process management issue:
- Grocery stores carry an average of 40,000 items.
- Twenty percent of the items represent 80 percent of the sales.
- The U.S. imports approximately 50 percent of fruit sold, with 20 percent of our vegetables
imported from Mexico.
- Approximately 70 percent of paper products are manufactured in the U.S. with raw materials
sourced from the U.S./Latin America.
- Top U.S. imports from China are concentrated in pharmaceutical, electronics, apparel and textiles along with many other raw materials supporting U.S. manufacturing.
The demand shock origin and consequence cycle in broad terms:
- The Chinese Lunar New Year in January drove factory workers back to interior hometowns
at the same time COVID-19 began to emerge, forcing residents to stay at home.
- Chinese factories closed and all downstream supply activity was halted or delayed.
- As supply was restored to Western countries, the virus arrived in the U.S. and “stay
at home orders” followed.
- The demand for health-related products and grocery staples doubled and tripled due
to the mass purchase and hoarding behavior.
- Restaurant/wholesale food surpluses increased even as retail demand created shortages.
- The virus migrated from urban concentrations to rural manufacturing communities affecting
meat, poultry and dairy processing/packaging plants.
- At the same time, change management tactics were slow to implement relative to the shift from business/wholesale packaging to consumer packaging.
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. 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. In late March, 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.” This continued into April and May, but full normalization is not expected for months.
Q. Will it get worse before it gets better?
A. As states begin to follow federal guidelines for reopening, consumer buying patterns will evolve to “supply-based” purchases manifested in fewer available varieties, repackaged goods and uneven product flows to retail. However, if a combination of above steps is implemented, there is light at the end of the tunnel.
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.