The real effects, beyond health issues, of the Coronavirus disease (COVID-19) have surged their way throughout the United States, keeping many from work, isolated in their homes and even separated from loved ones.
But as people hunker down and settle in for social distancing in their homes for an undisclosed amount of time, one of the most perplexing issues on consumers’ and companies’ minds alike is how this led to an unprecedented lack of toilet paper.
In short, as the virus spread from overseas and the threat in the United States became real, American citizens prepared for a potential quarantine by buying consumer packaged goods in bulk, in what some described as a frenzied capacity. Social media quickly became saturated with users posting unbelievable images of consumers’ checking out with amounts of toilet paper and other CPG products that most people had never seen before. Since these products don’t go bad, shoppers inflated their purchasing limit in case the situation in the United States got worse. Supply chains were not prepared for this level of panic buying. Adding to this is the spread in other countries forcing borders to shut down, causing imports to be greatly impacted as well.
"Even if we could source raw materials faster, we can't necessarily exceed the maximum throughput of the country's toilet paper manufacturing capacity," says Ali Hasan R. co-founder and CEO of ThroughPut. "When no more can be done on the production side, we must convince the customer that excessive purchase of toilet paper is statistically unnecessary. We also must assure these customers of what the lead time will be in 99.999% of the time in the case there is a toilet paper outage."
In addition to social shaming other consumers by posting photos of the staggering overflow of products on their carts, word of empty shelves also started to spread. As the bare shelves’ news made its way around, so did the panic. Others flocked to the store to buy essential goods before they ran out, making the problem worse.
The toilet paper aisle in a grocery store in Wisconsin was completely empty.Mackenna Moralez
“Supply chain professionals are prepared for almost any circumstances and are trained to deal with demand shocks in the market while continuing to accommodate and mitigate supply chain disruption,” Abe Eshkenazi, CEO of the Association for Supply Chain Management. “This includes the artificial demand we’re seeing today in the case of toilet paper and food. The current issue is actually not related to utilization at all, as that hasn’t changed or increased. There are no more mouths to feed or bottoms to wipe than there were last month, this is more a reflection of irrational buying and consumer panic.”
While many other citizens worldwide are sent home from their jobs, those in the supply chain are asked to step up. There has already been a known driver shortage in the trucking sector in the past decade but COVID-19 is pushing the pressure for new hires even further.
Amazon plans to hire 100,000 new employees to help with the strained demand, according to an official blog post from senior vice president of worldwide operation at the e-retailer Dave Clark. KTVT, based out of Fort Worth, discovered that Target has about 9,000 jobs listings active through the United States, while Kroger has 6,800, according to several news reports.
Supply chains have ramped up their CPG manufacturing and shipping. Experts are ensuring that toilet paper will be back on the shelves soon, with higher inventory numbers than usual. Many are also focusing on e-commerce even more so than usual to help consumers and workers avoid social interaction.
Regulations from the Department of Transportation that previously prevented drivers from spending too many hours on the road have been lifted to help with medical product delivery.
The bull whip
Medical and other at-home essentials are what retailers and supply chain companies are thinking of first and foremost. So, while these products will return shortly, the rest of the retail world will rapidly change. With little resources, the supply chain will have to turn their attention away from other non-essential items to mitigate the shortages.It is also likely that the shortage scales will tip, and stores will experience what is known as the “bull whip” effect in which supply chains gain back inventory but consumers will already have stocked up. When the toilet paper and other CPG items arrive in stores, there will probably be a surplus as most consumers who panic bought will be comfortable for the next six months.
“While people's consumption stays the same, their demand increases so shelves are empty,” says Hitendra Chaturvedi, professor of practice, Supply Chain Management of W.P. Carey. School of Business at Arizona State University. “If not properly accounted for in the system as an outlier event, the forecasting model will order a higher lot size to the distributor who, after adding his cushion, will pass on that lot size to manufacturer who will manufacture the increased lot with a little cushion. Just like a bullwhip, this amplification causes huge inventory production, but because the consumer has stocked products for 6 months, the following month they do not buy.
“Now you have a situation where panic demand caused the system to churn more stock which has no buyer,” he added.
Force Majeure
Another important factor to note is that in times of a crisis like this, supply chain contracts may fall into the “force majeure” clause. According to Philadelphia-based lawyer Michael O’Brien, when unexpected circumstances prevents a party from performing their duties beyond their control, the contract may allow for termination. Supply chain companies should search their contracts for this clause, find any partnership that could be deemed as vulnerable and plan for the consequences to protect the company.
As the entire world continues to navigate COVID-19 together while staying separate, the economy and supply chain will continue to change. The most important aspect to keep in mind is that health, more than money, is what is important right now.
