Globalization

Supply Chains in COVID Chaos

I was asked by a local publication to write something for supply chain laypersons to help them understand the chaos that is occurring in goods delivery. This is close to what I wrote, minus some local references.

By now, everyone knows COVID is playing havoc with national supply chains. These are the systems that tie manufacturers, distribution centers and stores into a network of truck and container flows. When a store has a semi-trailer loading dock, it’s likely in a national supply chain. Otherwise, it gets local delivery from the end of a big supply chain (e.g., Racetrack) or by an ad-hoc arrangement (e.g., MomPop Convenience Store).

National supply chains are designed to move goods at steady rates. Achieving high quality, low price and reliable delivery from around the world requires meticulous attention to detail and careful tuning of every link in the chain. The finely honed systems can react quickly to local demand spikes by redirecting goods from elsewhere in the system. However, If demand spikes nation-wide, they may be cooked. If you understand the national demand situation, that will inform a lot of what happens locally.

The hard part to strategize is to guess how long the COVID disruption will last. An optimistic scenario (Plan A) locks us down for 4 or 5 weeks and we reopen for business. Plan B applies if we mess up the lock down or fail to follow-up properly. Then chaos could last for a long time. For insight, please read my summary of Tomas Pueyo’s “The Hammer and the Dance”.

Consider these situations and what can I do (WCID) in each one.

Panic-buying shortages. Panic buying is temporary and self-correcting. Big picture, America eats and poops the same amount every day. If the supply chain met demand last month, it can meet it now. Eventually, the dingbats will realize that 800 rolls of TP will last through next November and they’ll stop buying for a while. The inexorable flow from the supply chain will refill the shelves and most people will only be temporarily inconvenienced.

WCID? Be patient. Organize a text group of neighbors to facilitate “borrowing a cup of sugar”. Instead of chasing around for 4 rolls of TP, ask for a roll from each of 4 neighbors. Trade tips on which stores just got a shipment. Arrange a communal milk run. This will work for Plans A or B.

National shortages. If the demand spike is nation-wide (e.g., protective masks), moving inventory around won’t cut it. It becomes a manufacturing problem. They must ramp up production and feed it through the system. Jeff Bezos has ordered Amazon employees to make deliveries to hospitals their new top priority … but they still need manufacturers to make the stuff to ship. US manufacturers are exploring ways to make ventilators and other critical items, but American factories are mostly automated. It takes time to retool and reprogram an automated line. I worry whether the big boys can pivot fast enough.

Worse, since COVID is global, every country is simultaneously short of the same products (e.g., masks) or will be soon. The main exceptions are China and South Korea. They ramped up weeks ago and they now have COVID under control. They can devote capacity to helping other countries. If America wants a few hundred million masks in the next few months, that’s the best place to look. Maybe the only place. Nonetheless, every country is scouring its manufacturers to see who can supply what.

WCID? Organize some friends to sew fabric masks. It’s a solid Plan A play. They can’t help hospitals directly but they can supply individuals and reduce competition for real medical needs. If we fall to Plan B, the community might explore more ambitious options like more organized mask sewing or view this Italian initiative for inspiration.

Supply Chain Structural Shifts. Big players in our national supply chain are being tossed in a blanket. Sysco, the big food wholesaler gets 62% of its revenue from sales to restaurants. Overall US food consumption hasn’t changed, but the home/restaurant consumption split just went sideways. Sysco has contracts with food manufacturers to honor and it owns warehouses full of food and toilet paper and cleaning supplies. Their CEO says they’ll now pursue sales to institutions like hospitals and small grocers. Demands for many other products are treading water or facing a (hopefully) temporary collapse. The bright side is that a lot manufacturers with stagnant demand are much more open to making things we need … even if it is not in their normal comfort zone. For example, distillers and brewers are becoming famous for their hand sanitizer offerings. Most of these shifts will be temporary, but some may lead to permanent adjustments. Time will tell.

WCID? If we’re in Plan A, organize a shopping intelligence network. You might find a bargain or three. Maybe even some products you can re-purpose to do some good in this crisis. If we fall into Plan B, we might help our local businesses scout around for creative opportunities.

I just stumbled on this excellent article. It is aimed a bit more at professionals, but contains some critical insights. I am tacking it onto the end of my article. Read it if you have an interest