CSCMP's Supply Chain Quarterly
March 31, 2020
Forward Thinking

Commentary: How to respond to panic buying—a supply chain perspective

As the coronavirus outbreak spreads, consumers have taken to stockpiling staples and health supplies. Beyond Amazon hiring 100,000 warehouse and delivery workers, what steps should retail supply chains take to alleviate shortages and get product back on shelves?

Amid the coronavirus panic-fueled buying we've been seeing—both across the United States and globally—retailers and their supply chain partners find themselves facing a number of pressing questions. Their immediate concerns include: What will these consumer behaviors do to supply chains in the near term? How do we address these effects so shelves remain stocked? And, how long will the panic buying last? On the more long-term level, the retail supply chain must ask itself: How can we prevent shortages like this in the future?

The most apparent impact of panic buying, is, of course, short-term supply shortages. Unfortunately, we can expect the situation to continue for the near future, as shoppers continue to panic buy more than they need. This especially applies to perishable items, which are in short supply. We've also seen stores consistently sold out of toilet paper and other essentials, including critical health supplies like masks and hand sanitizer. Meanwhile the market has seen some steep price increases as some individuals seek to profit off the hysteria. While the White House's declaration of a state of national emergency last Friday will automatically activate laws that will help stop price gouging, the practice, fueled by economies of scarcity, will still be hard to manage.

Ideally over time the panic will ease up as shoppers feel more confident in their future ability to obtain necessities and adopt a more socially conscious approach to stockpiling. When this happens, the pressure in the supply chain for rapidly sourcing, making, distributing, and fulfilling raw materials and finished goods will be somewhat relieved.

However, there are more factors behind product shortages than simple buyer behavior. Replenishment and delivery frequency will continue to be a challenge once warehouse workers and truck drivers start coming down with the disease.

A ready supply of labor, or course, is key to getting product back on the shelves. Companies will have to hire additional employees to fill positions as current employees become infected or need to self-quarantine—manufacturing, distribution, and in-store retail personnel are particularly essential. Managers should prepare to have employees work overtime while hiring additional temporary labor to offset surges in demand and the future impact of workers getting the virus.

Protection of workforce health is also essential, and the workplace should ensure that best practices are widely communicated to maintain good health and hygiene and avoid the risk of exposure. Stores will need people to stock and restock shelves as buyers empty them of food and supplies in anticipation of a severe coronavirus outbreak. And let's not forget how those products make it to stores; the industry is already struggling with a shortage of truck drivers, a third of whom are 55 or older.

Smart supply chain management and open communication among all parties is another crucial consideration for companies during this crisis. Manufacturers, logistics and distribution partners, and even third-party logistics and contract manufacturers will all need to collaborate, working more closely than ever to expedite replenishment to stores and to ensure fair allocation of excess inventory. There needs to be 360-degree transparency and visibility in the supply chain so that changes can be made as needed in terms of production, replenishment, and fulfillment.

Panic buying isn't going anywhere yet, and supply chains need to be able to flex to the situation. Companies in the retail supply chain will need to understand what they need to do to distribute, replenish, and fulfill supplies in bigger quantities and with increased frequency until the virus is contained.

Creative responses

Some retailers have already come up with constructive and creative strategies to mitigate shopper panic. Some are limiting the number of items individuals are allowed to purchase in order to avoid massive stockouts, especially for stores with low days of inventory. This policy helps mold shoppers to conform to normal grocery stocking intervals. Most grocery stores usually carry a three-day supply to avoid waste and markdowns, with the average inventory turnover overall in grocery retail around 12 to 14 turns per year, or every 26 to 30 days. If stores are forced to go beyond this range, significant issues result. Limiting the quantity of product that a shopper can buy can help keep stores within the acceptable range.

Stores are also adopting creative methods to help encourage "social distancing" among shoppers, such as placing products in more open displays. Now is also the time to think of effective ecommerce strategies. An omnichannel, decentralized approach to retail makes a lot of sense in an environment where the population wants to avoid crowds and going into retail stores.

Enterprises can also use the above considerations to help plan for similar situations in the future. They can start by re-envisioning their labor structures and supply chain designs to consider more use of artificial intelligence, machine learning, next-generation manufacturing, and warehouse automation and reduce their dependence on human labor. Meanwhile leveraging analytics could help them rapidly sense demand changes and pivot their supply chains in response. Furthermore, we should see many companies re-evaluating their sourcing strategy to include a more even split between local and offshore manufacturing and suppliers as well as alternative or backup supply chain capabilities for shorter lead times. Our reliance on China has demonstrated that if manufacturing and distribution facilities there are shut down, there will be a severe ripple effect downstream in supply chain. Inventory practices should also shift. We may see that companies that had been more proactive about increasing their buffer of supplies might have weathered these and other types of disruptions with more grit than those that pursued the more common practice of only carrying the bare minimum. Overall, supply chains will need to be more responsive, agile, and flexible in the future to deflect such risks.

In the meantime, it's a good idea for companies to establish a task force to monitor the situation, assessing impact to the company and its employees, families, clients, and customers, and to take the required actions needed to stay afloat or drive the business on a daily, or even hourly basis. Today, shippers and retailers are asking themselves how they can weather this storm, what will they need to do to ensure people have access to necessary supplies, and how long will it take. And maybe tomorrow, they will ask what we can learn from this experience.

Alberto Oca is a partner in the strategic operations practice of Kearney, a global management consulting firm.

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