In much the same way that a hurricane disrupts product availability on a local scale, the COVID-19 virus is causing shocks to the retail supply chain on a broad, national scale. That’s according to a presentation by Dr. Kaushik Sengupta, professor of Management and Entrepreneurship and associate dean of Graduate Education at the Frank G. Zarb School of Business. In his virtual presentation, entitled “COVID-19: The ‘Extended Hurricane’ Impact on the U.S. Retail Supply Chain,” Dr. Sengupta discussed how COVID-19 is presenting new and long-lasting challenges to the worldwide supply chains.
While supply chains can manage disruptions caused by natural disasters, COVID-19 is a challenge on an unprecedented scale.
“Many companies have actually changed their supplies and strategies to be, essentially, quite a bit more resilient today than they used to be in the past,” said Dr. Sengupta. That added resilience is in response to an increasing number of natural disasters across the world, including Hurricane Katrina in 2005, and Hurricane Harvey in 2017. While retail suppliers are well-positioned to compensate for disasters in a local geographic area, Dr. Sengupta said there are significant differences between a hurricane and COVID 19. “It’s a much bigger scale of effects that’s going on. And companies really are kind of scrambling at this point to figure out, ‘How do we make sure that we address what’s going on in the markets?’” The reason for the turbulence lies at least in part with structural disadvantages inherent in high-efficiency, just-in-time supply chain systems.
Irrational consumer behavior, while understandable, can throw the supply system off balance.
“The hoarding of toilet paper is really a customer behavior that is not rational. It’s irrational behavior from the customer side that leads to very inaccurate forecasts,” said Dr. Sengupta. Historically, demand for items such as toilet paper is relatively easy to predict. As a result, factories, distribution centers, vendors, and retailers are able to tailor their capacities to meet demand. Factories that manufacture and process the pulp that becomes various types of bathroom tissues can consistently run at 100% capacity, maximizing efficiency. Because of this, however, the supply chain has no excess capacity to ramp up when an unpredictable spike in demand occurs. Shortages are a result. And not just in toilet paper. Because the vast majority of industrialized retail markets rely on this “just-in-time” model, many products could be susceptible to shortages, Dr. Sengupta explained.
Specialized or complicated products that are in high demand, such as ventilators, can also be difficult to produce quickly.
“The ventilator is a very complex product. It requires close to 150 different parts from multiple suppliers, which are spread across different countries,” Dr. Sengupta said. This can make ventilators a particularly challenging product to build in a hurry. “Because of the very specialized nature of these parts, it’s almost impossible to find an alternate source of supply on a very quick time frame.”
Supply chains won’t improve until the pandemic is over.
“The bottom line is, we all know this, that the pandemic needs to be over as soon as it can in order to return to stable supplies and prices for many products,” Dr. Sengupta said, advising that Americans become comfortable with the notion of making substitutions. Because some of these supply chain issues are caused by irrational buying habits, while others are caused by the real effects of the pandemic, such as staffing shortages, the supply chain woes will likely continue for as long as the pandemic is present.