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Bullwhip: How Coronavirus Hit Meat Distribution
734% More Toilet Paper: How Should I Adapt My Logistics to the Coronavirus Pandemic?
By Hugh Sinclair | Founder, CommerceBlitz
Executive Summary
The global supply chain faces an unprecedented challenge in its response to COVID-19 and its associated economic impact. Data and anecdotal evidence reveal that industries with antiquated processes and less flexibility are among the hardest hit, so we recommend multiple solutions, including software automation, process optimization, and more.
Introduction
The pandemic caused by the latest strain of novel coronavirus, SARS-CoV2, and its associated respiratory illness, COVID-19, is currently shaping global politics, economics, and logistics. Besides the global death toll and near-extinction of entire markets, our current state of affairs has exposed countless vulnerabilities in logistical processes, from healthcare to consumer goods; these may either exacerbate or become exacerbated by geopolitical and logistical inequities, resulting in the inefficient or wasteful distribution of key resources, as well as goods of all shapes, sizes, and importance. As the situation evolves the world is tepidly returning to equilibrium while bracing for a second outbreak and adapting to new cultural norms – and the distribution sector must follow accordingly. In the following material, we’ll examine some notable case studies from the early COVID-19 outbreak in the United States, review aggregate data that attempts to take a pulse of the industry as it stands, and make common-sense recommendations based on insights from industry leaders and our own observations.
The Outbreak: Strained Supply Chains Clamor to Adapt
“You will not find it difficult to prove that battles, campaigns, and even wars have been won or lost primarily because of logistics.” – Dwight D. Eisenhower
The sense of urgency ramped up seemingly overnight. U.S. firms could not have envisioned being forced to overhaul their logistics processes so extremely and on such short notice, and by the time the first weeks of the outbreak were over, more than 75% of American companies were affected. For example, major meat companies were forced to shut down some of their processing plants due to the severe coronavirus outbreaks in their facilities, and meat and poultry giant Tyson Foods published a full-page ad in the New York Times declaring that “The Food Supply Chain is Breaking.” The recent report on COVID outbreaks in meat and poultry plants published by the Centers for Disease Control found that nearly 3% of the 130,000 workers tested were coronavirus-positive – that’s almost 60 times the known infection rate in the United States – a fact which is not shocking, given that workers often stand shoulder-to-shoulder, making social distancing impossible. In a New York Times piece about the logistics strain, Cornell professor Kiran Girotra commented, “Labor is going to be the biggest thing that can break…If large numbers of people start getting sick in rural America, all bets are off.” Decreased manpower without adequate automation to pick up all possible slack can result in temporary output shortages, and when that decreased supply meets overwhelming demand, the ripples could have effects on transportation, waste, and forecasting for years to come – particularly in industries verging on oligopoly that have had no competitive reason to improve processes over the last century.
Another now-classic example of COVID-related issues was the closure of businesses and imposition of nationwide quarantines, which decreased demand for industrial toilet paper but sent demand for residential toilet paper skyrocketing to apocalyptic levels. On March 23, 2020, American toilet paper experienced a 734% year-over-year increase in sales industrywide, resulting in a stockout at 70% of retail stores. TP companies had to reconfigure entire factory setups overnight to match the shifting landscape, which was incredibly tough, according to Harvard Business School professor Willy Shih, because industry wide flat demand had never required production facilities to consider surge capacity. Machine workflows, personnel allocation, forecasting algorithms, electricity consumption, and IT infrastructures were affected. Infection concerns required isolation of entire departments for more frequent sanitation. Training times for new or temporary employees could lag because of overly complex or archaic warehouse software. At the time of authorship, nearly two months later, the shortages continue.
Small businesses are feeling impacted more than most. Hackensack, New Jersey lightbulb wholesaler
Larry Birnbaum says he’s losing $100,000 a month due to the coronavirus outbreak; among reasons cited are unfulfilled demand with added turnaround stress from existing buyers, combined with a strained relationship between his warehouse and his suppliers in China, where nationwide production has fallen by over 13%. Despite government intervention in the form of the Paycheck Protection Program, furloughs are happening across the board as business owners struggle to fill orders, stretch lines of credit, and even dip into their own personal finances to keep their operations and human capital afloat. As wholesalers experience uncertainty about lead times and shortages, they’re placing infrequent orders in larger bulk, putting pressure on their manufacturing partners and leaving their buyers clamoring – not only for stability, but potentially for new sourcing options.
What we have seen in the aggregate is nothing short of a cataclysmic disruption of supply and distribution chains due to pandemic responses. What now remains to be seen is which players are most willing to make investments in adaptation and progress.
The Answer: Recommendations Adapting to the New Normal
Some may think that these effects are only temporary, but there is no evidence to suggest that the world will fully go back to the way it was, and many are finding it safer to prepare for a bumpy road ahead. A recent survey of over 250 financial officers and leaders conducted by PwC during the first week of May reveals myriad details about how companies are looking forward. While the majority of CFOs surveyed (63%) said that it would take between 1-3 months to get operations back to what they considered “normal,” 34% of those surveyed said they were planning to “use automation to improve the speed and accuracy of decision-making” – up from 26% just the week before. While 57% are considering cutting their workforce, only 20% are considering cuts to “digital transformation,” and in fact, many see that as a necessary area of investment as employees work from home and systems require increased capability and less human labor.
However, automation is not the only area where businesses can improve. A recent McKinsey report based on larger industry surveys has suggested that other processes that can adapt include retail shopping, fulfillment, and distribution capacity – all areas which still require human interaction.
Based on decades of industry experience, as well as analysis of survey data and market trends, the following recommendations are issued for enterprises of any size looking to excel heading into the “new normal:”
UPDATE DEFINITION OF DIVERSE SOURCING
According to Dun & Bradstreet, 90% of Fortune 1000 companies have suppliers in COVID-heavy regions of China, and right now, large Chinese suppliers (e.g. Foxconn) have near-monopolies over many market sectors. Associated Press economics writer Paul Wiseman says, “China accounted for just 4% of the global economy (in 2003). Now, it is 16%. And its factories and warehouses are deeply integrated with the rest of the world, supplying toys, shoes, cellphones to importers around the world.” Instead of defining diversity as three competing suppliers in the same region or country, consider cultural and national diversity as a factor in sourcing decisions; COVID is predicted to spike again in the fall and continue to compound the societal effects of seasonal illnesses like the flu.
INTEGRATE LEAN, FLEXIBLE AUTOMATION
Companies looking to invest in surge capacity must realize that even if they invest in state-of-the-art hardware, processes cannot be made fully lean unless human resources can be onboarded quickly. Warehouse and inventory software is often cumbersome and unnecessarily expensive; warehouse managers should seek out software that is cloud-based (easy to integrate multiple facilities, minimal and flexible hardware requirements, remote work-friendly), can operate without preexisting product catalogs (easy to migrate and onboard personnel, easy to use, reduces lag, and makes shifting production to emergency goods easy and profitable), updates in real time (reduces lost inventory and confusion), and offers API integration with existing systems (reducing manual CSV export/import improves data integrity). Consider unique warehousing approaches like zone nesting, which reduces time spent packing/unpacking trucks, pallets, and cases.
FULFILLMENT: THINK OUTSIDE THE BOX
Equip brick-and-mortar locations to handle contactless curbside pickup, and reconsider distribution routes to include more frequent visits between retail locations and warehouses so that inventory is available on-site. Increase delivery time windows to level expectations while taking greater care to ensure inventory is accurate and stockouts are minimal. Be more flexible with returns, knowing full well that opportunities to “try before you buy” will be reduced or eliminated altogether; this will improve customer retention and lifetime value.
INVEST IN A SAFE WORKSPACE
Make the marginal investment in sanitary facilities upfront to prevent illness, improve quality control and quality assurance, and keep morale and productivity high. Stagger shifts and enable remote work where possible to make sure personnel maintain safe distance from one another. Digitize Standard Operating Procedure documents and make them available online to improve accessibility and reduce the sharing of physical objects.
DATA, DATA, DATA
Review reports more frequently and use them to quickly shift inventory toward high-demand products. Host daily or weekly meetings, remotely when possible, between cross-functional teams to download business intelligence and update forecasts accordingly.
Conclusion
The post-COVID paradigm will be one of increased sensitivity, precaution, and tepid, informed purchasing. Companies that adapt to new social and economic norms will be better-suited to keep revenue numbers afloat while maintaining predictable fixed expenses, which will serve as a stopgap to a new era of product and service innovation. By automating the gaps in reduced human contact, quicker training and onboarding on leaner software, understanding business data, and taking the steps to ensure a clean environment, distribution chains can not only see a quick return to previous operating capacities, but become primed for expansion. As always, the fittest will survive – and start to thrive quickly.
About Hugh Sinclair and Logistics for Hire
Hugh Sinclair is an experienced technology professional. He started his career deep into audiovisual systems, designing his own multichannel inventory and logistics platform to handle equipment rentals. In 2009 he designed a messenger-based logistics system around the open-source RabbitMQ software; that platform grew to support his first company, ShoppingBlitz. After a decade using the ShoppingBlitz platform to handle more than 400 brands, two million SKUs, and drop-shipped, pre-ordered, and stocked inventory, Hugh exited ShoppingBlitz to build on its tech as the CEO of a new venture, Logistics for Hire.
Logistics for Hire is an international team of technology and logistics professionals that creates revolutionary and lean distribution software. Its flagship product line, CommerceBlitz, includes a Shopify wholesale app, as well as an omnichannel warehouse management system.
