How to prevent a coronavirus panic buying bullwhip effect
Widespread coronavirus panic buying is likely to cause a bullwhip effect in some areas -- such as toilet paper. Here's how suppliers can work to minimize the negative supply chain effects.
Experts warn that enterprises need to plan for a widespread bullwhip effect in response to coronavirus panic buying. Various products important to dealing with a pandemic, and even some that are not so clearly connected -- such as toilet paper -- are seeing massive spikes in sales and are likely to cause major supply chain disruptions. Around the world whole aisles of stores have been picked clean and some stores have instituted rationing to temper the passions of panicked shoppers.
This aggressive panic buying may lead to some short-term bumps in sales, but could create some real problems for manufacturers and suppliers down the supply chain that overproduce the raw ingredients for the most popular goods such as toilet paper, hand sanitizer and bleach.
"This is a living case study of the bullwhip effect," said Mike Goulder, a business strategist and adjunct professor at John Carroll University.
Consumers are emptying retail shelves, price gouging is underway and manufacturers are scrambling to max-out capacities, he said.
"The next set of discontinuous shocks through the supply chain are predictable as is the massive glut of supply that eventually lies at the end," Goulder said.
If someone buys six months of toilet paper, they are not going to buy more for six months.
Mike GoulderBusiness strategist and adjunct professor, John Carroll University
Toilet paper is a perfect example of the kind of product that is likely to experience an unpredictable change in demand soon. Consumers responding to the panic are stockpiling toilet paper in order to ensure they have a supply, which essentially is being stored away in their pantries. News stories about empty stores only fuel other panicked buyers to make additional runs and people end up increasing purchases but don't necessarily increase consumption.
How often we go to the bathroom won't change, Goulder said.
"If someone buys six months of toilet paper, they are not going to buy more for six months," he said.
When this happens, enterprises face a risk of having to manage larger stocks of toilet paper and the raw ingredients like pulp, packaging materials and the tree stock that go into it.
Store shelves at Tesco, a U.K. supermarket giant, empty of toilet paper.
Sales versus consumptions in panic buying
The initial effects of coronavirus panic buying will likely trigger ERP systems to automatically adjust ordering sizes throughout the supply chain. Some of these changes might just reflect changes in purchase behavior, while others will reflect changes in consumption.
While it seems likely that consumers won't actually use more toilet paper and similar products, supply chain managers will have a harder time predicting the future use of other products like hand sanitizer and masks. Consumers may increase their general consumption levels for these types of products for the foreseeable future due to COVID-19 fears.
"These kinds of products may not suffer the classic bullwhip effect because consumers will end up using more, and that will cause a permanent shift from a medium pipe to a larger pipe for their supply chain," Goulder said.
Fresh fruit shortage at Whole Foods.
Tuning ERP systems
In the meantime, supply chain managers need to figure out how to plan for these changes as the crises unfold. This will require going into the various computer systems and adjusting algorithms, which may then spread across various ERP and supply chain applications.
These adjustments may be outside the tech expertise of those who need to make the adjustments, Goulder said.
As a result, many managers will have to figure out how to manually adjust orders and monitor planning in older tools like Excel spreadsheets until things settle down. Companies will also have to keep an eye on new problems that arise from tinkering with the existing supply chain order and replenishment algorithms or manually ordering things.
"Some people are going to get it right, while others get it wrong, which means the bullwhip effect hits them hard," Goulder said.
Shelves empty of rice and other nonperishables at Whole Foods.
Coronavirus panic buying requires new processes
Preventing major supply chain disruption -- especially in the form of a bullwhip effect resulting from panic buying – requires lots of really great communication.
It's also important to find ways to fill priority orders in ways that minimize expenses, said Daren Samuels, practice director of operations at Patina Solutions, a manufacturing and supply chain consultancy. This could involve finding and using pockets of inventory in transit, service parts inventory and at plants and reprioritizing them.
"In managing through crisis, leaders are restructuring to adapt to new realities and developing new processes to manage risk in a proactive way now and in the future," Samuels said.
Many companies are identifying and working with third parties to supplement staff and fill talent gaps required for producing and distributing key products, he said. This also involves simplifying equipment operator instruction on how to set up key manufacturing processes and execute them ergonomically. It's important to conduct regular audits to ensure safety and compliance as new workers are brought on.
Growth of demand in common stockpile items
These stats show the percent increase or decrease in online revenue sales for the week of Feb. 23 to 29, 2020, as compared to the week before that. The data is aggregated from real-time searches and sales across Bloomreach's global customer base, which includes 250-plus retailers, like mega grocery chain Albertsons. Bloomreach's technology is used for on-site search and merchandising, so it has access to real-time searches and sales.
Masks: 590%
Hand sanitizers: 420%
Clorox/Lysol wipes: 184%
Canned food: 183%
Disinfectants: 178%
Gloves: 151%
Pasta: 99%
Paracetamols: 90%
Pedialyte/Gatorade: 82%
Bottled/packaged water: 78%
Vitamins: 78%
Tissues: 43%
Hand soap: 33%
Toilet paper and paper towels: 26%
Communicate with supply chain partners, get flexible
Things are changing so quickly that it is going to be hard for companies to adapt as consumer panic drives unexpected sales in some areas and oversupply quickly drops sales in others. Supply chain partnership is key to minimizing a bullwhip effect resulting from coronavirus panic buying.
The most important step to address panic buying is improving collaboration and communication among suppliers, vendors and customers, Samuels said. Others echoed that sentiment.
"Communications from the local grocery store all the way through the supply chain will be key," said John Scannapieco, attorney in the Nashville office of law firm Baker Donelson and leader of the firm's global COVID-19 task force.
Supply chain partners all along the chain will need to engage in deep and frequent communication to adjust to the current state of panic buying as it morphs into whatever ends up being the new normal, he said. And partners must be flexible to more successfully weather all the changes as they happen.
"Sometimes we see folks strictly holding others to their contract, but we all need to be flexible here since this is a global issue," Scannapieco said. "The folks making hand sanitizer are not just making it for the folks in Texas, they are making it for the world."
