Why the coronavirus supply chain disruption is different

Supply chain disruptions are fairly common and impact the production or distribution of goods. They can be caused by anything from weather events, to trade wars, to labor shortages, and more. Typically, they are singular events that are contained in a certain region or timeline, but this is not the case for the COVID-19 disruption. Instead of being contained to a certain area, COVID-19 has affected every country and region in similar ways—without an end date. Currently, the most effective tactic to slow the spread is social distancing, which has hugely impacted many industries including retail, manufacturing, travel, tourism and the food industry.

Consumer behavior has drastically changed due to COVID-19

COVID-19 has affected every industry in some way as businesses have been segmented into “essential” and “nonessential” categories, which is changing where people spend their money. Companies like Target, Walmart and grocery stores are staying open to ensure customers have access to products they need. Other businesses have moved sales completely online to protect their employees. The reality that people are spending more time at home means their buying behavior has changed. Instead of purchasing luggage and supplies for travel and events, consumers are buying items for cooking, exercising and home improvement projects.

The uncertainty of the coronavirus has caused erratic purchasing and stockpiling behavior from consumers of CPG items that are usually only purchased when needed.

This new behavior has also thrown a wrench in supply chain predictability. Generally, consumer packaged goods (CPG), which are household essentials like hand soap, makeup and toilet paper, is one of the most stable product categories. This is because the demand for these items is pretty predictable, when people run out of one thing, they order more, and it allows suppliers use just-in-time manufacturing to keep costs down. The uncertainty of the coronavirus has caused erratic purchasing and stockpiling behavior from consumers of CPG items that are usually only purchased when needed. This has caused a CPG shortage, while every other category like electronics, footwear and appliances, are seeing an excess of inventory. This is magnified by a decrease in consumer spending due to the uncertainty of the situation.

The effects of the coronavirus supply chain disruption

This supply chain disruption has caused shoppers to rethink their shopping strategy—and brands to rethink their supply chain strategies. Any supply chain planning or forecasting from even just a few weeks ago is no longer relevant now. Items that had predictable demand like CPGs are out of stock in many stores because of the massive unpredictable spike in demand. Because of the normal predictability of these items, the supply chain wasn’t prepared to accelerate production, causing shortages. Many other sectors are experiencing the opposite, with an excess of inventory. As some companies are adapting by closing physical stores and moving to online sales, they are reducing and reallocating resources from an omnichannel fulfillment approach to only ecommerce fulfillment. These issues are amplified as goods from China are shipping to stores that are no longer open and warehouses that are full.

Any supply chain planning or forecasting from even just a few weeks ago is no longer relevant now.

Planning for future supply chain disruptions

COVID-19 has impacted the entire world and potentially changed consumer purchasing habits permanently. It’s also made clear how essential the global supply chain is and how drastically lives are affected when goods aren’t able to get to their destinations. Businesses have had to make very tough decisions since this pandemic started. It’s important to use this experience to plan for the future. Supply chain disruptions will happen again, but businesses can use this current experience to come up with a game plan in the event something like this happens again in the future. If you need to talk to a third-party logistics expert to discuss your strategy, give ITS Logistics a call today.