COVID-driven supply chain bottlenecks have led businesses to realize how essential it is to have a diverse vendor and supplier network.
On March 12, 2020, my sales team was in the office, wrapping up quarterly business reviews. The next day, I planned to fly to Florida with my wife for a beach vacation. However, like many others in March, our flight and plans were abruptly canceled due to COVID. From March 13 through the present, COVID has impacted our society in a multitude of different ways. This article focuses on two notable trends that have emerged which are impacting most product-based businesses:
1) Panic Buying – toilet paper, hand sanitizer, masks, medicine, etc., is a very real thing.
2) Supply chains are struggling to keep up.
As our nation dips into another harsh wave of escalated COVID numbers, we continue to see panic buying. However, there will be an added element of complexity as we welcome a new president, which naturally will influence global business and associated tariffs. Companies have been and will continue to learn how crucial it is to have a diverse, digitized, and effective supply chain with the rapidly evolving nature of today’s market.
Panic Buying vs. Supply Chain: What is the root of the problem?
There is no doubt that the primary cause of product shortages is rampant panic buying. People do not usually purchase 100 rolls of toilet paper and a gallon of hand sanitizer on their weekly trip to the grocery store. When you have tens of thousands of consumers flocking to the same metropolitan grocery stores, suddenly this panic buying escalates into a situation somewhat like the run on the banks from 1929-1933.
In high school and college, students learn about the concept of supply and demand. Students learn that when demand goes up, over time, the market will react. At first, prices will increase because there is a high demand and finite supply. Over time, more suppliers will ramp up production, increasing the product’s availability, and driving more competitive prices.
The challenge that consumer products businesses face in 2020 is that our world has not had a virus to the extent of COVID in a while (arguably ever). Companies are struggling to forecast consumer demand based on complex societal factors. Even when businesses know demand is going up, they do not know how much and for how long, and therefore are struggling to align and communicate with the right supply chain partners. Ultimately, the root cause of mass stock-outs is panic buying; however, when supply chains pivot efficiently, panic buying can fuel serious growth for many industries.
How and why to consider potential solutions
While panic buying is causing sporadic, sometimes serious stock-outs, companies learned that a diverse supply chain gives them a strategic advantage over competitors. Many industries and businesses that have been able to pivot their supply chains have seen some of the greatest success to date during the pandemic. Let’s look at three examples below:
Anheuser-Bush (Ticker: BUD)
- What: AB-Inbev’s market cap and stock price have more than doubled since March 18 ($35.18/share on 3/18 up to $70.76 on 12/10)
- Why & How: COVID led to the widespread closing of bars and restaurants and the cancellation of sporting events and other public entertainment – a massive blow to the alcohol market as historically these venues accumulated mass liquor sales. However, while this occurred, U.S. consumption of alcoholic beverages has increased by 14% during COVID times. Adjusting consumer forecasts to reflect consumption across sales channels more accurately, aligning the right production schedules in the right geographies, and optimizing supply chain logistics took some time but have been vital to AB-Inbev’s successful resurgence.
- Lesson: When considering Ab-Inbev’s performance over the past year, the 90%+ stock price jump since March is impressive, but the stock is still $10/share lower than where it was in December 2019, which is an interesting statistic considering alcohol consumption increased 14% YOY. Ab-Inbev has one of the more geographically diverse supply chains, which is how they could pivot to drive a strong resurgence. Still, perhaps technology could have helped them predict and shift their supply chain even more efficiently.
- What: Evolvetogether is an online B2C business that makes and sells disposable medical-grade masks. The company launched in mid-2020 and gained immediate traction due to mask panic buying trends and early celebrity endorsements from Jennifer Lopez, Bella Hadid, and Vanessa Hudgens. This company went from concept to multi-million-dollar business in under half a year by capitalizing on panic buying trends with a resilient supply chain.
- Why & How: As fast as the Evolvetogether mask trend caught on, they hit their first supply chain snag, experiencing stock-outs across all their products. After launching just a couple of months earlier, all masks were out of stock, and the company amassed a 40,000+ person waitlist by mid-October. Assuming a $35 average selling price (the price of their 30 pack), scaling up production to fulfill the 40,000+ orders drives $1.4M in revenue, a massive take-home for any new business. As COVID continues to impact society, demand for Evolvetogether masks will continue to exist and grow. As such, Evolvetogether has continued to evolve with the COVID trends, now offering children’s masks with a sticker assortment as well as a subscription mask service.
- Lesson: To compete in a crowded market, you need to be nimble and approach the market with a sprinkle of creativity. Flexible supply chain and logistics partners are required to be agile. Celebrity backing, children’s masks, a subscription service, and reliable delivery timeframes are unique to the mask market today.
Toilet Paper Market – Procter & Gamble + Walmart
- What: Procter and Gamble is an American multinational consumer goods business with a large holding in toilet paper (Charmin, etc.). Their stock price rebounded from $95/share in March to ~$140/share on December 1. Walmart also owns a significant foothold in the toilet paper and consumer goods markets. Their stock price has rebounded from $102/share to $153/share in December, hitting all-time highs.
- Why and How: Toilet paper shortages began in March 2020. At first, they were regional, starting in the northern, generally colder and drier parts of the country where the number of COVID cases were multiplying. In response to growing societal concerns over the virus, consumers were purchasing large, and in some instances, extreme quantities of household goods: toilet paper, sanitizing products, and similar products. The average American household—2.6 people—uses about 409 rolls of toilet paper a year. Consumers will use about 40% more toilet paper than usual if they spend all their time at home during the pandemic. On April 19, over half of all grocery stores in the U.S. were out of toilet paper with this heightened demand. To combat stock-outs and capitalize on consumer panic buying, many stores like Walmart sought new suppliers to meet demand temporarily. Consumers in New England started to see toilet paper from Mexico and other countries. If you are a U.S. consumer reading this article, you likely went several weeks or months without seeing a Charmin bear in your house.
- Lesson: Ultimately, some grocery stores could find alternative toilet paper sources in the interim, but brands like Charmin and Scott could not keep up with demand initially. As big global brands, Charmin, Scott, etc., have since ramped up their production, and for the most part, their products have returned to shelves, but in mid-November, these shortages have started to happen again. There is no doubt that Procter and Gamble have sold more Charmin than in years past, but if their supply chain could have evolved to meet society’s short-term needs and further capitalized on the market trends.
Consider digitizing your Supply Chain
Whether you are in the toilet paper, mask, beverage, apparel, cosmetics, or any consumer products industry, COVID has had an extraordinary impact on your supply chain.
In retrospect, common questions among business owners are: “What if I had a more diverse supply chain established before COVID?” and “How do I ensure my supply chain is diverse and future-proofed for what comes next?”
It was near impossible for a company executive or representative to meet with their far-away factory in person. The pandemic has made this exponentially more difficult. It is even harder to travel in-person to source a new factory. How can one pivot their supply chain effectively during this time? The answer is simple – digitize. Using technology, you can improve your engagement with your current supply chain participants AND source new production/supplier partners.
New doors open to diverse suppliers
While many businesses still use Alibaba or Amazon to source new vendors, the Suuchi GRID’s Global Sourcing Network allows businesses to connect with new supply chain partners worldwide. Based on sought after quantity, quality, etc., you can interact, shop, and bid out your purchase orders. The transition to a digital future from legacy sourcing processes is essential for companies to survive today’s market.
A diverse supply chain enables a company to ramp up or slow down operations rapidly and even produce different quantities or product lines across different continents. For example, having a South American preferred factory and US and South-East Asian factories gives companies a strategic advantage of flexibility in order quantities. This flexibility enables nimble pivots, which in turn future-proofs businesses and societal outcomes.
Communicate and collaborate on a new level
When considering new supply chain partners, it is essential that you formally vet them. In our virtual world, you must have tools in place to communicate with the supplier before beginning negotiations and entering into contracts. It is also crucial that the solutions your company utilizes remain consistent throughout the entire relationship. Email, text, WhatsApp, and phone calls do not suffice when interacting across different time zones and managing hundreds of projects with dozens of vendors. Instead, companies need a centralized and fully integrated supply chain management platform that democratizes access for all supply chain participants.
COVID-driven supply chain bottlenecks have led businesses to realize how essential it is to have a diverse vendor and supplier network. Take conscious steps to optimize and future-proof your supply chain.