Supply chains have been front and center since the start of COVID-19. As cases spiked and state governments started rolling out stay-at-home orders, consumers stocked up on shelf-stable food, toilet paper, disinfectants, and more—leaving empty store shelves and the media pointing the finger at “supply chains.” For those of us in the industry, we knew there was more to the story.
Before the pandemic, companies did not anticipate a situation where the public would suddenly stock up on months of food and supplies. You can’t blame them; none of us did. Supply chain strategies are based on known historical buying patterns—an observed average amount of items purchased on an as-needed basis. Based on these buying patterns, supply chains are configured to deliver goods to retail stores on a just-in-time basis, restocking recently purchased items. Robust data and connectivity from one end of the supply chain back to the other supports this “pull” replenishing strategy. And this strategy seemed to work, until it didn’t.
Stay-at-home orders are returning
Just last week, California announced what many are calling “Lockdown 2.0,” and many states may soon follow suit. If this trend continues, supply chains should brace for déjà vu, and begin preparing for another demand migration from B2B to B2C channels. However, as we (hopefully) learned during the first wave of lockdowns, diverting product to retail channels is easier said than done.
Think about it: The janitorial market buys toilet paper in 60-roll cartons or boxes of 12-inch mega rolls. Restaurants and other foodservice settings purchase boxes of 24 heads of lettuce, or cases with 40 pounds of chicken breasts, or ketchup by the gallon. These staples don’t quite fit in the average consumer’s 36-inch refrigerator/freezer. As much as we wish supply chains and packaging for retail and commercial distribution are the same, they aren’t. Two of the biggest challenges in shifting production to consumer markets are (1) the right end-of-line packaging equipment and (2) the necessary expertise to make the switch.
Preparing B2B products for a warm residential welcome
The lockdowns associated with COVID-19 are among the first of their kind in the modern supply chain era and since the advent of segmented distribution. However, it isn’t the first time the industry has experienced significant demand shifts. In the 1970s with the dominance of big-box stores, many supply chains and packaging operations faced similar disruption. Take, for example, everyone’s favorite product: toilet tissue.
Initially, big-box stores bought pallets of corrugated cases of toilet tissue in the most numerous SKU quantity per package that manufacturers could produce at the time. Over time, manufacturers received pressure from big-box retailers to provide unique SKUs for each retailer with ever-larger unit quantities. The benefit for the retailer was reduced labor at every store. It allowed them to go from a small army of stockers manually cutting open cases of tissues to a single stocker cutting stretch wrap to prepare the unit load for shoppers. However, most manufacturers’ production facilities were not capable of these packing requirements. It drove many of them to hire contract packaging facilities to repack 6-roll packages as 12-roll, and then 18-roll to the now 24-roll bulk packs.
The recent toilet tissue “shortage” was due to a similar mismatch. The product supplied to consumers is qualitatively different from the bulk product of the janitorial market. The janitorial market is primarily price-driven, while comfort is a differentiator for most consumers. Besides the option to repackage their highest-end janitorial product for the retail market, this required manufacturers to make a profound pivot. As we found out, it took weeks for production lines dedicated to cranking out vast runs of institutional-grade 1-ply mega rolls to be reconfigured to make smaller rolls of squeezable, plusher tissue that would appeal to retail shoppers.
With a possible second round of stay-at-home orders in the offing, we could see a return to the panic buying of mid-March and early April. Once consumers realize (again) that “supply chains” can provide enough food to feed their families and sufficient supplies to keep them safe, we will see a return to full shelves and more predictable consumption habits. If, however, we find ourselves in a new normal with more frequent working from home (or as I saw it recently, “living at work”), your company will need a long-term strategy to manage these here-to-stay consumption habits.
An end-to-end supply chain perspective is needed to divert your B2B stock to B2C channels with retail-ready packaging. Chainalytics’ combination of top supply chain talent, proven methodologies, and packaging expertise consistently puts our clients ahead of the curve. Reach out and learn how we can help make your operations more agile while satisfying consumer demand and contributing more to profitability.
Eric Carlson is a Sr. Manager in the Packaging Optimization practice at Chainalytics. He helps clients manage packaging challenges with a high degree of complexity that stems from their unique combination of scale, variability, and geography.
