The Supply & Demand Shocks of Covid-19

As the world grapples with the human and economic crisis unraveling before us, supply chains are finding themselves squarely within the public eye and experiencing unique challenges of their own.

First, the supply shocks

For weeks at the start of the year, as COVID-19 was taking its toll on China, experts were focusing on ‘supply shocks’.These were disruptions to the availability of goods sourced from China; both finished goods for sale and products used in factories in developed markets. Companies scrambled to sort out what production was feasible, and what demand could be met.

Second, the demand shocks

As the pandemic crisis deepened and nations have begun instituting lockdowns, supply chains have been experiencing something completely new: systemic demand shocks, where people are stocking up on consumer staples in order to comply with restrictions on movements, in some cases buying months’ worth of goods in a single day.

The most talked-about example, toilet paper, is ironically usually the go-to example of a perfectly forecastable product since the end consumption is usually rather stable. There seemed to be a fear that food supply chains would be unable to respond to this unprecedented, massive spike in demand.

With a few exceptions, consumer staple supply chains have answered the call. Store shelves have been restocked and this has provided a measure of reassurance to people in a distressing time. But the supply chain professionals behind the scenes have accomplished this with a herculean exceptional effort, as the classic planning models are not built to accommodate such severe peaks in demand.

The replenishment models that dictate orders from retail chain distribution centers to stores can be notoriously manual and lacking in sophistication. They are best suited to continuous, relatively smooth demands. With pipelines being emptied out, there was a scramble to redirect inventories, identify priorities, and override IT supply proposals.

On the production side, the successful replenishment is the result of maximizing production with all spare capacity in use. Since food supply chains are usually finely tuned for steady demands, the full pipeline has likely not yet been restored.

Thanks to Professor Ralf W. Seifert for his wonderful statistics and sharings.

-Gazi Sanaul Hasan


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