Guy holding rolls of toilet paper
Innovation

COVID-19 to Affect Global Supply Chains for Years to Come

BY Tim Brouk

PUBLISHED ON Mar 26 2020

The image of shoppers desperately filling their carts with toilet paper has become a go-to representation of the COVID-19 outbreak. In grocery stores across the nation, panic buying has also emptied shelves of other necessities and staples, such as bread, eggs, dairy products, and meat.

But the supply chains that put food and home products in your grocery aisles are still strong—for now.

Matt Caito
Operations Instructor Matthew Caito

Matthew Caito, Butler University Operations Management Instructor and expert in the field of global supply chains, does recommend stocking up for your family in order to limit trips to the store. Still, he says you shouldn’t buy more than you actually need, as hoarding can have a negative impact not only on your community, but on the efficiency of industries worldwide. Hoarding leads to inefficient distribution of scarce products, making scarcity more of a problem, like with toilet paper being a rare sight in stores. If we want to avoid long-term consequences, consumers must be rational in the months ahead.

“I’m confident that we will have enough toilet paper,” Caito says. “We’ll have enough toothpaste. We’ll have enough food.”

Consumers should still be vigilant, Caito adds, as the COVID-19 pandemic is making new headlines every day. The strength of supply chains can be altered at any time with policy changes or civil unrest.

Before his tenure at Butler, Caito helped manage food production and distribution for businesses and was used to dealing with “snow scares” in the Midwest and “hurricane scares” in Florida—temporary spikes in buying to ensure consumers’ families had plenty of food to weather out storms. But the COVID-19 pandemic is “uncharted territory.”

Caito says aisles will refill, but the crisis will affect global supply chains for years to come.

Question: What has been the biggest operational challenge during the pandemic so far?

Matthew Caito: If you look at the problem from an operational perspective, what we’re really fighting for is capacity. Do we have enough capacity in our healthcare system? If we don’t have enough capacity in our healthcare system, what can we do about it? We can increase our national capacity, which is going to be really hard to do as soon as we would like.

This is what we hear the politicians talking about now—that we don’t have enough respirators, don’t have enough masks, don’t have enough hospital beds. Alternatively, we can work to decrease the demand, which is exactly what we can do if we come together as a country and practice social distancing by working remotely and sheltering in place.

I’m a little bit surprised the government hasn't pulled the trigger faster on trying to increase the production of essential medical devices, but I think it’s just a matter of time before that comes along, and industries will find ways to meet the challenge.

Q: What are some best practices for Indiana consumers right now?

MC: At some point, people will have bought enough toilet paper. That demand will stop. What I watch as a consumer, and because I have a large family, is what’s happening in places like New York and Washington state. If there’s a shortage of products in those areas, Indiana is just a couple days behind it. So we need to really pay attention to what's going on around the world to help us anticipate what our needs are.

Q: Just how well are grocery stores doing?

MC: The grocery markets are doing an outstanding job. The food supply chain is doing an outstanding job. But what you need to keep in mind with food is that roughly 45-55 percent of all meals are typically eaten outside the home—at restaurants, schools, offices, convenience stores, and on the road. When you shut down all of the restaurant channels, where are people going to get their food?

There’s going to be an instant and dramatic increase in consumer demand at retail grocery stores for months to come. People have got to eat. I think the grocery chains have been understandably caught a little by surprise, but to their credit, nobody could have predicted this.

As retailers try to get back on balance with their inventories in the midst of higher demand over the next several months, we’re going to have to ask the question, “Where’s that food going to come from?” The capacity of the retail grocery industry is going to be strained. But frankly, this is going to make grocery stores a lot of profit because they’re going to see nearly twice the amount of sales for almost the same fixed cost. Fortunately, I don’t believe retailers are gouging consumers, and I don’t think they will.

Q: Are there concerns over the movement of goods in the supply chain?

MC: From a transportation perspective, we’re going to run into problems because, even though companies want to move things, even though trucks don’t know if there’s a pandemic, drivers at some point are just not going to take the risk. They don’t want to be away from their families, and there’s just no guarantee that they can remain healthy on the road. At some point, the distribution chain is going to get really strained. When that happens, you’ll see freight rates skyrocket.

Q: How long will it take for operations to get back to full-strength after this pandemic dies down?

MC: If I were a betting person, I’d say years. You’re going to have a lot of companies that just don’t have the cash on-hand to sustain business. There’s going to be massive unemployment, unfortunately. There’s going to be a massive realignment of the economy. There isn’t going to be enough cash to save every business.

But once the dust settles after months of rational hindsight, I think you’ll see a much more robust supply chain. There’s going to be a strategic rethinking about how much medicine we want to import. Strategically, how many vital electronics do we want to import? Strategically, how many auto parts do we want to import? It’s going to make a significant difference for large companies as they work to protect their supply chains from future disruptions. 

 

Media Contact:
Tim Brouk
Senior News Content Manager
tbrouk@butler.edu
765-977-3931 (cell)

COVID-19 to Affect Global Supply Chains for Years to Come

Toilet paper will return to aisles, but the pandemic will cause industries to rethink operations, says LSB’s Matthew Caito