As the CoronaVirus runs across the world, everyone is suddenly being exposed to news story after news story focusing on Supply Chains.
For an activity that usually doesn’t get this much attention, it’s both great and terrible at the same time.
As someone who has spent 13 years of my life in the Supply Chain world, it is normal that your friends, family and other professionals don’t really get what you do. This is completely normal, I don’t profess to know all about financial markets, software development, sales or any other professions for that matter.
The challenge with this however, comes as we experience Black Swan type events … suddenly there is all kinds of media coverage, conversation and opinions being shared and not always with all of the facts (or at the very least, facts that for the majority of people are out of context, so then can become misunderstood).
This post will be high level overview and will help provide a general framework for Supply Chain Operations. I will highlight how this relates to the current “out of stock” items that we are seeing throughout the grocery industry (this is a major area where consumer behaviour has impacted the Supply Chain and is being largely misunderstood).
With that, let’s jump in.
Supply Chain 101
Right off the bat, let’s get an official definition for “Supply Chain”
Supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Supply chain activities involve the transformation of natural resources, raw materials, and components into a finished product that is delivered to the end customer 1
In the context of food, this means:
- Sourcing your core ingredients (i.e. from the farm)
- Transporting those ingredients to a manufacturing/transformation facility
- Packaging the final product
- Warehousing (storing) the finished goods
- Delivering finished goods – either to a retailer (or direct to consumer)
Once at a grocery store:
- Unloading the truck
- Opening shipping containers
- Merchandising the Shelf
There are two ways product get to a grocery store, either by direct to store delivery (DSD) by a manufacturer or wholesaler (traditionally fast moving goods that are perishable, as freshness is paramount) or facilitated through the retailer’s own warehouse and store fulfillment network (usually dry goods, canned food, etc). What’s important to understand here is that a truck at a store’s loading dock either is delivering a specific type of product (i.e. eggs) or if the majority of the inventory on the truck is for the store, it is to replenish the whole grocery store (rarely would a truckload of one item every pass through one store).
Every item on a shelf starts with the same process, demand planning.
Demand planning is the process of forecasting the demand for a product or service so it can be produced and delivered more efficiently and to the satisfaction of customers. Demand planning is considered an essential step in supply chain planning 2
In basic English, demand planning is a series of checks and balances that are essentially a best guess as to what consumers will buy and when.
That is not being critical of the demand planning process, but since end consumers don’t buy consumable household items far in advance (creating the opportunity to make to order) planners use past sales trends, current market conditions and future feature (promotional) activity to predict the inventory a store will need.
Now that we “know” what we need in the market, it’s time to make it.
Fact, physical manufacturing plants have a maximum capacity they can produce over a period of time, basically, you can only do so much in 24 hours.
This is an important distinction compared to the software industry for example. When Netflix sees an unexpected serge in demand, they are able to log into their Amazon Web Services and with a few clicks double or triple their available capacity in a seamless way 3.
Physical manufacturing is not like this. Modern production plants are filled with specialized machines that have been designed to perform exact functions. They are generally built to perform long production runs and have a maximum throughput (if you have an extra 6 minutes, check out what it takes to make the erasers you buy at the dollar store!)
With everything made, it’s time to park it.
Based on the facility, product may be stored on property at the production facility or finished goods may need to be shipped out to an intermediary warehouse to facilitate delivery to the stores.
A lot of people think that this is the opportunity to make sure a product is never out of stock. If all it takes to make sure that a product is always available is to fill up the warehouse, just do that.
The issue here is twofold, the shear volume of skus (products) available today for consumers and varying rates of sale. To come back to our grocery example, a supercentre grocery store can carry between 15,000 and 40,000 unique skus, that is A LOT of warehouse space.
The warehouse environment is also a varied one. More technology and automation is always being incorporated, however there still can be a lot of manual intervention required in order to successfully pick, pack and ship products to stores. Similar to manufacturing, a warehouse has a maximum rate of flow before it bottlenecks.
Once what you need is in the warehouse, we have to get it to the stores so you can buy it.
Everything that you see in a store gets there by a truck. This means that product is loaded and driven to specific stores and delivered one by one.
Trucks are either loaded with product all for one store or they have partial orders for multiple stores (anywhere from 2 to 7 stores depending on the product type). Think of any major city, think of how many grocery stores that you know of and match that up with how many drivers are trucks are needed to service them regularly.
How much time you are able to deliver is an important aspect as well. Depending on the city, deliveries may be able to happen 24 hours a day, or some might be restricted by by-laws and only allow deliveries during a specific period of the day.
Another complicating factor is that heavy vehicle operators are bound by hours of service regulations; this means that a driver is only allowed to be on the road for a specific number of hours before having to clock out.
Receiving at the Store
The final piece to seeing product on the shelf is store receiving. Each store has to have a truck back up to it, unload the pallets of product, and are taken into store inventory.
Stores also need to have available staff and availability to restock their shelves. While stores receive pallets of goods, consumers typically buy individual units, this is a lot of unpacking and merchandising that goes on … daily.
So why are shelves empty?
There can be many reasons / breaks in the chain as to why a particular product is not available on the shelf when you want to buy it.
With respect to the grocery industry and COVID-19, the answer is simple; the rate of sale exceeded the rate of movement through the Supply Chain.
Panic buying created a tsunami of demand that complete blew out the demand plan that was in place, there is no way that the system would be able to keep up to such a rapid and unexpected change (products like toilet paper for example).
While most Supply Chains are robust enough that you could plan for anything, proper planning would mean that you would have to KNOW in advance what was going to happen (and have a pretty good level of accuracy as well). While some out there might say that they did in fact know, hindsight is 20/20.
IMPORTANT NOTE – Please keep in mind that just because there is a LAG in the chain, it does not mean that product is unavailable in the chain
How can you help?
- STOP panic buying & hoarding
- This activity only continues to create unpredictable rates of sale, you are helping the problem stay alive when you do this
- Buy less in general
- Most people have a lot in their pantries
- The average person needs between 1,500 and 2,000 calories a day – a 1KG tub of peanut butter has 5,880 calories, or can fully sustain a person for 3 days of full activity
- Shop multiple stores if possible (at a normal rate)
- Different grocers have different supply chains, while you might need to run around a bit, you will find different items at each location
- Don’t buffer
- If something was out of stock, don’t buy 2 or 3 the next time you are in the store “just in case”
- With everyone creating their own buffer inventory, stores are not getting an accurate picture of what people really need.
There’s a whole other side to this equation that impacts from the store’s side (we can leave this for another time), as they too are trying to order and plan to meet consumer demand; the more erratic the consumer behaviour, the harder it is for them to order.
Everyone benefits if we just slow down and let the system catch up.
I was at a few stores last week, while there are gaps and missing product, it is already getting better and will continue as our shopping behaviour relaxes.
Please do your part so that no one is left missing something that they might actually NEED.