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Thursday, April 30, 2020

Please don’t hoard the Charmin

URI’s supply chain management faculty answer questions about COVID-19 shortages
A good hurricane or snowstorm forecast will usually cause a run on milk, eggs and bread. But toilet paper? With the COVID-19 crisis, that is the “new normal.” But what is driving the shortages in consumer goods, medicines and medical supplies? Are things getting any better? And what, if anything, are we learning?

Faculty in supply chain management at the University of Rhode Island’s College of Business tackle these questions below. Answering are: Lecturer Jack Beliveau, Assistant Professor Gulver Karamemis, Associate Professor Koray Özpolat, Associate Professor and Area Coordinator Dara Schniederjans, Senior Lecturer Brian Walsh, and Assistant Professor Mehmet Yalcin.

Question: We’ve all seen the long list of consumer items that are hard to find – toilet paper, hand sanitizer, disinfecting wipes, bleach, bottled water, canned food, hand soap and Tylenol, etc. Are there any goods on this list that are surprising?

Yalcin: No, given the nature of the pandemic, these shortages do not seem surprising. Initial spikes in demand seem to have caused all this, which is expected. All of these items are manufactured mostly outside Rhode Island. Also, slow down on the supply side seems to be exacerbating the problem because lack of proper human flow seems to be a major contributing impediment in the supply chains, including but not limited to supply, manufacturing and operations, as well as logistics and warehousing.

Q: Specifically, what’s the story with toilet paper? It seems an odd product to hoard. What’s going on from the supply and demand sides? 

Beliveau: With regard to toilet paper, this has been a common occurrence in Japan for years. It is simply a panic reaction. You have an item that everyone considers a necessity and the shelves clear with the slightest hint of panic. It’s similar to what we call “the bullwhip effect” in supply chain management. Unfortunately, it’s the first time it has occurred in the United States, but I’ve seen no basis in reality for it here, other than irrational panic. In the past we have experienced gasoline shortages based upon panic where everyone goes from driving around with a half tank of gas to full.

Q: Will the shortages start to abate as we go forward? Are industries ramping up to get us more toilet paper, for instance?

Yalcin: Yes, not only are we beyond the initial peak in demand – unfortunately with many unfulfilled orders – but industries are also increasing production. That said, supply chains may experience disconnects, breakdowns mostly due to issues with human or money flows. Although toilet paper is bulky (takes up a lot of inventory space) and offers low profit margins to supply chain partners, in the short term, I suppose that the retailers will be creative and use toilet paper as an incentive to increase foot traffic in their stores.

Q: From a supply chain perspective, what are the dynamics of the shortages? Does the problem reside with goods made and shipped in the U.S.? Or is it more tied to the global nature of supply chains today?

Beliveau: We have been complacent in obtaining products from a single source without regard to supply disruptions. Of particular concern right now is our dependence upon China for components of pharmaceuticals. In the future, diversity of supply will be a major consideration. The problem will be to financially incentivize it. It may take federal regulation to make such diversity of supply mandatory in many industries as it will reduce profits.

Q: Are there consumer goods that are becoming equally as hard to get as toilet paper and hand sanitizer? 

Karamemis: Yes. Turkey, for instance, put export restrictions on hundreds of thousands of tons of lemons because they want to use it to make sanitizers. Similar export restrictions across several European countries may also apply to wheat.

Q: We’ve also seen the limited supply of medical supplies – from gowns, gloves and masks to ventilators – and how states are reaching out to all corners for supplies. What is this crisis telling us about how medical supplies are stocked and distributed?

Beliveau: Shortages of PPE (personal protective equipment) were fully predictable. Following 9/11 and the H1N1 flu scare of 2008, large stockpiles of PPE and anti-viral drugs were built up by the states and federal government. Every preparedness drill done by the federal government and states showed that ventilators would be the choke point in any pandemic. 

Once federal funding disappeared, states could not justify investing $20,000 each for something that would sit in a warehouse. States were unable to fill the void in federal funding to maintain stocks. We are now suffering the consequences of that loss of interest for the last three years.

Q: Among medical supplies, what are some of the really distressing things we’ve learned?

Yalcin: Health care, in its entirety, does not have enough capacity to deal with such a crisis nor should that capacity have been expected to be in place based on the current socio-economic system. Besides test kits, etc. (goods), we seem to be lacking medical and related professionals (human flow). 

Due to inherent issues with the health care system, a just-in-case scenario seems to be a fair argument as a solution. Instead, a just-in-time scenario could have been supported with proper “network” integration and “network” agility. Networks would include governments and other stakeholders. Lack of a structure that enables proper information flow within this network seems to be the main culprit. However, all who are involved have tried to do their best.

Q: In the pharmaceutical industry, we are seeing shortages of some drugs. What are the reasons for the shortages?

Ozpolat: I think it is temporary and primarily driven by the demand spike created by panic buying. The pharma industry keeps more than six months of inventory and has held up well mostly during this crisis. 

Yalcin: There are many reasons and a major one seems to be global sourcing at first. Lack of proper global supply chain management, and the global oversight will continue to be a problem for the foreseeable future. That said, it may not be possible for a country to manufacture everything continuously. Assuming that may be the case, what would be needed most is the capability to anticipate needs (today Tylenol, tomorrow something else) ahead of time (agility) then de-integrate and re-integrate the relevant supply chains to meet capacity.

Q: Overall from a supply chain management perspective, are we learning lessons from what’s going on? Or is this such an unprecedented event that we’re just trying to weather it?

Walsh: Drawing on my experience prior to teaching, any supply chain crisis we’ve faced was much shorter lived (hurricanes, blizzards, swine flu, etc.). Each of them resulted in all of our supply chain partners going into scramble mode, basically finding a way to muscle through it.  Afterwards, we would revert right back into our familiar and past practices.

 Schniederjans: What this event has shown is the vitalness of supply chain management as a field. The reasons we don’t have life-saving masks, toilet paper and other important products are due to inefficiencies and lack of flexibility in supply. Sadly, in many cases, it becomes a matter of life and death. The moral of the story is that future world class performers in global business strategy will be the students who start and continue their studies in developing resilient and flexible supply chains, those chains that are not dependent on a single source or geography. 

Yalcin: None of the sufficiently integrated supply chains – those that work together as a team, like a well-oiled machine, from raw material suppliers all the way to consumers – could have been fully ready to take on a pandemic that caused government shutdowns/isolation. It is time for those supply chains to act in an agile manner and quickly devise solutions through implementing innovative ideas. 

For most supply chains, it is time to de-integrate their people, money, information, and goods/services flows and then re-integrate them so they can achieve the new normal as soon as possible and with minimal losses.