Published March 26, 2020
Twenty-five years ago, the supply of goods to the consumer was in the hands of the supply professionals. The retail planners worked with the manufacturers and they decided how much of what items they would sell to the consumer. However, as each year has passed, the control of the flow of goods moved from the supply side to the consumer-or demand-side. Today’s sophisticated Sales and Operations Planning (S&OP) processes attempt to forecast the demands of consumers and satisfy this demand by producing the right items in the right quantities at the right time. For some products, S&OP works well (the amount of tomato soup the consumer will desire) and for other products, the S&OP process does not work so well (women’s fashion). But then in January 2020, the whole game changed and even the best S&OP processes in the world are woefully inadequate to synchronize supply to demand.
China has been called the world’s factory. It is true that very few products do not contain some materials, components, assemblies or finished goods that are made in China. So, what happened in January 2020 just before the Chinese New Year that caused China factories to close for several weeks? In one word: COVID-19. This-when combined with the Chinese New Year celebration-resulted in a ripple effect throughout the world for the supply of goods. After two months, the factories were ready to start producing again but the workers were still home for the New Year. Then when labor became available, the transportation network was still closed and once the transportation network began to flow, the ports became the bottleneck. By mid-March, the supply of goods began to flow like before COVID-19, but then the global COVID-19 moved its focus away from the China supply to the Western demand. As North American and European nations were hit by COVID-19, consumers stayed home and stopped spending, so we went from a supply constraint to now a lack of demand.
As we approach the end of March 2020, there is so much uncertainty that there is no synchronization of supply to demand and thus we have inventory overages of discretionary products and supply shortages of essential products. We have apparel stores full of inventory that are closed and open grocery stores with near-empty shelves. At this point, COVID-19 has beget tremendous uncertainty on the flow of goods, which is having major impacts on the global economy. All countries and companies must respond to this uncertainty and not just recover from COVID-19, but realize it is a whole new ball game.
This is part of our new blog series on the impacts of COVID-19. Be sure to check back daily for each installment. Learn more about the impacts in the related articles below or visit our newsroom to stay up to date on our latest news.