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Panic in the Supply Chain: How America's Basements Changed Manufacturing Forever

Today's post comes to us from Workforce Institute board member John Frehse, senior managing director at Ankura Consulting Group, LLC.

Did you really need 200 rolls of toilet paper, 300 lbs. of dry dog food, and 24 cases of sports drink? Probably not, but you bought it anyway. Just in case. Just in case the supply chain broke down completely and these items stopped becoming available at your local supermarket. Panic at the Walmart was visible to everyone back in March at the beginning of the global COVID-19 pandemic as initial concerns quickly exploded into all out fear.

As consumers created a network of new warehouses in the supply chain - their basements or storage closets - a massive disruption for manufacturers ensued.

Over the last several decades, forecasting demand has become a more exact science, although manufacturers will argue it still has a long way to go. This continuous improvement gave large, global brands the ability to consolidate warehousing space and carry less inventory. The effort to become “just in time” producers of consumer goods drove carrying costs down and squeezed out additional profit. This “leaning out” of the supply chain was celebrated as progress.

But, as we all know now, this new, lean supply chain was never engineered for the type of panic buying spurred on by the pandemic that was seen in 2020. Shelves quickly emptied of essential items causing manufacturers to ramp up production.

There was a brand new and unforeseen problem. Customers were not consuming the products they were buying, but storing them in their basements and other storage spaces, therefore creating a new network of warehouses in the supply chain. As concerns over supply eased, consumers began using the products from their own “warehouse,” therefore decreasing demand at the store level. This backed up the real warehouses as manufacturing sites were now overproducing. The initial shockwave that caused the ramp up in production was now hitting the opposite way, a sharp decrease in demand and the need to dramatically ramp down production.

This was not true for everyone. The sectors with the biggest gaps in supply chain agility had winners and losers. When the shelves were empty of one's preferred brand, whatever was available was purchased and those who were on the shelf gained new customers for life. This customer acquisition trend through product availability (or lack of availability) will have an impact on demand long after the pandemic is over.

So, what does this mean for labor? As shockwaves continue to reverberate through the supply chain, employees are being asked to be more agile than ever. The amount of overtime worked during the pandemic for many of these employees is unsustainable, and fear of reduced hours below the traditional 40 is now a real fear as consumer demand adjusts. This type of whiplash is especially painful for companies who have not created agile labor strategies and systems to handle such fluctuations.

As exhausted as we all are right now, there is no better time to assess what has happened, develop the right labor strategies, and make our companies more resilient for the next big disruption. It is not a question of if, but when it will happen again.

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