Panic Buying Triggers New Reality for Grocery Supply Chains
Randy Evins, senior principal and industry advisor, food, drug and convenience, SAP.
We've all seen the wreckage left behind by the first wave of panic buying triggered by the surging COVID-19 pandemic that led to thousands of work-from-home orders, school closures, and state-wide lockdowns. Grocery store aisles and display shelves once piled high with toilet paper, hand sanitizer, household cleaners, canned goods, bread, and snack foods are now stripped bare, with replenishment changes slim.
At a time when consumers were seeking control, certainty, and comfort, supermarkets everywhere fulfilled survivalist instincts with the speed of a superhero, and patience of a saint. But very soon, stores realized – perhaps the first time in recent memory – the challenges of having too much business.
How can grocers bounce back in time to keep with consumer demand as long as the coronavirus rages on?
A call for redefining supermarket supply chains
As a seasoned veteran of the grocery industry, I have personally survived many moments of manic shopping – including blizzards, holidays, and 9/11. But never have I experienced anything like the store traffic and sales volumes that we saw last week. In fact, a former coworker of mine shared that his store was tripling and sometimes quadrupling actual daily sales.
Without a doubt, the grocery industry is struggling to keep up. Harried store employees help long lines of frustrated consumers while fearing the possibility of contracting the virus, having hours reduced, or getting quarantined. And despite companies pulling all stops to get products back on the shelf as quickly as possible, supply chains are still too strained to deliver.
With these realities in mind, the current pandemic is challenging supermarkets to change in ways that could potentially redefine their future for years to come. Here are some of my observations of what’s missing right now.
1. Close collaboration with suppliers
Now more than ever, category managers need to inform their suppliers as soon as possible about potential opportunities and risks that will quickly emerge.
This level of predictive, real-time visibility and insight can only be delivered through a digitalized infrastructure that immediately captures and analyzes demand signals and automatically monitors economic shifts, triggers safety recalls, and alerts suppliers of out of stocks. This information can also help determine whether one-half or five truckloads are needed to replenish shelves quickly.
2. Optimized inventory control
In the grocery industry, surprise is the enemy. Managers are typically excellent at determining when demand for certain products peaks and falls and knowing the exact moment to get it in stock when consumers want them.
But occasionally, especially when an event occurs, such as new item introductions, promotions, or a pandemic, the demand cycle breaks down. Unfortunately, this also means that the store could be stuck with excess inventory that won't move until demand returns – which is an expensive reality considering its razor-thin profit margin.
This is what the industry calls the “bull whip” in the supply chain. Out of stocks are bad, but usually quickly resolved. Meanwhile, excess inventory can plague grocers for months and cost quite a bit of money.
By incorporating data into inventory management processes, supermarkets can eliminate or, at least, reduce the volatility of the bullwhip effect. Grocers can manage their stock much more accurately, which leads to consumer behaviors that are consistent and do not trigger unnecessary hoarding.
3. Openness to new sources
To stay competitive, grocers need to consider new sources for their inventory. With a digital business network, they can discover where they can find five truckloads of toilet paper right now while their current suppliers work toward building up their inventory to fulfill delayed orders.
While it may initially be a stop-gap fulfill a specific or in-the-moment need, this approach can become a rudimentary, digital way of finding inventory across thousands of vendors. Managers can get the expertise, resources, and tools they need to weigh their options with greater visibility, focus, agility, and intelligence – all in one place.
The more (right) products on the shelves, the more that will sell
Although this is an unprecedented time, the COVID-19 crisis is certainly shedding new light on grocery supply chains. Supermarkets are trying to decipher consumer demand to handle not only today's business, but also tomorrow's, next week's, and possibly next month's. They cannot afford to miss a dollar in sales just because they don't have the right product in stock.
Let's face it: the more products on the shelves, the more that will sell. By replacing the element of surprise with an intelligent, connected, and rational approach to inventory management, grocery stores can know what is happening today as well as how demand will shift and increase the following week.
Randy Evins is senior principal and industry advisor, food, drug and convenience with global technology leader SAP.