As the COVID-19 coronavirus began to spread across our country, and people began to absorb the full impact that it would have on our workplaces and culture, Americans reacted by heading to grocery stores and buying “essentials” in bulk. It is possible consumers had become conditioned by other natural disasters like hurricanes, tornadoes, polar vortexes and the like to expect large-scale disruptions to the traditional grocery store supply chain.
Within a couple of weeks, the news media became flooded with pictures of empty shelves and lines of people waiting for consumer package goods (CPG). The most curious case, and the one that has caught social media by storm, is the fact that consumers are ripping the toilet paper off the shelves quicker than manufactures can supply it. When there is a shortage that means some will go without. Those waiting for their paycheck? They’re out of luck. The elderly who can’t get to the store on time? Also, out of luck. In the UK, the overbuying has led to products being rationed and price hikes. In Hong Kong, it led to armed robbery. However, when looking at it from a supply chain perspective, the problem has a simple explanation, one that is under-reported in the media. The true demand for toilet paper hasn’t really changed (consumers aren’t all of a sudden using more toilet paper per capita) but their collective buying behavior has caused a change in demand upstream.
The industry runs on extreme efficiency and mills work at full capacity.
Since majority of people are working from home, restaurants are closed and any public place with a restroom are closed as well, there is less of a need of “industrial” toilet paper and an increased demand for “commercial” toilet paper. The toilet paper industry is unique in that this paper is a high-volume product but low value. It also has a low value by density. It’s large in size but weighs little and costs little. This means transportation costs are a significant portion of its total value. The industry runs on extreme efficiency and mills work at full capacity. Manufacturing schedules are based on demand having little fluctuation, but this only works if demand is steady. When demand changes this causes supply problems. According to Will Oremus, with 75% of workers now working from home people are buying more commercial toilet paper than ever before, causing a huge spike in demand for this particular category of toilet paper.
Conversely, once this coronavirus crisis ends, demand for residential toilet paper will subside quickly back to traditional levels. Therefore, the average family will then be overstocked, and their purchases will pause for a period of time until their inventory is depleted. At this point in time, when the CPG company replenishments arrive in stores, there will be a surplus since consumers are overstocked.
Because there were no shortages in the raw materials used to produce this product, and demand skyrocketed, we are seeing what is called the “bullwhip effect” (seen below). We find ourselves stuck in a situation where panic demand causes the system to produce drastically more product for which there will not be enough buyers once the inventory finally arrives to catch up.