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Brian Gibson, the Wilson Family Professor and executive director of the Center for Supply Chain Innovation in Auburn University’s Harbert College of Business, comments on the impact of coronavirus on sales projections for retailers and suppliers, how supply chains are adapting and how consumer costs will be affected. He also gives details on the May 12 Fusion supply chain webinar that will cover how supply chains are effectively responding to the COVID-19 pandemic.
How is coronavirus affecting sales projections for retailers and suppliers?
The COVID-19 pandemic has created quite the challenge in the retail sector. U.S. retail sales plunged nearly 9 percent in March as shoppers began to follow shelter in place measures. The situation has created A Tale of Two Cities scenario. For many retailers it has been the worst of times with all stores closed due to state government emergency orders. Small retailers lacking the resources to support online selling and large discounters like TJ Maxx and Ross Stores with minimal e-commerce operations are generating no sales. Retailers with a large online presence are generating e-commerce sales but it is not enough to make up the loss of in-store revenues. Only the small group of retailers selling essential products like groceries and household goods items are in the best of times category, relatively speaking. In March, Kroger and Walmart experienced double-digit growth of same-store sales due to consumers stocking up on essentials. Amazon, Costco, Target and other select retailers also generated higher revenues.
The situation is much the same for suppliers. It all depends on the type of product being produced. Manufacturers of essential food, paper and cleaning products are working overtime to handle demand surges. In contrast, the apparel and automobile industries are largely shut down due to lack of demand, key parts or available labor. Some of these companies are now making personal protective equipment, ventilators and other necessary products that are in short supply.
How have coronavirus-effected supply chains adapted to this situation?
The news headlines and stories certainly paint a bleak picture of a broken supply chain that is plagued by product shortages. The reality is that there is no single supply chain. Products flow through different channels from their raw material sources to manufacturers to retailers and distributors. As consumption patterns for certain products have spiked to historic highs, there have been temporary shortages while companies work to restock their inventories. It is an ongoing challenge. If a meat processor shuts down for two weeks, that link in the supply chain is broken temporarily, but the whole supply chain is not broken.
Supply chains are resilient, they bend but typically don’t break. Adjustments are being made by companies to continue serving demand. Distribution centers and grocery stores are working overtime to fulfill orders. Product is being redirected from commercial channels to consumer channels. Production lines are being modified and alternate sources of supply are being tapped to alleviate inventory shortages. Collectively, these solutions from organizations along the supply chain will bring supply and demand back into sync.
Will supply chain costs increase and, thus, increase the cost of consumer goods?
Without question, supply chain costs are rising. Retailers are paying frontline store and distribution center associates an hourly wage premium. It costs more to fill and deliver an e-commerce order than to have consumers do their own shopping. Facilities are going through expensive deep cleaning protocols on a regular basis. And, the cost of some commodities is rising. It’s logical to expect that some of these costs will be passed along to consumers in the form of higher product prices. How much they will go up and for how long is the tricky question.
Will we see changes in supply chains and will this actually help certain companies?
In the wake of COVID-19 disruptions, “Massive Shifts in Supply Chains Forthcoming” is a popular headline but one that is almost clickbait status. Change will happen, but in a more methodical and incremental fashion than is currently being predicted by pundits. Production will continue to shift from China to other low-cost countries. We will possibly see more domestic production with flexible capacity built in. Some companies will increase safety stock inventories of key materials. And, companies will likely cultivate additional strategic supplier relationships. Companies that succeed with these initiatives will achieve greater supply chain agility and resiliency without dramatically increase their costs. They will be the ultimate winners.
What is the Fusion webinar and will it address supply chain disruptions caused by the coronavirus?
Our May 12 webinar will address how supply chains are effectively responding to the COVID-19 pandemic. Three industry experts, representing a cross-section of companies in the food supply chain, will talk about their strategies to maintain product flows and support consumer demand in this highly unique situation. Please join the dialogue at 10 a.m. CDT on May 12. Registration is available online.
About Brian Gibson:
Brian Gibson serves as the Wilson Family Professor and executive director of the Center for Supply Chain Innovation in Auburn University’s Harbert College of Business. He leads multiple industry studies, including the Logistics 2030 project, the annual State of the Retail Supply Chain Report and the Council of Supply Chain Management Professionals’ talent management project. He has published numerous articles in supply chain journals and is co-author of market-leading supply chain management textbooks. Gibson also co-wrote The Definitive Guide to Integrated Supply Chain Management and co-produces the Supply Chain Essentials video series.