COVID-19: impacts on supply and demand

How resilient and responsive is your supply chain? If you did not know before, there’s a chance you will soon find out.

There’s been a lot of talk about risk management with regards to Brexit, which seemed like enough of a challenge, but now many nations around the world are facing an event that, unlike Brexit, couldn’t be predicted or properly planned for.  

As supply chains tend to be highly customer-focused, changes in customer behaviour and demand has impacts throughout the supply chain.

In China, retailers reported changes to the demand profiles of specific products, as shopper behaviour changed in response to the outbreak of COVID-19.

One trend observed since the outbreak has been a surge in online shopping. This is not surprising and a consequence of people going out less, in response to government advice to self-isolate.

KFC and Pizza Hut started trialling contactless delivery services in an attempt to reduce person-to-person transmission and JD.com introduced five vending machines to a residential compound in Beijing, offering residents 24/7 access to fresh fruit, vegetables and more. 

Demand and supply planning becomes difficult when demand patterns change.  In the case of COVID-19, there isn’t a sufficiently comparable historical event that can be used to get a sense for customer demand.  For products that are seeing surges in demand as a result of the outbreak, supply chains will likely struggle with replenishment and lead times will increase, unless additional sources can be found and/or capacity can be increased at current suppliers. This will affect on-shelf availability (OSA).

Some retailers have attempted to actively manage demand for products that shoppers seem to be stockpiling.  UK retailer Boots has tried to reduce the demand for hand sanitizers by introducing signs on the shelves that limit customers to two per shopper.  In Australia, Woolworths has applied a quantity limit of four packs of toilet paper per purchaser.

Retailers should consider the possibility of a scenario in which consumers go out less and demand more grocery home deliveries.  If this happens, retailers may need to enhance online delivery capacity in order to meet increased online demand. 

Finally, businesses need to understand where their supply network partners are located and consider what the impact of the virus is in each of those locations.  They should also consider how worsening circumstances might affect operations at these locations.  Businesses will need to assess whether they can reduce risk by procuring finished goods and raw materials from alternative sources.  

Situation is changing rapidly and every day we have new news, but ultimately the reality is that supply chains will be severely impacted, but will also be a key player in solving the crisis that is yet to fully materialise across the globe.