With the spread of the novel coronavirus around the U.S., many people have stocked up on pantry items and paper products in anticipation of hunkering down at home for an extended period. Yet the spike in demand has also led to shortages of some items, and photographs circulating of empty grocery store shelves have caused some shoppers to worry about whether there are food shortages ahead.
To better understand the grocery supply chain and how stores are stocked, FERN turned to Dr. Ananth Iyer, a professor of supply chain management at Purdue University and director of the university’s Global Supply Chain Management Initiative. We discussed why shortages happen, how stores are restocked, and what we can all do to best stock our pantries. The bottom line about the nation’s food supply, Iyer says, is optimistic: “Getting supply of the things people need should be the lowest in the list of worries at this point in time.”
Interview has been edited for clarity and condensed.
When people get to the grocery store and see an empty shelf, what’s happened? Should they be worried?
When they see an empty shelf, there are several different ways to interpret it. One is that the [store] had anticipated a certain demand rate and the demand was a lot greater than anticipated. Let’s say [a store gets] deliveries every week. The amount that’s delivered corresponds to that week’s demand. So if that demand doubles, then what was supposed to last a week lasts half a week. The demand has increased, and the supply hasn’t adjusted yet, and hence you see empty shelves.
What are the steps to restocking that shelf? How does a product get to the store?
Most stores keep track of the selling rate of products so that they can adjust appropriately. One thing to note is that the grocery supply chain has a lot of inventory. There have been studies that have shown that across the grocery supply chain — and by that I mean the manufacturer warehouses, wholesaler warehouses, distributor warehouses, and retailer inventory — there’s between 80 and 120 days of inventory. So there’s a lot of inventory in the system. It just hasn’t gotten to the customer.
The moment the selling rate increases, then immediately signals go upstream [and] the warehouses will send replenishments. The system is set up to bring in the items that people want to buy.
How long does it take for grocery stores to adapt to big surges in demand?
It all depends on whether it’s a chain store, for example, Walmart or Wegmans, or an independent store. For chain stores, routinely there are deliveries from the warehouse to the stores. A lot of the items we’re talking about are non-perishables [like] canned goods, paper goods, etc. Within a day or two, things get replenished, because the warehouse will know the stores are facing an increased demand. For the independent store … that’s a function of how proactive they are. In some of the small stores, the proprietor might just go to a bigger store and buy the item and put it on the shelf.
But the delay [is] in the role of the warehouse. The moment they figure out that the store sees increased demand, they would load up the next delivery truck and the truck would be bringing in the inventory, as long as they have it. The bottleneck is the transportation system to get things from the manufacturer, to the distributor, to the store. How quickly can you react to this increased demand, call up the appropriate transportation? Very few [retailers] have their own transportation, so they’re using third-party transportation. That’s the delay associated with fixing the system.
And essentially, the delay is caused by retailers all trying to get transportation sorted out at once?
Yes, that’s the key. Now if people are willing to get items delivered to their homes, then it becomes a little easier, because [retailers] can ship from the warehouse. The item can bypass a few bottlenecks because things come various ways when you ship online. Sometimes it comes through the Postal Service, through UPS, through FedEx. The more diversified the transportation that you’re using, the easier it becomes.
What about perishables?
With perishables, there’s much less inventory in the system because things cannot be stored. It varies by product. For example, bananas in warehouses get gassed so that they can be stored for long periods. You can have many more bananas in the system because they have a very explicit process to preserve them. For many other products, they can’t sit in the system for very long.
As of now, people seem to be more concerned with buying canned goods and paper goods and hand sanitizer. I haven’t seen a run on fruits and vegetables. But if that were to happen, that’s where it would be a little more difficult to adjust quickly. The only way that adjustment will happen is if more deliveries are happening directly to the stores. That’s the way that problem would be solved, but we don’t have that problem right now.
Should we be worried about shortages?
I think most people don’t realize how much inventory there is in the system. If they were just told, don’t worry about it, we have a month, two months of inventory and it’s just making its way to the store, I think that would calm a lot of people down. When they don’t see anything, they think they’ll never find it. But it’s just on its way.
In fairness, most supply chains are adjusting. My guess is this will be yesterday’s news soon.
What’s the best way for us to shop in this moment?
It’s important for customers to do a rational calculus. Do I need this much, when I can easily depend on a fairly well-functioning grocery logistics system that already has lots of inventory? My feeling is, getting supply of the things people need should be the lowest in the list of worries at this point in time. Photographs of empty shelves are not a good representation of how the system is [working], and most people will experience that after the first couple of days, the system has adjusted. I’m hoping in the next few days, empty shelves would be a thing of the past.