COVID-19 Impact: The State – and Future – of the Supply Chain

So much disruption in so little time. The globally entwined retail supply chain has endured swift upheaval in 2020 due to the worldwide coronavirus crisis, which continues to profoundly affect retailers, consumer packaged goods (CPG) suppliers, and consumers.

Let’s look at how the COVID-19 virus sparked global supply chain disruptions, how companies are adapting, how consumer buying habits are changing, and how to boost retail supply chain resilience.

COVID-19’s impact on CPG and retail
Although the COVID-19 outbreak was first detected in China, it has affected the global retail and CPG industry. As the “factory of the world,” China manufactures products, ingredients and parts for foreign companies.

As a result, the ripple effect spread across borders as American companies like Apple had to shut down factories in quarantined regions of China.¹  Forde, Morgan. US manufacturing hit by coronavirus but maintains growth. Supply Chain Dive. March 3, 2020. China’s manufacturing output hit its lowest level since 2005, as production fell by 13.5% in January and February combined, compared to 2019.² Seric, Adnan, Holger Gorg, Saskia Mosle, and Michael Windische. Managing COVID-19: How the pandemic disrupts global value chains. World Economic Forum. April 27, 2020. The shipping industry lost $2 billion, affecting retail trade around the world.³Kazemi, Yasaman. How Maps And Data Are Helping Businesses Respond To COVID-19 Supply Chain Disruptions. Forbes. April 30, 2020.

By early March, new U.S. manufacturing orders had fallen and backlogs rose. Nearly 75% of companies reported supply chain disruptions due to coronavirus-related transportation restrictions, including production delays, longer lead times, lack of supplier visibility and sourcing issues.

According to a PwC survey, 31% of finance leaders in the U.S. and Mexico surveyed named supply chain issues as a top concern related to COVID-19.⁴Chambers, John. Coronavirus should inspire businesses to prepare their supply chains for the future. Fortune. April 12, 2020. In April, U.S. retail sales plunged 16.4%, nearly double the 8.3% drop in March.⁵  Pickert, Reade. U.S. Retail Sales Fell 16.4% in April, Worse Than March Record. Bloomberg. May 15, 2020.

Popular products in a pandemic
The pandemic led to lockdowns that affected consumer behavior. In March, essential grocery and pharmacy items grew in demand. Anxious consumers started hoarding essential commodities and over-the-counter medicines, adding more stress to retail supply chains and creating artificial shortages.⁶Sengupta, Amitava. Impact Of COVID-19 On Global Supply Chains and Opportunities In the Post-COVID World. Entrepreneur. April 14, 2020.

In April, online consumer spending rose 8.4% yet fell 13.2% year-over-year in brick-and-mortar grocery stores, due in part to product shortages and lockdown orders that prevented big family get-togethers for Easter and Passover.⁷Chung, Heidi. Retail sales plunge a record 16.4% in April amid COVID-19. Yahoo Finance. May 15, 2020.

According to Nielsen, CPG dollar sales data for the week ending April 25 showed: 

• A 20.4% increase in overall U.S. in-store CPG sales (vs. the same week in 2019).
• Frozen, meat and dairy were the top in-store departments, as consumers loaded up on food staples.
• Fresh plant-based meat alternatives and fresh bison earned impressive growth, as consumers looked beyond chicken, beef, and pork, whether by choice or necessity due to shortages.
• Hand sanitizer earned the highest in-store week-over-week growth (+420%), followed by oat milk (+307.8%) and fresh meat alternatives (+224.3%).
• Food (+86.1%), household care (+50.9%), and health and beauty (+49.4%) led online CPG growth.⁸ How Americans Are Shopping During COVID-19. Nielsen. May 2020.

Meanwhile, April’s top RangeMe buyer search terms showed retailers’ and consumers’ cravings for carbs (pasta, rice, yeast), confection (candy, cookies) and cleaning items (cleaning disinfectants, disposable gloves, wipes), plus masks for safety.

The current state of the supply chain
Today, supply chain disruption continues to impact consumer demand, labor, materials, and delivery. Siloed, fragmented and manual communication processes hamper vital information from being promptly available or accessible across global teams to ensure alignment.⁹Choi, Thomas Y., Dale Rogers and Bindiya Vakil. Coronavirus Is a Wake-Up Call for Supply Chain Management. Harvard Business Review. March 27, 2020.

Notably, the meat supply chain in particular is still overwhelmed because the system is so consolidated with few, large processing plants. When a single plant closes, the loss of supply makes a bigger impact and can cause shortages. The tradeoff is that big suppliers are efficient yet fragile, whereas having many local producers is more expensive, yet the entire supply is more robust amid disruption.¹⁰ Grandin, Temple. Temple Grandin: Big Meat Supply Chains Are Fragile. Forbes. May 3, 2020.

Here are some strategies companies are using to navigate retail disruptions:

CPG goes DTC: More CPG brands are investing in direct-to-consumer (DTC) strategies to shorten the supply chain by delivering straight to consumers and bypassing retailers. DTC online sales in the U.S. reached $14.28 billion in 2019 and could grow more than 24% this year, fuelled by the pandemic. CPG giant PepsiCo just launched two new DTC e-commerce websites, PantryShop.com and Snacks.com, to connect with homebound consumers.¹¹ Rueter, Thad. Pepsi Launches DTC Sites for Pandemic Shoppers. Progressive Grocer. May 11, 2020. Yet experts warn that certain DTC brands could be classified as nonessential and prolonged supply chain disruptions will slow shipping times this year.¹² Rueter, Thad. Pepsi Launches DTC Sites for Pandemic Shoppers. Progressive Grocer. May 11, 2020.

Visibility boosts agility: Companies that invested in mapping their supply networks before the pandemic emerged better prepared. They know exactly which suppliers, sites, parts, and products are at risk, so they can proactively secure constrained inventory and capacity at alternate sites.¹³Choi, Thomas Y., Dale Rogers and Bindiya Vakil. Coronavirus Is a Wake-Up Call for Supply Chain Management. Harvard Business Review. March 27, 2020. For instance, Texas-based grocery chain H-E-B was remarkably well-prepared for the pandemic, as the retailer’s proactive plan included communicating with Chinese trading partners in January and participating in simulation exercises to practice managing the crisis.¹⁴ Solomon, Dan and Paula Forbes. Inside the Story of How H-E-B Planned for the Pandemic. Texas Monthly. March 26, 2020.

Pandemic-driven pivots: To capitalize on meat shortages that have resulted from the pandemic, plant-based meat alternative suppliers like Beyond Meat Inc., Impossible Foods Inc., and Tofurky Co. are ramping up production and discounting their products to attract more consumers.¹⁵Bunge, Jacob and Heather Haddon. Coronavirus Meat Shortages Have Plant-Based Food Makers’ Mouths Watering. The Wall Street Journal. May 13, 2020. Target acquired the technology from last-mile solution provider Deliv to improve the retailer’s e-commerce delivery to consumers’ doorsteps.¹⁶Leonard, Matt. Target to acquire Deliv tech as the last-mile startup shuts down. Supply Chain Dive. May 11, 2020. Solution providers are adapting, too. The president of software company SupplyPike, TJ Sangam, says “We’re giving our customers insights and reporting that directly address the supply chain issues, and we’ve launched a COVID-19 Response Program to provide tools to impacted suppliers for free.”

The future of the CPG supply chain
To prepare their supply chain for the future, CPG brands and retailers can ensure their strategy includes:

• Digitization: More CPG and retail companies will invest in digital transformation. Companies need to reduce manual labor across transportation, logistics, and warehousing, which will accelerate the industry-wide adoption of technologies like blockchain, artificial intelligence, autonomous vehicles and Internet of Things to improve supply chain efficiency and visibility.¹⁷ Sengupta, Amitava. Impact Of COVID-19 On Global Supply Chains and Opportunities In the Post-COVID World. Entrepreneur. April 14, 2020.
• Agile production: Factories that can modularize and adapt their production lines to change as consumer demand evolves will be more common among suppliers in the CPG industry.¹⁸Sengupta, Amitava. Impact Of COVID-19 On Global Supply Chains and Opportunities In the Post-COVID World. Entrepreneur. April 14, 2020.
• Strategic partnerships: Research shows that retailers gain an edge when they collaborate with tight-knit networks of suppliers in long-term relationships to improve, learn, and contain costs.¹⁹ Bray, Neil. The 5 calling cards of a strong supplier relationship. Supply Chain Dive. May 7, 2020. Supply chains are better equipped to communicate information to ensure alignment and agility for retail processes ranging from forecasting to product lifecycle management.
• Reshoring: As decision-makers weigh the risks of global operations, some will decide to bring their supply chains home from abroad, including China. As a result, prices for consumables “Made in the USA’ could rise by up to 20-30% because “products are still much cheaper in China.”²⁰ Chao, Stanley. Do We Really Want Our Supply Chains Back? Supply Chain Management Review. May 5, 2020.

Supply chain lessons
The pandemic’s lessons for CPG suppliers and retailers include:

• Go digital: Digitizing supply chain processes can improve operations. Boston Consulting Group found that adopting digital supply chain technologies helped companies achieve, on average, 10% higher product availability and a 25% faster response to market changes compared to non-digitized companies.²¹ Chambers, John. Coronavirus should inspire businesses to prepare their supply chains for the future. Fortune. April 12, 2020.
• Create a risk management team: Build a cross-functional supply chain risk management team that constantly monitors global trends to proactively spot and adapt to disruptions, and hold preparedness training for their entire organizations.²² Chambers, John. Coronavirus should inspire businesses to prepare their supply chains for the future. Fortune. April 12, 2020.
• Boost supply chain visibility: To ensure business continuity, retailers and CPG suppliers want to know how and where to source raw materials, monitor goods in transit, and track available inventory.²³ Kazemi, Yasaman. How Maps And Data Are Helping Businesses Respond To COVID-19 Supply Chain Disruptions. Forbes. April 30, 2020. They also need to know the status of their facilities, including manufacturing plants, suppliers, distribution centers, and retail outlets.²⁴ Kazemi, Yasaman. How Maps And Data Are Helping Businesses Respond To COVID-19 Supply Chain Disruptions. Forbes. April 30, 2020.

Flexibility is essential for business continuity, especially during a global disruption. For a more resilient, responsive supply chain, retailers and brands can invest in digitization, collaboration, and communication to mitigate risk and improve alignment and agility to serve consumers’ shifting needs.