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The Outer Limits of America’s Supply Chain

By: Kevin Claxon

The COVID-19 pandemic has transformed the supply chain as we know it, forcing companies in a variety of sectors to adapt and innovate like never before.

The COVID-19 pandemic is testing the limits of America’s supply chain by disrupting production, prompting companies to furlough workers, and complicating the transportation of goods. Consumers who have become accustomed to next-day delivery are now waiting days, weeks, and even months for their favorite products to arrive, forcing retailers to find new ways to maintain brand loyalty and drive sales.

According to a study from the Institute for Supply Management, 95% of organizations say they have been impacted or will be impacted by COVID-19-related supply chain disruptions. Parcel delivery services like FedEx, UPS, and USPS have all posted warnings about delivery delays, citing increasing order volume as the primary culprit. But order volume isn’t the only issue. Delays in raw material production, limited ocean and air freight options, and COVID-19 outbreaks in major warehouses have all put a damper on the efficiency improvements the supply chain industry has achieved in recent years.

While some companies are thriving despite these supply chain disruptions, the vast majority are barely hanging on, leaving many to wonder: what will the supply chain landscape look like in the medium and long terms?

Navigating the Highs and Lows of the Food Supply Chain

The food supply chain has always been incredibly complex. Food producers, processors, and distributors all rely on a diverse array of customers to stay afloat, from educational institutions to hospitals, restaurants to grocery stores. But in the midst of the COVID-19 pandemic, these large-scale customers have dramatically reconfigured their spending patterns.

While schools in many areas of the country are planning to resume in-person instruction in the fall (or earlier) and hospitals are slowly resuming elective procedures, food service in both types of facilities is likely to be suspended indefinitely. Even in more controllable environments like corporate cafeterias, administrators are having to create innovative systems featuring cashless and cardless transactions (that is, contactless mobile payments only) and seating arrangements that facilitate adherence to social distancing guidelines.

Restaurants — which are slowly starting to open for full-service dining in some areas — have been hit especially hard. According to recent data, restaurant transactions dipped 42% this spring, forcing some restaurants to close their doors for good.

While these losses have rattled the hospitality, healthcare, and education industries, they have also disrupted farmers and their supply chain partners. Without restaurants, hotels, schools, and hospitals to purchase their perishable products, many farmers are ending up disposing of perfectly good eggs, beef, milk, produce, and more. At the same time, fast casual food chains and major grocery retailers — whose sales have increased upward of 30% over the course of the pandemic — are practically begging for these staples.

Why, then, are farmers disposing of them? The answer, like the supply chain industry itself, is complex and dynamic. New challenges like COVID-19-induced closures at major processing facilities, a shortage of truck drivers, and the sudden shift from wholesale packaging to retail packaging have shaken the entire food supply chain, making it exceedingly difficult for many farmers to get their products into the hands of those who need them most. To survive, these farmers and their partners are being forced to quickly shift their approach and develop roadmaps for elevating their operations in the aftermath of COVID-19.

Meeting the Demands of an Audience with New Priorities

Two industries that have seen significant growth despite — or perhaps in light of — COVID-19 are the wellness and home improvement industries. With more time at home, limited gym access, and fewer dining experiences available, consumers are turning to companies large and small to help them stay active and healthy.

Peloton, whose stationary exercise bikes and treadmills cost between $2,000 and $4,000, has seen a substantial surge in sales in recent months. According to the company’s latest report, total revenue increased 66% in the most recent quarter while the total number of fitness subscribers grew 94% within the span of the last year. Meditation apps, healthy at-home meal kits, and telehealth platforms are just a few of the other wellness products and services that have experienced similar growth over the last several months.

Outside the wellness industry, many companies geared toward home improvement have also seen dramatic revenue increases. In the first quarter of 2020, Lowe’s in-store sales rose 11.2% YoY, while its online sales grew 80%. Competitors like Home Depot and Ace Hardware have experienced similar spikes in sales.

But while companies in the wellness and home improvement industries are largely excelling, they are not without their own supply chain challenges. In a recent letter to its stakeholders, Peloton wrote:

Unfortunately, the unexpected sharp increase in sales has created an imbalance of supply and demand in many geographies, causing elongated order-to-delivery windows for our customers. Over the past several weeks, we have worked closely with our manufacturing partners to accelerate the supply of goods and, as a result, we are incurring higher costs in order to expedite shipments. We do not expect to materially improve order-to-delivery windows before the end of Q4.

As Peloton and other companies ride the waves of success spurred by elevated demand, they must also navigate a convoluted supply chain environment plagued by unprecedented challenges. Those who do so successfully will continue to earn their consumers’ support and allegiance, while the future of those who fail to keep pace remains unclear.

Keeping Your Supply Chain Strong During COVID-19

The COVID-19 pandemic continues to rattle the supply chain, placing new roadblocks at every turn. From shortages to surpluses, transportation delays to staffing deficits, challenges of every nature abound. As a result, even the most successful organizations are being forced to innovate.

At SEI, we take crisis management seriously, helping companies operating across a variety of industries make the most of these uncertain times. What organizations need now is support, strategy, and execution, and we’re here to answer the call. Leveraging nearly three decades’ worth of supply chain experience, we conduct in-depth data assessments and vulnerability analyses to identify areas of improvement and shape robust business continuity plans. We understand that the supply chain is complex, but we work hand-in-hand with our clients to set them up for sustained supply chain success.

Kevin Claxon

Kevin Claxon

Consultant

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