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Why product shortages?


Jurgis
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I thought that product shortages will be short. But it looks like that at least some local stores are having fewer products 2 weeks plus after lockdown than they had after initial buying shock. I wonder why?

 

I am not talking toilet paper that is being hoarded, but I'm talking things that I doubt people hoard: yogurts, sour cream, vegetables. Or things like tooth paste, juice, tea, etc.

 

These are essential businesses and products. And companies should be minting money since people are buying everything without looking at the price. So both manufacturers (Kraft/etc.), logistics/distribution, and grocery store itself should be minting money. So why not stock? Not enough employees? There's thousands who lost jobs, they can be temp hired.

 

Is it because companies think this is short term and don't want to ramp up production? Is it because they don't want to raise prices, so they are not making more profits? But that's not true, since they sell out on even overpriced products nobody bought before.

 

Or is it still supply/delivery shock?

 

Thoughts?

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I thought that product shortages will be short.

 

Its people - primarily skilled people.  Processed food manufacturing is highly automated and also dependent on suppliers' operations to keep them supplied with key raw materials and packaging. 

 

You can't just hire people off the street to run complex, automated and highly computer controlled equipment.  If a key operator falls sick or fears getting sick and reports absent, you're done.  Especially since companies are also having to increase shifts of production by asking for volunteers to run overtime shifts (again if you have two skilled operators for 2 shifts - when you go to 3 shifts, you ask the two operators to each work 4 hrs of OT rather than hiring/training a new operator).

 

In addition, you are reliant on suppliers to keep their operations running as well.  If a packaging supplier goes down - you can't run the lines to produce the finished good.

 

Employers are trying to deal with the worker health & safety concerns, paying "hazard pay" and OT, and dealing with 2x-3x un-forecast production volume increases.  Its actually pretty remarkable that the supply chains have largely met the demand.  Its a tribute to the people running these manufacturing operations.

 

wabuffo

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Or is it still supply/delivery shock?

 

Thoughts?

 

Yeah, this is a really great question, and I think Wabuffo's answer is an interesting one.  Up until now, I've always assumed that it's actually a demand shock--that there's a fixed weekly schedule of deliveries but the demand surge has led to empty shelves. Then, after people have seen stuff sold out, the next time they see the items in stores, they stock up more than they would normally, causing empty shelves again.

 

Or, it could be that there really is a demand shift. Restaurants could be a significant amount of food consumption, so if people stop going to restaurants and buy from grocery stores, then grocery stores can no longer get enough supply to deal with the demand.

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We have just in time supply chains, they are not good for handling large spikes in demand. The demand shock has probably been unprecedented, within a week or so majority of american family's changed behavior to being home 24/7 and consuming majority of meals from groceries. In addition many people started purchasing multiple weeks worth of food as a precaution. I haven't seen any numbers but the spike in demand must have been massive.

 

At the end of the day things like yogurt and sour cream come from cattle and you can't create more dairy cows overnight.

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I think it's both a demand and supply issue but the supply chain disruption (at local, regional, national and international levels) seems to be the most important factor.

https://marker.medium.com/what-everyones-getting-wrong-about-the-toilet-paper-shortage-c812e1358fe0

https://www.thechronicleherald.ca/business/reuters/us-dairy-farmers-dump-milk-as-pandemic-upends-food-markets-433349/

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I think it's both a demand and supply issue but the supply chain disruption (at local, regional, national and international levels) seems to be the most important factor.

https://marker.medium.com/what-everyones-getting-wrong-about-the-toilet-paper-shortage-c812e1358fe0

https://www.thechronicleherald.ca/business/reuters/us-dairy-farmers-dump-milk-as-pandemic-upends-food-markets-433349/

 

Dang, you pipped me on the medium link--I think the distinction between commercial and residential supply chains could be key here, and the fact that there may not be much headroom to trivially increase output...

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It's not just demand. But the type of demand. So say you shift demand from restaurants to groceries. People still eat roughly the same amount of food. But they buy it in different ways. The packaging is very different. So you may be able to produce the food but you can't fill grocery stores because you can't package it. All sort of stuff like this probably happening everywhere in operations today.

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Yeah, I've been noticing that at some of my local grocery stores as well.  It's kind of a scary thing to see.  Entire aisles nearly wiped out, and 2 weeks later, still nothing.  I'm starting to see the rationale behind all these conspiracy nut jobs with their hoarding of food, water, guns, and other rations.  I'm also hearing that crime is starting to increase.  People on some other forum said they've had break-ins in their neighborhood, and car break-ins seem to be going up too. 

 

Desperate people do desperate things.  It's a bit un-nerving, and I used to wonder if those post apocalypse movies / books were grounded in any sense of realism.  Feels like I will need to start buying guns at the very least.

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Strange thing to see all canned tuna is gone

 

canned items tend to have a seasonal harvest/catch.  For vegetables, for example, the packing into cans happens in the fall and the items put into inventory with/without labels (for private label - the "bright" cans are labelled just-in-time) and shipped out per demand.  If there is a sudden surge in demand and inventory is depleted, that could be it until next fall.

 

Food is an agricultural item that has to be processed based on its season (though global sourcing helps for some items and provides more year-round supply).  Commitments for supply are made way in advance. 

 

There are lots of individual supply chain wrinkles for individual food items and the supply chains are more flexible and agile than in the past - but this surge in demand is historic because 50% of food consumption is out-of-home and that is shifting to in-home plus the "run-on-the-bank" hoarding has amplified the underlying trend. 

 

For food companies, no doubt its a good thing (though many supply foodservice as well) - but their inventory forecasting models and product supply chains are encountering the equivalent of a financial six-sigma event.  And that is before dealing with the management of the myriad human resource issues of working-from-home and the very real hourly employee health-and-safety safeguards that must be undertaken.

 

The food companies have really stepped up to the plate in the face of this storm, IMHO.

 

wabuffo

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Yes, it varies by location. No Problems where we live which isn’t far from Jurgis’ location. My wife just bought groceries for $300 today and she got everything, even Toilet paper.

 

I do think that supply chains are stretched in some parts. Shortages are most likely due to hoarding. TP seems to be over, but now grocery Stores restrict items like eggs (only one box/ person) and things like this. Everything they get low probably get bought up, just like it used to be behind the iron curtain like in the DDR back then.

 

I don’t work in food distribution, but the struggle to keep things going are real. I support manufacturing as part of my job, which supplies components to medical equipment and also for military R&D and there is a lot of demand for medical right now, while military is normal. Furthermore, there are personal shortages in some areas, because you can find skilled labor quickly and some folks can’t come to work because they have small kids at home or perhaps are afraid of infection risk. The company I work for gave everyone supporting manufacturing a temporary pay raise of 10%, supposedly to mitigate this.

 

Then there is the issue with essential vs. nonessential business. Our is considered essential, but some of our suppliers from other stated (with different rules) may not be so, if they shut down, it can affect us too.  It’s a big mess. Then if you do get a COVID-19 case, probably part of the building needs to be shut down for cleaning, which causes downtime and probably doesn’t help with employee retention too. So I think the ability to keep running even for essential business will be impacted more and more as this drags on.

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The problem is caused by all of you being stupid assholes. If you were rational you would accept that to avoid shortages in situations like this markets have to rapidly increase prices to multiples of normal levels. But you don't accept it. You complain and moan about price-gouging. You punish retailers that do increase prices to rational levels by refusing to ever shop their again. You complain to your politicians who promise to investigate these evil retailers. The result is shortages and hoarding. And then you have the audacity to complain about the shortages. Its like cutting off your hand and then complaining that you are losing blood...of course you are dummy.

 

These problems could be solved if prices responded rationally. They don't because of you stupid assholes. Its not a supply problem..its not a demand problem...its a stupid market, stupid person problem. Lineups, shortages, rationing...this is what socialism looks like.

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The problem is caused by all of you being stupid assholes. If you were rational you would accept that to avoid shortages in situations like this markets have to rapidly increase prices to multiples of normal levels. But you don't accept it. You complain and moan about price-gouging. You punish retailers that do increase prices to rational levels by refusing to ever shop their again. You complain to your politicians who promise to investigate these evil retailers. The result is shortages and hoarding. And then you have the audacity to complain about the shortages. Its like cutting off your hand and then complaining that you are losing blood...of course you are dummy.

 

These problems could be solved if prices responded rationally. They don't because of you stupid assholes. Its not a supply problem..its not a demand problem...its a stupid market, stupid person problem. Lineups, shortages, rationing...this is what socialism looks like.

 

Ive actually said to myself a number of times over the past few weeks while walking the aisles, why the fuck is ANYTHING on sale right now? I'd either be at full price, or a modest(but not egregious) bump simply to level out folks buying more than they need. No one is buying 100 rolls of toilet paper if its $4.99 a roll. Or .79 for one and then 4.99 quantities 2-5 and 9.99 6-10, etc.

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That's crazy because about 34 states have anti-price gouging laws and yet I don't see 34 states devolving into the picture that rukawa paints.

 

In fact here in Denver I don't see any shortages as all, despite Whole Foods still charging a paltry $4 for a pack of TP. Perhaps it's regional?

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I think people fundamentally have a hard time understanding how prices work as signals - that people use X amount of something at one price and X+25% at another price. If you were to push down the price of water bottles by 75% you’d get all kinds of waste you don’t get now and vice versa.

 

That said, people are not dumb, they’re people.

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That's crazy because about 34 states have anti-price gouging laws and yet I don't see 34 states devolving into the picture that rukawa paints.

 

In fact here in Denver I don't see any shortages as all, despite Whole Foods still charging a paltry $4 for a pack of TP. Perhaps it's regional?

 

 

The shortages are certainly regional and even depend on the store. Anecdotally there was TP at Costco, but other item seem to be on short supply. Strange enough, I never had problem to get the French cheese that I like like, Supermarket or generally the more gourmet stuff. It’s thee  simple things they run soft as people go back to what they ate as kids apparently and stock up on Macaroni and Cheese, Kraft ultra processed crap, Spam etc.

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It's not just demand. But the type of demand. So say you shift demand from restaurants to groceries. People still eat roughly the same amount of food. But they buy it in different ways. The packaging is very different. So you may be able to produce the food but you can't fill grocery stores because you can't package it. All sort of stuff like this probably happening everywhere in operations today.

 

I was just reading something similar.  This strikes me as probably the biggest reason.  People are doing everything from home and the supply chain isn't set up for that (yet?).

 

"Georgia-Pacific, a leading toilet paper manufacturer based in Atlanta, estimates that the average household will use 40% more toilet paper than usual if all of its members are staying home around the clock. That’s a huge leap in demand for a product whose supply chain is predicated on the assumption that demand is essentially constant."

 

"toilet paper made for the commercial market is a fundamentally different product from the toilet paper you buy in the store. It comes in huge rolls, too big to fit on most home dispensers. The paper itself is thinner and more utilitarian. It comes individually wrapped and is shipped on huge pallets, rather than in brightly branded packs of six or 12."

 

"While toilet paper is an extreme case, similar dynamics are likely to temporarily disrupt supplies of other goods, too — even if no one’s hoarding or panic-buying. The CEO of a fruit and vegetable supplier told NPR’s Weekend Edition that schools and restaurants are canceling their banana orders, while grocery stores are selling out and want more. The problem is that the bananas he sells to schools and restaurants are “petite” and sold loose in boxes of 150, whereas grocery store bananas are larger and sold in bunches. Beer companies face a similar challenge converting commercial keg sales to retail cans and bottles."

 

https://marker.medium.com/what-everyones-getting-wrong-about-the-toilet-paper-shortage-c812e1358fe0

 

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"toilet paper made for the commercial market is a fundamentally different product from the toilet paper you buy in the store. It comes in huge rolls, too big to fit on most home dispensers. The paper itself is thinner and more utilitarian. It comes individually wrapped and is shipped on huge pallets, rather than in brightly branded packs of six or 12."

 

"While toilet paper is an extreme case, similar dynamics are likely to temporarily disrupt supplies of other goods, too — even if no one’s hoarding or panic-buying. The CEO of a fruit and vegetable supplier told NPR’s Weekend Edition that schools and restaurants are canceling their banana orders, while grocery stores are selling out and want more. The problem is that the bananas he sells to schools and restaurants are “petite” and sold loose in boxes of 150, whereas grocery store bananas are larger and sold in bunches. Beer companies face a similar challenge converting commercial keg sales to retail cans and bottles."

 

This. I was thinking about exactly this the other day. Also what happens to the inventory of all those F&B places? The commercial/wholesale food suppliers can not easily sell their stuff to the grocers I assume; packages, sizes very different.

 

What about the farmers, do they have enough (seasonal) manpower to harvest/process everything?

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"toilet paper made for the commercial market is a fundamentally different product from the toilet paper you buy in the store. It comes in huge rolls, too big to fit on most home dispensers. The paper itself is thinner and more utilitarian. It comes individually wrapped and is shipped on huge pallets, rather than in brightly branded packs of six or 12."

 

"While toilet paper is an extreme case, similar dynamics are likely to temporarily disrupt supplies of other goods, too — even if no one’s hoarding or panic-buying. The CEO of a fruit and vegetable supplier told NPR’s Weekend Edition that schools and restaurants are canceling their banana orders, while grocery stores are selling out and want more. The problem is that the bananas he sells to schools and restaurants are “petite” and sold loose in boxes of 150, whereas grocery store bananas are larger and sold in bunches. Beer companies face a similar challenge converting commercial keg sales to retail cans and bottles."

 

This. I was thinking about exactly this the other day. Also what happens to the inventory of all those F&B places? The commercial/wholesale food suppliers can not easily sell their stuff to the grocers I assume; packages, sizes very different.

 

What about the farmers, do they have enough (seasonal) manpower to harvest/process everything?

 

And what happens to all that food when governments don't allow the market to adjust to the changes?

https://reason.com/2020/03/31/los-angeles-bureaucrats-barbara-ferrer-shut-down-restaurants-for-selling-groceries-without-a-permit

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"toilet paper made for the commercial market is a fundamentally different product from the toilet paper you buy in the store. It comes in huge rolls, too big to fit on most home dispensers. The paper itself is thinner and more utilitarian. It comes individually wrapped and is shipped on huge pallets, rather than in brightly branded packs of six or 12."

 

"While toilet paper is an extreme case, similar dynamics are likely to temporarily disrupt supplies of other goods, too — even if no one’s hoarding or panic-buying. The CEO of a fruit and vegetable supplier told NPR’s Weekend Edition that schools and restaurants are canceling their banana orders, while grocery stores are selling out and want more. The problem is that the bananas he sells to schools and restaurants are “petite” and sold loose in boxes of 150, whereas grocery store bananas are larger and sold in bunches. Beer companies face a similar challenge converting commercial keg sales to retail cans and bottles."

 

This. I was thinking about exactly this the other day. Also what happens to the inventory of all those F&B places? The commercial/wholesale food suppliers can not easily sell their stuff to the grocers I assume; packages, sizes very different.

 

What about the farmers, do they have enough (seasonal) manpower to harvest/process everything?

 

And what happens to all that food when governments don't allow the market to adjust to the changes?

https://reason.com/2020/03/31/los-angeles-bureaucrats-barbara-ferrer-shut-down-restaurants-for-selling-groceries-without-a-permit

 

Yeah obviously a case of bureaucracy gone wrong. Food safety regulation provides value when things are normal, a grocery store is building out and can apply for permits and provide evidence of safe food handling, but obviously these are not normal times and so should be suspended or altered in times of crisis.

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