Analysis: Inventory glut is the supply chain kickstarter

This, of course, prompted TP manufacturers to produce more and stores to order more. But here’s the thing. People weren’t going to the toilet any more than usual, so now the rolls are piling up. Look around and you’ll find a great deal on toilet paper at almost any retailer.

Something similar happened for truckloads and other commodity warehouses. With restaurants, movie theaters and theme parks closed during the pandemic, consumers have shifted from buying services to buying goods. My family has invested in renovating a home office. Others eventually tore up that old wallpaper or built new decks (remember the wood shortage?).

But all that has changed again. All these places are open again. For example, spending on entertainment and recreation is up more than 57% as of May 22 compared to January 2020, and the concert season hasn’t even hit its full swing. Retail spending increased 34.8% over the same period.

In short, people are having fun in public instead of adding to their sound system or range of kitchen appliances.

“What happened is as predictable as the setting sun,” said John Taylor, associate professor of supply chain management at Wayne State University. “It’s the flip side of the bullwhip. Demand keeps changing dramatically. We don’t normally see so many big changes and it’s very difficult to follow the signals of demand.”

The easiest way to imagine whiplash is, well, whiplash. When cracked, the whip ripples up and down like a wave. When consumers demand more than expected, retailers buy more, manufacturers make more, and suppliers supply more. However, if that demand suddenly drops – say after you’ve hoarded way too much toilet paper – retailers stop ordering, manufacturers stop manufacturing, and suppliers stop supplying.

But it takes time. Supply chains are often long and spread across hundreds of companies and wholesalers, without the most sophisticated communication between them. So without being nearly in sync with supply for demand, you see gluts and subsequently shortages. There, the whiplash.

“Everyone in the supply chain has a personal stake,” Taylor said. “Even a company the size of Walmart doesn’t always buy directly from the manufacturer. Take their fish and tackle department. That whole department is handled by a wholesaler. Wholesalers place large orders so their big customer doesn’t not run out of stock. The retailer then sees these large orders and thinks it’s demand. All of this is then exacerbated by manufacturing delays. The more tiers the harder it is to spot demand and we have many levels in our global network.”

And despite the pandemic waning and a return to what we call the benchmark today, it’s not getting any easier for retailers. Like a carpet python constricting its prey, inflation puts pressure on the economy.