Bullwhip: How Coronavirus Hit Meat Distribution

Bullwhip: How Coronavirus Hit Meat Distribution

Several major meat companies were forced to shut down processing plants in Q1 2020 due to the severe coronavirus outbreaks in their facilities. At one point, meat and poultry giant Tyson Foods published a full-page ad in the New York Times declaring that “The Food Supply Chain is Breaking.” The recent report on COVID outbreaks in meat and poultry plants published by the Centers for Disease Control found that nearly 3% of the 130,000 workers tested were coronavirus-positive – that’s almost 60 times the known infection rate in the United States – a fact which is not shocking, given that workers often stand shoulder-to-shoulder, making social distancing impossible. Industries verging on oligopoly that has had no competitive reason to improve processes over the last century are particularly vulnerable to the bullwhip effect, or the impact of inefficient inventory/distribution management on the rest of a supply chain – and now that COVID is spreading like wildfire in rural states as of the end of Q2, it’s safe to say America won’t be out of the pandemic’s grip for awhile.

Let’s examine how the bullwhip effect could move through a hypothetical scenario involving a meatpacking company as an argument for making investments in smarter distribution processes.

Obviously, when coronavirus hits in a tight, unsanitary environment, COVID isn’t far behind. Mass sickness will do a few things. Decreased manpower without temporary replacement or adequate automation to pick up all possible slack could result in temporary output shortages. When that decreased supply meets overwhelming demand, a few things could happen. First, supermarkets could experience mass stockouts. This would cause them to reorder supply in larger amounts. If they get that larger amount by the time demand has decreased, they run the risk of waste, and will order much less product the next time around. These forecasting fluctuations can ripple back to warehouse and supply chain managers, who may respond by cutting contracts with small farmers, consolidating facilities near major distribution hubs, making inefficient inventory allocation decisions, and rethinking their truck routes. The latter may become increasingly difficult if the processing facility infections spread onto products and trucks, infecting truck drivers. Entire subregions may be cut off from supply if there is a significant shortage of transportation personnel. With decreased revenue, increased human resources costs, and a shattered distribution chain, meat companies might lack the cash flow or shareholder confidence to survive.

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Market Update: E-commerce in the Time of Coronavirus

The world is now in Month #2 of COVID-19, which just last week the World Health Organization declared to be a full-scale pandemic. Both public and private sectors have sprung into action (albeit at varying speeds) to combat the crisis, and news stories day and night are talking about citizen quarantines, as well as the halting of business and nonessential services in various countries, states, and municipalities. The global supply chain is already experiencing a once-in-a-lifetime disruption – one estimate even says 75% of companies are affected – not to mention the ripple effects that will be felt in the coming months and years. Here’s a quick update on some of the most popular e-commerce channels: