Divided Supply Chains Are Challenging Producers, Retailers

Date: Friday, April 17, 2020
Source: The Wall Street Journal

Coronavirus-driven market upheaval has companies struggling to bridge a gap between industrial and consumer-focused distribution channels

Images of empty supermarket shelves—while farmers dump milk and other foodstuffs—are delivering a stark lesson in the challenges of shifting goods from commercial to consumer supply chains as the coronavirus pandemic shakes up demand.

Experts say there is plenty of toilet paper and food in the U.S. But rerouting goods to consumers that were produced at industrial scale—big toilet paper rolls for college dormitories or yogurt bound for factories that churn out breakfast parfaits—involves more than a phone call or quick email exchange.

The rapid shutdown of much of the U.S. economy delivered unprecedented shocks to the largely separate systems that supply businesses and consumers. Both rely on vetted networks of producers and distributors and other middlemen to deliver goods in ways that are tailored to specific markets.

“All those contracts produce lots of rigidity,” said Nallan Suresh, a professor of operations management and strategy at the University at Buffalo School of Management. “You’re not able to easily shift supplies from one channel to another.”

Experts say the gap between the industrial and consumer supply chains grows larger at virtually every step of the process. Erasing the differences, they say, would require expensive investment with little promise of a payoff over the long term.

Wholesalers that sell to both retail and food-service customers can try and leverage existing relationships with grocers to offload some bulk products. But stores configured to sell consumer-size goods may not have space to store and display hefty sacks of rice and giant jars of mayonnaise.

Having middlemen that package those products reconfigure their operations for what many see as a short run of supply-chain disruption is “a non-starter,” said Joe Vernon, supply chain analytics leader at Capgemini North America, a division of French consulting firm Capgemini SE. “We’re not seeing any kind of mass retooling. It doesn’t make any sense from a capital or expense perspective.”

The pandemic has upended business at specialty meat distributor Marx Cos., where food-service orders have dried up but direct-to-consumer sales online are surging.

“The changes have been like riding a tiger,” said Orsolya Szerdahelyi Marx, a special project manager for the company, which does business as Marx Imports and has locations in Seattle and New Jersey. “Retail is busy, but it is all the cheaper cuts…The last mile of our supply chain has completely pivoted” from business-to-business to business-to-consumer operations, she said.

Long lines at food banks as millions of Americans find themselves jobless are a jarring contrast to the actions of dairy producers dumping raw milk that can’t be processed and farmers plowing under millions of dollars’ worth of crops.

But consumer demand for perishables like produce and butter isn’t nearly enough to absorb the sudden glut created by the widespread closures of restaurants and food-service operations. People are eating differently at home, stockpiling staples such as bread and pasta but consuming fewer vegetables than they would in commercial settings.

Figuring out what to do with the excess isn’t easy. Redirecting to supermarkets the vegetables that normally flow toward industrial users for ingredients would require the crops be cleaned and processed at facilities that follow federal health guidelines.

Farmers that supply restaurants with lettuce tailored to their standards or fishing cooperatives that sell to Japan may not have the contacts to sell products at retail.

“Big chains don’t just buy anything from people they find in the street,” said José Holguín-Veras, a professor of civil and environmental engineering at Rensselaer Polytechnic Institute and director of the school’s Center for Infrastructure, Transportation, and the Environment.

When the coronavirus swept through China, some farmers and wholesalers used the shopping app Pinduoduo Inc. as an online marketplace to sell soon-to-expire foods that might otherwise have been discarded.

In the U.S., “it’s difficult for a farmer to log on to a system and say, ‘I have the inventory, who needs it?’” said Abe Eshkenazi, chief executive of the Association for Supply Chain Management. “There is no national inventory of product.”

Donating the excess also involves working out the logistics of transportation and storage, including cold storage for perishables.

This week Seattle-based digital freight load-matching provider Convoy Inc. is rolling out a program with hunger relief organization Feeding America to cover transportation costs for U.S. businesses that donate truckloads of shelf-stable food and canned goods to its network of food banks, soup kitchens and food pantries.

Convoy, whose technology connects truckers with shippers needing to move loads, will find, book and pay truckers to deliver donations to nearby locations. Arden Hills, Minn.-based dairy cooperative Land O’Lakes Inc. is one of the first participants, and plans to donate more than 1,300 cases of macaroni and cheese to South Michigan Food Bank in Battle Creek, Mich.

 

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