Toilet Paper Panic - Rethinking the Bullwhip Effect — Transcript

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1. 0:00hello i'm solomon croon from the
2. 0:02University of San Diego and I'm a
3. 0:04professor of supply chain management so
4. 0:06the events were seeing surrounding the
5. 0:09corona virus pandemic and particularly
6. 0:11the impact on supply chains really
7. 0:15fascinating and potentially giving us
8. 0:17insights into some aspects of bull
9. 0:21effects that we probably don't normally
10. 0:24see so we've seen the phenomena of panic
11. 0:27buying in the stores people buying
12. 0:30significant quantities of toilet paper
13. 0:33as a consequence the store shelves are
14. 0:36empty
15. 0:36however warehouses imagine to replenish
16. 0:40relatively swiftly and manufacturing of
17. 0:43course continues much at the same sort
18. 0:46of pace so let's think about what supply
19. 0:49chains are essentially supply chains are
20. 0:52operations that have inputs from another
21. 0:57operation and whose outputs go to yet
22. 1:01another operation so a manufacturer
23. 1:04receives pulp converts that into toilet
24. 1:07paper that output goes to the warehouse
25. 1:10the warehouse of output goes to the
26. 1:13retailer and so forth so that's what a
27. 1:15supply chain is essentially now Marshall
28. 1:18Fisher who's a professor of operations
29. 1:21and information management at the
30. 1:22Wharton School and I think he produced
31. 1:26probably one of the most seminal papers
32. 1:28on supply chains of all time actually
33. 1:32just a significant paper in Harvard
34. 1:35Business Review in 1997 and what was
35. 1:38this he said that supply chains can
36. 1:41fulfill one of two stereotypes one
37. 1:44extreme the efficient supply chains for
38. 1:48functional products fairly stable
39. 1:51predictable demand and at the other
40. 1:53extreme of supply chains for innovative
41. 1:57products seasonal products or products
42. 2:00that are on promotion and these require
43. 2:02very different supply chains very
44. 2:04responsive or agile supply chains now
45. 2:08then when we think
46. 2:10about functional supply chains
47. 2:12characteristic is that their high-volume
48. 2:14predictable and stable demand and good
49. 2:17examples would include sliced bread
50. 2:20hygiene products and of course toilet
51. 2:24rolls so what are we seeing in terms of
52. 2:27supply chains well let's think about
53. 2:29some of the primary supply chain players
54. 2:33in the iPhone manufacturing when we look
55. 2:36at the supply chain it's relatively
56. 2:38global Asia Europe the Americas and you
57. 2:43know components for the supply chain
58. 2:45come from a multitude of different
59. 2:48sources aggregated at Foxconn I
60. 2:51assembled in Shenzhen shipped out of
61. 2:54Hong Kong Airport to the US and
62. 2:57elsewhere and I think they're probably
63. 3:01very familiar with that supply chain now
64. 3:04professor Jay Forrester had a
65. 3:08significant impact on our understanding
66. 3:11of supply chain dynamics now what he
67. 3:15said was that in supply chains when we
68. 3:18get a major concern such as very
69. 3:23fluctuations here in market demand even
70. 3:27for any small perturbations we start to
71. 3:31see major perturbations in the first
72. 3:34here around here those are amplified as
73. 3:39we go further upstream and that becomes
74. 3:43a significant issue as we get that
75. 3:47amplification the further away we go
76. 3:49from the source of demand the greater
77. 3:52the amplification and one of the reasons
78. 3:56for that is people people overreact we
79. 4:00see that demanders increased by 10
80. 4:02percent if you are with me we must
81. 4:05increase our orders and our suppliers
82. 4:07because it looks like a trend therefore
83. 4:10let's increase our supply orders by 12%
84. 4:15for example and as this goes up the
85. 4:17supply chain we get amplification of
86. 4:20those orders however we also get some
87. 4:24thing called the time offset the time
88. 4:28offset means it takes a while between
89. 4:32when there's perturbations in the
90. 4:34marketplace and when tier two is
91. 4:38actually going to be responding to those
92. 4:42signals so that lead time offset and it
93. 4:46varies depending on the supply chain
94. 4:48means that we're trying to take
95. 4:50decisions now on actions that are going
96. 4:53to be executed in a certain time period
97. 4:55in the future a week two weeks three
98. 4:57weeks six weeks and so forth and this is
99. 5:01what causes the bullwhip effect now the
100. 5:06question we have to ask is are we seeing
101. 5:09an increase in demand or are we seeing
102. 5:12an increase in consumption now in the
103. 5:15Bullitt perfect we don't normally
104. 5:16distinguish between the two but
105. 5:19obviously with toilet paper we've seen a
106. 5:21massive increase in demand but I'm
107. 5:24pretty sure we're not seeing a big
108. 5:25increase in consumption the world hasn't
109. 5:28suddenly become incontinent or has major
110. 5:32digestive issues that's not one of the
111. 5:34symptoms apparently of the corona virus
112. 5:37so what we're seeing is a shifting of
113. 5:39inventory inventory to the consumer away
114. 5:43from the retailer we're also aware that
115. 5:47the supply chain for toilet paper tends
116. 5:50not to be global it's just not
117. 5:53cost-effective to manufacture toilet
118. 5:55paper in China and ship it unless you
119. 5:59have no natural resources so for example
120. 6:02in Australia a significant proportion of
121. 6:05their toilet paper does come from China
122. 6:07but in the United States the majority
123. 6:09toilet paper is domestic so what we then
124. 6:12see is this we see that yes demand is
125. 6:16increasing thanks to panic buying and
126. 6:18more importantly thanks to lack of
127. 6:21control over sales quantities so I've
128. 6:25been to Costco twice in the last week
129. 6:27and on both occasions people have been
130. 6:30coming out with carts full just to
131. 6:32toilet paper no constraint on
132. 6:34consumption it's highly unlikely
133. 6:38that consumption is increasing and
134. 6:40replenishment of those stocks those
135. 6:43inventories will follow at the usual ie
136. 6:46average production rate so what are we
137. 6:50seeing with toilet paper are we seeing
138. 6:51bull perfect or are we seeing the pig in
139. 6:55the Python you know there's a big lump
140. 6:56of demand moving through our supply
141. 6:59chain well and I don't think we've seen
142. 7:03the bull effect I think we're seeing pig
143. 7:05in a Python and I think what this means
144. 7:08is that in a very short while we'll be
145. 7:11back to stable State with our supply
146. 7:15chains particularly for toilet paper and
147. 7:18therefore potentially not a major
148. 7:20concern unless there is constraint on
149. 7:23supply factories closed out closed down
150. 7:26there are no trucks on the road the
151. 7:28warehouse is closed operation then there
152. 7:30may be a shortage but we're actually
153. 7:32switching off the supply chain that
154. 7:34point what we're unlikely to see is
155. 7:37increased amplification of the supply
156. 7:41chain we're not going to see the toilet
157. 7:43paper manufacturers vastly increasing
158. 7:47their manufacturing output we're going
159. 7:50to see a very short-term response
160. 7:52because it's a short supply chain it's a
161. 7:54domestic supply chain demand is
162. 7:58increasing but consumption is not
163. 8:00increasing I think those are really
164. 8:03important characteristics to take him
165. 8:05into account what's the solution to this
166. 8:09well really the solution was one there
167. 8:11existed very early on the supermarket's
168. 8:13the retailers have a responsibility to
169. 8:16manage demand or manage supply to
170. 8:20customers therefore why not introduce
171. 8:22rationing market mediation in terms of
172. 8:26adjusting prices may not have helped at
173. 8:28all redistribution through alternate
174. 8:31channels Costco is a warehouse operation
175. 8:35Sam's Club Walmart our warehouse
176. 8:38operations one of the things we we see
177. 8:41is that a lot of smaller stores still
178. 8:43have supplies and toilet paper not
179. 8:45interrupted at all and so this is an
180. 8:49opportunity for the manufacturers to
181. 8:51think
182. 8:52about not an omni-channel approach but a
183. 8:55multi-channel approach and of course
184. 8:58prioritizing users what about industrial
185. 9:02users what about university campuses
186. 9:05that stay open what about hospitals
187. 9:07what about care homes for the elderly
188. 9:10what about prioritizing some consumers
189. 9:13over others so in many ways the
190. 9:18retailers in the supply chain have a
191. 9:21major responsibility to control this pig
192. 9:24in a Python it's very different from
193. 9:26bullwhip and I think that's why the
194. 9:28phenomena we're seeing has so many
195. 9:31different alternative solutions and for
196. 9:35characteristics