COVID-19 has created supply chain disruptions in every industry. Due to perishability, the food industry has been more disrupted than others. As the economy picks up, the pace of supply disruptions will increase.
When the lockdowns first started, foodservice sales went to nearly zero and retail grocery sales zoomed ahead. Food manufacturers, especially the ones that served both segments, had to instantly shift production, package sizes and product mix. As the traditional 50-50 split between the two segments returns, those same companies have to shift back. This is the key reason for the supply disruptions. It comes down to one issue, demand forecasting.
Think about your business, can you forecast with any certainty the quantities or types of products your customers want? It shifts week to week as the number of people vaccinated, hospital caseloads, and shifting government rules change. On a grand scale, the raw material suppliers, like flour and sugar, have to guess whether to supply small boxes for home baking or 50-pound bags for industrial use.
The pipeline is rebalancing and some companies are hoarding, so they don’t run out. This sends the wrong demand signals to manufacturers, making the problem worse. This uneven demand and fast- growing usage causes spot shortages. All of this is fueling price increases, especially in flour and oil. Many suppliers are limiting the amount they sell to customers, based on their historic demand. This process is called selling on allocation.
The other issue in the supply chain is the national driver shortage. Before the pandemic, the U.S. Department of Transportation estimated that the trucking industry was short 100,000 drivers. The pandemic has made this worse as hiring in all industries is challenged. Many people are receiving some type of government assistance and finding it more profitable to stay home. In addition, for people concerned with keeping their distance from others, going to work each day frightens them. So even if inventory is produced and ready, getting it trucked to the right place is not easy.
So what can you do?
The best advice we can give you is to stick with your partners. Calling new suppliers, especially for products on allocation, will not get you the items needed. If suppliers are already short, they will naturally take care of their existing customers first. These issues will eventually settle down as supply and demand become normal again.