COVID-19 – The OM Blog by Heizer, Render, & Munson

OM in the News: China, Covid-19, and Production Hiccups

For nearly three years, one of the most dreaded possibilities among China-based manufacturers was if workers contracted COVID-19, reports Supply Chain Dive (Jan, 13, 2023). Under the country’s stringent zero-COVID policy, even a few positive cases in or around a factory could shut down an entire operation for days.

Employees prepare crayfish products along an assembly line at a plant in Hubei, China. Many factories there are facing new strains as swaths of workers are out sick with COVID

But in the last several weeks, the script has flipped. The Chinese government began lifting its zero-COVID policy, easing travel restrictions and ending mandatory quarantine measures for those infected. The change led to a sharp spike in cases. Between Dec.19- Dec. 26, cases rose more than 67%, with more than 251,000 confirmed cases that week alone.

With so many people falling ill so quickly, many factories throughout the country found themselves short staffed and struggling to maintain normal operations. In the sudden absence of control measures, not only are workers out sick, others have also been staying home to avoid infection, or in some cases, working while infected. Some companies have had to prioritize or shift orders as a lack of workers impacted the ability to maintain normal factory production schedules.

As companies contend with the challenge of absent workers, many are also facing the issue of falling input orders, causing them to cut production ahead of the Chinese New Year. The upcoming Chinese New Year also creates the possibility of a new wave of cases as millions of migrant workers travel from the country’s manufacturing hubs to their hometowns. Production interruptions could continue for at least the next 6 months, possibly longer if a new variant emerges.

In the meantime, it is critical for U.S. and European companies that source or produce in China to maintain communication with their local teams in the country. Supply chain executives need to get updates on day-to-day production plans, so they’re aware of updates or changes to accommodate for worker absences. They should also prioritize which orders must be completed before the holiday versus which could wait, and to create contingency plans if not all orders can be completed in time.

Classroom discussion questions:

What are the options for U.S. firms with production in China?
Why did China alter its Covid policy so abruptly?

Good OM Reading: Rethinking Global Supply Chains

Firms have spent the past 30 years trying to make global supply chains as lean and efficient as possible, only for them to break down completely during Covid. Now, some experts, believe, the case for savings, efficiencies and just-in-time strategies no longer stands up. “The global supply chain is too long,” says the James Richard, author of the new book SOLD OUT: How broken supply chains, surging inflation and political instability will sink the global economy. “When you have that many moving parts, it breaks under its own weight. All the plans put in place by supply chain managers served to cut down on inventory, time and effort but failed to take into account the hidden cost.”

One of the biggest risks is climate change, and this has particular ramifications for supply chains. Extreme weather conditions can lead to material shortages as food, wood and mineable materials are harder to harvest or access. Floods, fires and storms can upset logistics too, causing delays or losses. Bringing supply chains closer to home is one way to make them greener. Some believe there is always a local supply chain that’s readily available. That helps to reduce prices and with logistics. Considering the carbon footprint of having things delivered from hundreds or thousands of miles away and bringing it down to 10, 20 or 30 miles away, there is a huge difference.

Covid highlighted the fragility of these long, global supply chains. As countries, particularly China, shut down in 2020, companies like Jaguar resorted to flying parts over in suitcases as they became harder to source. now many brands are exploring the possibilities of more localized supply chains.

“Globalization failed because we stressed the supply chain too much. It became too long,” says Rickards. He thinks that in 2023, and beyond, companies will become far more selective about which countries they do business in and with. “What we will have is a new world where we will trade with our friends but many countries won’t be in the club,” he says. “Certain groups will trade with each other, outsource to each other, but China won’t be in this club. Anyone not in the club will have to go their own way.”

Supply chain managers will need to seek out new partnerships as sources of raw materials and, wherever possible, find what is needed nearby. It also means that organizations will have to get much smarter about information sharing.

Prof. Howard Weiss has graciously agreed to provide Guest Posts in the coming days while I am travelling. Thanks, Howard.

OM in the News: Shanghai’s Covid Lockdown Leads to Logistics Disarray

Transport of goods into one of China’s biggest manufacturing and export hubs has almost ground to a halt, reports The Wall Street Journal (April 21, 2022). As Shanghai’s lockdown to stamp out a raging coronavirus outbreak extends into its fourth week, logistics services in that industrial area have faced severe disruptions.

Containers piled up at the port of Shanghai.

Trucking has been the worst hit, as strict local pandemic policies and arbitrary implementation of rules choke off the transport of goods. At Shanghai’s port, normally the busiest container port in the world, empty containers are stacked on docks waiting for trucks to deliver cargo.

The logistics snarls in and around Shanghai further add pressure to an already battered global supply chain and to rising prices of goods in the U.S. They also complicate the Chinese government’s efforts to reopen factories shuttered due to lockdowns. Logistics managers expect weeks to months before some international shipments return to normal.

On April 1, Shanghai authorities locked down the entire city to stem the spread of the virus, asking its 25 million residents to stay at home. This stringent act has had a ripple effect on businesses in the nearby region, an area of more than 160 million people. The region accounts for a fifth of China’s national gross domestic product. Daily truck volumes moving through Shanghai were down 70% compared with last month. Trucking costs have risen significantly as requirements for a negative Covid test result within 48 hours of travel and a host of bureaucratic approvals have discouraged truckers from taking loads to Shanghai.

Completed goods are accumulating in factories because of trucking delays and warehouse closures, while others have halted production after delivery of raw materials and supplies were disrupted. The trucking snafu has spilled over into other logistics areas. While Shanghai’s port remains operational, the shortage of trucks that could deliver cargo there meant containers were increasingly lying idle.

While the lull in Shanghai’s port activity would give overworked ports in the U.S. and Europe some breathing room in the short term, in the longer term, Shanghai’s cargo buildup is a bubble waiting to burst.

Classroom discussion questions:

How does this impact U.S. supply chains?
Why the stringent lockdown?

OM in the News: Trying to Forecast Demand for COVID-19 Tests

Just as stores are discounting once scarce bottles of hand sanitizer, many people have more than enough rapid tests filling up their drawers. That includes the free tests shipped directly to homes by the U.S. government. And now insurance companies will pay for 8 tests per person per month.

Supply chain difficulties have become standard for nearly all businesses during the pandemic. But one of the bigger issues with the COVID-19 testing supply chain is determining demand, especially for at-home test makers, writes Supply Chain Dive (April 14, 2022). Manufacturers would shutter factories, only to scramble to reopen them when new waves of the virus pushed up demand.

Longhorn Vaccines and Diagnostics received an FDA request to massively scale up demand for at-home tests in 2020. The company historically produced at most 100,000 units a year, and the FDA was requesting 3 million units a week. Longhorn was able to make 50 million units that year after ordering large quantities of chemicals from China and working with tube manufacturers to scale up production. In early 2021, the company decided to stock up even more on chemicals to ensure it could last through 2 years of peak COVID. Storage costs were high, but the company couldn’t afford to run short on the chemicals. Then, in February 2021, testing slowed. One week Longhorn was selling 10 million units, and the next week, people were canceling orders. So when orders stopped, the supply chain was already full of tests.

At-home testing is challenging because it’s essentially a new market, as we note in Chapter 4, and it’s hard to find similar products for comparison in forecasting. There is no historical data as a comparison. There is also volatility over what is driving demand. It can be the community infection rate, office or school requirements, requirements for travel, policy issues, port availability, and cost. Predictive analytics (our topic of Module G) can be used to anticipate demand, but these analytics must be taken with a grain of salt due to the volatility.

There are costs of having too many and too few products: If a company estimates a demand for 1 million tests per week, does it expect variability between 900,000 and 1.1 million, or between 500,000 and 1.5 million? That affects production and logistics, with supply procurement, warehousing, and trucking reservations.

Classroom discussion questions:

What forecasting techniques in Chapter 4 might be used in this case?
What are the 3 categories of analytics noted in Module G?

Guest Post: Why Are Supply Chains Disrupted?

Our Guest Post today comes from Professor Purushottam Meena at the College of Charleston. Dr. Meena teaches in the supply chain management program.

We have noticed empty shelves and shortages of many items, including PPE in healthcare, sanitizer, and facemasks at some points since the Covid-19 outbreak. The majority of Fortune 1,000 companies have experienced supply chain disruptions due to Covid. It’s important to ask why that happened.

Many overlapping factors are the root cause of the ongoing supply chain disruptions. Today’s supply chains are global, complex, and longer than ever. Manufacturers have to source components and raw materials from around the world to make any product. If there is a disruption in any component’s supply, the whole supply chain is shaken.

This pandemic has exposed the over-emphasis on the traditional cost-cutting, lean philosophy, and single-sourcing approaches that are being practiced in modern supply chains. This is why companies must analyze their supply chains beyond just cost-cutting opportunities. In a global environment, it’s difficult to predict what will happen to one aspect of a supply chain. There are always geopolitical factors and occasionally major disasters such as earthquakes or hurricanes that can disrupt the supply chain. If companies plan for disruptions, they can have other backup suppliers ready.

Apart from the pandemic, other factors behind supply chain disruptions are:

Unstable inventory-to-sales ratios,
Bottlenecks across the supply chain network,
Record high labor shortages,
A globally connected complex supply network, and
Panic buying

In terms of solutions, the ongoing supply chain crisis will take some time to fix–at least a year down the line– if we do not face another lockdown because of new Covid variants. Firms will be forced to redesign/restructure their supply chain networks–and more emphasis will be on reshoring, nearshoring, and multiple sourcing. As a result, the future supply chains will be more regionalized and less complex.

Apart from all the negatives, the ongoing disruptions have brought the supply chain field into the limelight once again, offering our students many opportunities. Students trained in the latest technologies like artificial intelligence, blockchain, and data analytics will have key advantages in the supply chain field because there will be increasing demand for jobs with such skillsets.

OM in the News: What Went Wrong in Airline Operations?

Airlines are struggling through one of the most severe and persistent mass-cancellation events of the past decade, reports The Wall Street Journal ( Jan. 8-9, 2022). Covid-19 infections surged too quickly for carriers to manage without upending holiday travel, wreaking havoc on already-stretched airline workforces. Now carriers are assessing how to better manage what could continue to be a difficult period, at least for the next few weeks.

A packed Miami International Airport on Jan. 3.

Airlines have canceled more than 1,000 daily U.S. flights for 13 straight days, including over 2,600 on January 7, as another winter storm brought snow to Boston and New York. Flights scrubbed from Christmas Eve through Jan. 6 exceeded 24,000, roughly 7% of the number airlines had planned to fly.

For airlines, the upheaval of the pandemic is heading into a new phase. Unlike in early 2020, when terrified passengers canceled trips in droves, new variants dent but don’t decimate appetite for travel. But airlines are still rebuilding their operations. The twin challenges of rising numbers of employees calling out sick after being infected or exposed to Covid-19, and a series of severe winter storms that hit major hubs, created the perfect conditions for travel chaos.

The trouble spiraled as more workers became infected. Entire crews were testing positive–and when they’re out of the country, there’s no way to get that aircraft back. In December, airlines asked the Centers for Disease Control (CDC) to consider halving its recommended 10-day isolation period for fully vaccinated people who come down with Covid-19, citing potential workforce shortages.

“What we learned is you might need a little more resources to fly that same schedule because of all the other things that are in play,” said American’s COO. Airlines operate under strict safety rules that can leave them little recourse but to cancel flights when they are short of staff in the right places. Pilots aren’t always trained to fly multiple aircraft types, for example. Regulations dictate how much rest crews must get between shifts. And employees such as flight dispatchers and mechanics can take on only so much extra work safely.

Recall that we open Chapter 15 (Short Term Scheduling) with the story of how Alaska Airlines deals with weather delays. This WSJ article makes a good complement, with the Covid addition.

Classroom discussion questions:

What could operations managers have done to prepare for the current crisis?
Which of the options for managing capacity noted in Supp. 7 apply to airlines today?

OM in the News: The Office of the Future

“The office used to be a place people went because they had to,” writes The Economist (Dec. 4, 2021). Meetings happened in conference rooms and in person. Desks took up the bulk of the space. The pandemic, however, has exposed the office to competition from remote working, and brought up a host of questions about how it should be designed in the future. In Chapter 9 we discuss this evolution of office layouts, including the need for offices that accommodate Proximity, Privacy and Permission.

In the past the office was a place for employees to get their work done. Now some think of the office as the new offsite. Its purpose is to get people together in person so they can do the things that remote working makes harder: forging relationships or collaborating in real time on specific projects. Others talk of the office as a place that makes the idea of mingling with people attractive.

But a layout that is largely devoted to people working at desks alongside the same colleagues each day is very 2019. With fewer people coming in and more emphasis on collaboration, fewer desks will be assigned to individuals. Instead, there will be more shared areas, or “neighborhoods”, where people in a team can work together flexibly.

Designs for the post-Covid office must also allow for hybrid work. Meetings have to work for virtual participants as well as for in-person contributors: cameras, screens and microphones will proliferate. All of which implies the need for flexibility. Laptop docking stations are simple additions, but other bits of office furniture are harder to overhaul. Desks themselves tend to be tethered to the floor through bundles of cables and plugs. Will the office of the future feature desks with wheels? With flexible meeting rooms whose walls that lift and slide?

Optimists think the office of the future will be a spacious, collaborative environment that makes the commute worth it. But in reality, pragmatic considerations—how much time is left on the lease, the physical constraints of a building’s layout, uncertainty about the path of the pandemic—will determine the physical look. Whatever happens, the office won’t be what it was.

Classroom discussion questions:

Discuss the history of office layout. (Hint: see pages 371-3 in your Heizer/Render/Munson text).
Why is this an important OM issue?

OM in the News: Inventory Shortages Can Lead to Overproduction

In the throes of the sticker shock Americans have been experiencing lately, it is hard to remember an oft-repeated lesson: Shortages can suddenly turn into gluts. The combination of bottlenecks and robust demand has pushed prices for all kinds of things higher, but some of the most eye-popping increases have been in the prices of manufactured goods that rely on global supply chains, writes The Wall Street Journal (Nov. 23, 2021). Prices for washers and dryers were up 30% from the pandemic’s start, with prices for furniture up 12% and prices for new cars and trucks up 11%.

Further, shortages of some manufactured items are creating inflation elsewhere. The dearth of new vehicles has made it hard for rental-car companies to restock their fleets, which is a big part of why it cost 49% more to rent a car than before the pandemic. Fewer new car purchases by rental companies in particular has led to fewer available used cars, and used car and truck prices have risen 44%. With inventories low and what appears to be a lot of unsated demand out there, it is easy to imagine prices continuing to go up.

But imagining that supply-demand imbalances will persist, and then finding that they won’t, is a common occurrence. Pig breeders and cattle ranchers have regularly responded to high prices with production increases that initially aggravate shortages but then lead to gluts in the so-called hog and cattle cycles that drive huge swings in pork and beef prices. A similar dynamic occurs in shipping costs, and ship prices. And back in May, when prices were surging, it didn’t seem as if framing-lumber prices were going to fall by more than half—but then they did.

In the year ahead, even slight relief of some supply-chain issues could have significant effects. For example, there are a lot of partially built vehicles that car makers have parked around the country which will be rolling into dealerships once necessary chips are installed. Earlier this fall, many retailers were imploring consumers to get their holiday shopping done early, lest supplies run out, yet last week Walmart, Target and TJX all said they are well stocked for Black Friday. Lower Covid-19 risks would also help alleviate some supply-chain snarls, especially in countries outside the U.S. that are major sources of manufactured goods.

Classroom discussion questions:

Why can inventory shortages turn into gluts?
What is the relationship between shortages and inflation?

OM in the News: The Post-Pandemic Inventory Dilemma

Budweiser brewer AB InBev shared the cost of undrunk beer with its distributors during lockdowns.

From undrunk beer to unfinished forestry equipment, businesses deliberate just-in-time or just-in-case inventories, reports The Wall Street Journal (Nov. 8, 2021). Companies are wrestling with how big their inventories should be, since the pandemic highlighted the dangers of having both too much and too little stored away.

When the pandemic first struck, and demand for many goods dived, some companies were left holding large, costly inventories. But closed borders, strained supply chains and rebounding demand meant bigger stock buffers can prove positive. Now, the question of whether to maintain costly extra stockpiles or risk getting caught out again by disruption has emerged among the host of dilemmas businesses face, from whether to reshore production to how to best transport goods.

Businesses from Nissan to PepsiCo say the decadeslong trend of hyper-efficient supply chains, called JIT manufacturing, could be ending. But many companies say they will likely return inventories to pre-Covid levels when trading conditions normalize. As we point out in Chapter 12, holding large inventories ties up capital, requires extra space and people to manage it and needs to be insured. It is also a problem for companies selling products with a sell-by date. “Cost is still the driver for companies,” said a PwC exec.

Inventories can be problematic going into a demand shock like a pandemic. Companies like car makers and luxury-goods brands were left sitting on stockpiles they couldn’t use when demand collapsed last year. Drinks companies including Guinness maker Diageo and Anheuser-Busch InBev shared the cost of undrunk beer with their distributors to spare bars and restaurants from picking up the tab during lockdowns.

Other companies say they will likely go back to normalized inventory levels, but will change how they manage them. For instance, some multinationals plan to decentralize stocks to place them closer to customers, giving them localized stockpiles to dip into during supply-chain strain. Swiss drug giant Novartis is working to ensure each country it sells to has a second supply point for key products. “One thing we learned last year was to have strategic inventory in more places…decreasing the dependency on single locations,” said Novartis’ OM head.

Classroom discussion questions:

What are the strengths and weaknesses of JIT? (Hint: see Chapter 16 of your Heizer/Render/Munson text)
Why will many companies return to pre-Covid inventory policies?

OM in the News: Global Supply Chain Problems Worsen

It has become an almost daily headline, The front page of The Wall Street Journal (Oct. 9-10, 2021) is the title of today’s post and opens: “Global supply-chain bottlenecks are feeding on one another, with shortages of components and surging prices of critical raw materials squeezing manufacturers around the world.”

New Ford F-Series pickup trucks stored in a lot in Kentucky awaiting semiconductors that are in short supply.

Factories and retailers in Western economies that have largely emerged from lockdowns are eager for finished products, raw materials and components from longtime suppliers in Asia and elsewhere. But many countries in Asia are still in the throes of Covid lockdowns, constricting their ability to meet demand.

Meanwhile, global labor shortages, often the result of people leaving the workforce during the pandemic, are throwing further off production obstacles. At the heart of the gridlock is China, the world’s largest trading nation. Arriving ships often must quarantine for a week or more before they are allowed to dock. Disruptions to customs and port services add to delays. The more ships wait on the inbound side at Chinese ports, the longer it takes for them to start out again from China to the rest of the world, waiting for Chinese-made electronics, clothing and toys. Freight rates on the heavily trafficked China-North America route more than doubled this year.

Beyond China, Covid-related factory closures in Malaysia have hit chip supplies to car makers in a semiconductor market already hit by outages in Texas, Japan and Taiwan. In Indonesia, mining companies want more trucks to feed the world’s rising demand for coal and minerals. Yet the waiting list for new truck deliveries is 9 months. Their own supply-chain problems make it harder to deliver the fuel and materials that would help resolve supply problems elsewhere, reinforcing the bottlenecks. Strikes and Covid cases among port workers in Australia have curtailed operations. Passenger flights to the country, which used to be an option for air cargo shippers, are still mostly halted.

The global auto industry will lose 7.7 million vehicle sales world-wide, 10% of expected production in 2021 (costing $210 billion in revenue), as a result of the chip shortage,. “We are not demand-constrained, we are supply-constrained,” said Daimler’s CEO, adding that the chip supply squeeze would be felt into 2023.

Classroom discussion questions:

Summarize the basics of the global supply chain breakdown.
What is the impact on consumer goods?

Guest Post: Location Factors Revisited–Trucking

Prof. Howard Weiss provides today’s guest post. Howard is the creator of the Excel OM and POM software that comes free with our text.

Bottlenecks cost the U.S. economy more than $42 billion in 2019, according to Federal Highway Administration data, and freight shipments suffered almost 660 million hours of delay on the nation’s roadways. Trucks experienced over 27 million days of delays with 1/3 occurring on interstates.

The American Transportation Research Institute (ATRI) has recently issued a report detailing the top 100 traffic bottlenecks in the U.S. based on GPS data from more than one million trucks at 300 specific locations. Figure 8.1 of your Heizer/Render/Munson textbook points out that one of the important site location factors is “air, rail, highway, and waterway systems” and Chapter 11 notes that “the vast majority of manufactured goods moves by truck” –which is 73% of the value of the freight. This makes the information in the ATRI report one of the critical factors when selecting a location and/or trying to reduce costs in the supply chain. The figure below shows the top 10 congestion sites in the report.

Of course, COVID has had a major effect on congestion. One study indicated that in February 2020 congestion increased due to panic-buying consumer demand. Another study showed that in March 2020 congestion decreased due to less volume of traffic on the road. On the other hand, congestion increased in 2020 because more road construction projects were able to begin and move at a faster pace due to the reduction in travel. Overall, truck speed was up 34% in 2020 compared to 2019.

Classroom Discussion Questions

Amazon has chosen to locate its HQ2 on the East Coast where there is a great deal of congestion. What reasons aside from transportation would lead Amazon to make this regional decision?
Does proximity to markets explain some of the reasons for the bottlenecks?

OM in the News: Stockpiles of Personal Protective Equipment

Millions of masks. Pallets of disposable isolation gowns. Tons of gloves. Caught in bidding wars for medical supplies and forced to scour the globe for personal protective equipment when Covid-19 ripped through last year, hospitals are now sitting on stockpiles of gear, reports The Wall Street Journal (July 2, 2021).

How they got to this point is a mix of state policy, market forces and timing. The pandemic has forever shifted the way hospitals purchase supplies, requiring procurement departments to diversify their suppliers and become adept at understanding where raw materials are sourced. “There are some items that are going to take us 6-9 months to kind of wean down because we bought so much of it. And then, there’s items we might have for years,” said one hospital VP. “It will last us forever the amount of masks that we have.”

covid1

In New York State, hospitals are still bound by a 2020 requirement to maintain a 90-day stockpile of PPE equipment. The stockpile is calculated on a hospital’s height-of-the-pandemic usage, multiplied by 90 days. This “safety stock” (discussed in Chapter 12) is designed to keep hospitals from scrambling and again paying exorbitant costs for some items. During the 2020 surge, many hospitals were running with just days of surgical and N95 masks, disposable gowns, disposable thermometers, bleach wipes, hand soap, hand sanitizer, face shields, stethoscopes and body bags.

Now, however, the excess in supplies is partly due to contracts signed during the height of the pandemic. Manufacturers had to dramatically ramp-up production of some products. To enable that production, healthcare systems were required to sign very large, multiyear contracts. This represents a shift from a lean inventory approach where products are delivered as needed. By the time the manufacturing and supply chain caught up to the peak-Covid-19 demand, the daily burn rate on certain medical supplies started to drop.

Classroom discussion questions:

What are the advantages and disadvantages of the large safety stock set for PPE equipment?
What can a manager do to bring about a more rational and efficient inventory policy?

OM in the News: Food Supply Chain Problems

Americans are returning to restaurants and bars as Covid-19 restrictions come down, adding new strains in food supply chains, reports The Wall Street Journal (May 22-23, 2021).

Distributors are facing shortages of everyday products like chicken parts, as well as difficulty in finding workers and surging transportation costs as companies effectively try to reverse the big changes in food services that came as coronavirus lockdowns spread across the U.S. last year.

restaurant

“The start up has been, in many ways, as difficult as the shutdown…Everybody is trying to turn it on immediately and the capacity might not be there,” says an industry CEO. Shortages of raw materials are leading to erratic deliveries of items that usually arrive on predictable schedules. That disrupts entire supply chains.

The food sector is seeing a version of the bullwhip effect (as discussed in Supp. 11 of your Heizer/Render/Munson OM text), where companies that have pulled back their operations seek to rapidly scale up on signs of improving demand, leaving suppliers scrambling to keep up. Food suppliers allocated more capacity to retail customers like grocery chains during the pandemic leaving distributors short of some products as restaurants and institutional food-service operations open back up.

Demand has changed too. Restaurants that remained open slimmed down their menus during the pandemic and shifted from fresh ingredients for salad bars and buffets to using more prepackaged foods for takeout and delivery operations. Restaurants, hotels and institutional food-service operations are coping with big price swings on staple ingredients and erratic availability. The cost of pepperoni jumped 60% over the past five weeks while flour and tofu are out of stock about half the time for some restaurants.

The lack of available workers may be the biggest strain on the sector since the impact cascades from the production facilities to trucking to distribution centers.

Classroom discussion questions:

Explain the impact of the bullwhip effect on the food supply chain.
What can restaurants do overcome the shortages?

OM in the News: Whirlpool’s Component Shortages and Production Lines

Michigan-based Whirlpool, which manufactures washing machines, KitchenAid mixers and other home appliances, has seen a surge in demand for its products since the beginning of the pandemic, reports The Wall Street Journal (April 22, 2021). At the same time, the company is facing a strained supply of key components, including microchips from China and Taiwan. It is also running low on plastic as a result of a winter storm in Texas.

While other industries have responded to the shortages by slowing down production— car makers, for example, have cut output or idled factory lines amid the lack of chips—Whirlpool is changing over its production lines more often, depending on which parts are available.

whirlpool

“We look at what is coming in a shipment and what we have on the production schedule,” the CFO said, adding that the company usually has visibility into its production plan 4 weeks in advance. At the moment, the schedule for some items is about 4 days out. “You don’t want to flex them as often as we are,” he said, referring to the company’s factories. “This isn’t ideal.”

Constantly changing which products are being made brings inefficiencies and added costs. Reduced visibility into a company’s production schedule also causes problems. Whirlpool expects its supply chain issues to continue for most of the year. It sources its materials from several thousand suppliers around the world, but holds lower inventories because of high consumer demand and restricted access to components. The average order backlog is 5-6 weeks at the moment, higher than the 2 weeks backlog with which Whirlpool usually operates.

The company in recent weeks raised sale prices for its products by 5-12% to compensate for increased raw material costs, particularly for steel and plastics. Raw materials usually make up 60-65% of cost of products sold at the firm.

Classroom discussion questions:

The Japanese have made scheduling enhancements by using level schedules (see discussion on page 653, Figure 16.7, and OM in Action box on page 657). Does this seem a feasible alternative for Whirlpool?
Should Whirlpool consider reducing its variety of product choices, at least during this time of strained supplies?

OM in the News: Too Much Toilet Paper

After a year in which toilet-tissue shortages left consumers scrambling for squares, sales are plummeting to below pre-pandemic levels. writes The Wall Street Journal (April 14, 2021). Recent sales fell more than 4% from the same period a year earlier, before the spread of Covid-19. The decline, which comes even though legions of Americans continue to work and attend school from home, indicates last year’s stockpiling is starting to have an effect on sales.

toilet paper

“You never knew when you weren’t going to be able to get it, so every time we went out we got some,” said one New Rochelle, N.Y. woman. “They just kept amassing.” She still has 54 rolls, stored in various places throughout her home: in a guest room, the back of a linen closet, the laundry room in the basement. (This is embarrassing–I just counted that my wife and I have 66 rolls in our closet and laundry room!)

Demand for toilet paper shot up in the outbreak’s initial weeks, doubling in the second week of March, and remained elevated throughout most of 2020. Americans spent more than $11 billion on toilet paper last year, up from $9 billion in a typical year.

A rush on other household staples, from disinfecting wipes to paper towels, led to equally or more-severe shortages of those products. But none triggered consumers’ anxieties as much as toilet paper. Walmart’s CEO, on a “Today Show” appearance in April 2020, urged consumers to stop buying so much toilet paper.

Tissue used in office bathrooms is generally built at different plants, and funneled through a different supply chain, than toilet paper sold to consumers at stores. So the sudden drop in demand for public-restroom quality tissue didn’t lead to a supply surplus of the higher-end stuff. Meantime, whereas companies were able to more quickly increase capacity for cleaning products, hand sanitizer and other in-demand items, doing so for toilet paper was less feasible given that making toilet paper in bulk requires 4-story-tall machinery that costs billions of dollars.

Classroom discussion questions:

Relate this article’s topic to our discussion of the “bullwhip effect” in Supp. 11 of your text.
How many of you also hoarded toilet paper last year?