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.
“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?