In Supplement 7, Capacity and Constraint Management, we ask “What are the strategies for when demand exceeds capacity? When capacity exceeds demand?” The past year saw the hand sanitizer industry whipsawed from desperate shortages to massive excesses.
Now Piggly Wiggly stores in Alabama and Georgia, are offering 4-for-1 specials on sanitizers after sales nearly halted. They tried selling the disinfectants for half-price and discounted them at 75% to no avail. Lucky Supermarket in Millbrae, Calif., is offering free bottles of hand sanitizer with any $10 purchase. Supermarkets are on a mission to get rid of hand sanitizers. Once nearly impossible to find, America is awash in it.
Consumers rushed to buy sanitizers when the pandemic took hold, writes The Wall Street Journal (May 21, 2021). The surging demand resulted in shortages and purchase limits at retailers. Hoping to fill their shelves, supermarkets bought inventory from overseas and turned to other businesses—including distilleries—that switched their production to make sanitizers for the first time. Manufacturers expanded capacity, at times overpaying for components like pumps.
Now, supermarkets are sitting on pallets of them. Covid-19 cases are declining. Health officials now say that the virus is airborne and that the disinfectants aren’t as effective as masks and distancing. Sales of hand sanitizers are down 80% from a year ago. Weekly sales hit as high as $52 million in July. Average unit prices are $2.10, about 40% lower than a year ago. Prices on the Liquidation.com marketplace have fallen to 2 to 3 cents on the dollar, a 90% decline in resale prices over 6 months
Among those struggling with the current glut: distilleries that jumped into the sanitizer business when brands couldn’t keep up with demand last year. Adirondack Distilling, which makes whiskey, vodka and gin, still has between 10,000 and 20,000 sanitizers that the company made in stock. In Oregon, Crater Lake Spirits is giving away leftover sanitizers after it produced roughly 60,000 gallons of disinfectants for hospitals and hotels last summer.
Classroom discussion questions:
- What are the OM choices when demand exceeded capacity?
- What are the options now that capacity exceeds demand for sanitizers?