Surviving the Supply Chain Storm: Understanding the Global Pandemic's Impact
The global pandemic has had a substantial influence on the global supply chain, generating extensive disruptions and setting off a number of crisis points. One of the primary causes of these disruptions has been the bullwhip effect, which magnifies the impact of supply and demand changes as they move up the supply chain.
Consumer behavior changed significantly as a result of the pandemic lockdowns, with consumers storing basic commodities such as food and beverages. This resulted in an increase in demand for these items, which was exacerbated by the bullwhip effect. The increased demand put a strain on the supply system, resulting in shortages and delays in product delivery.
1. The Meat Industry
Due to COVID-19 outbreaks among workers, meat processing plants were forced to close in the early months of the pandemic. As a result, beef became scarce, causing prices to rise. In addition, due to a lack of processing capacity, many farmers were forced to butcher their livestock. This further limited supplies and raised prices. As a result, there was a scarcity of animal products on the market, such as cattle, chicken, and pigs, forcing prices to spike.
Smithfield Foods, one of the top hog producers in the United States, is one example of a meat firm that was forced to close during the outbreak. After hundreds of workers tested positive for COVID-19, the firm was forced to close its processing factory in Sioux Falls, South Dakota, in April 2020. This shutdown has far-reaching consequences for both the firm and the farmers downstream.
Initially, the factory shutdown in Sioux Falls had a significant influence on the company’s operations. Smithfield was unable to process and package pig products when the factory was closed, resulting in pork shortages in grocery stores and restaurants across the country. The business was also compelled to restrict output at other locations, resulting in lower revenue and financial losses.
Secondly, the plant’s shutdown had a substantial impact on the farmers that provided pigs to Smithfield. With the facility closed, these farmers were left with an overabundance of pigs that they were unable to sell, resulting in a drop in prices and financial losses. Due to a shortage of processing capacity, many of these farmers were also compelled to euthanize their pigs, which was both emotionally and financially disastrous.
Overall, the Smithfield Foods factory in Sioux Falls was closed during the pandemic, which had a huge impact on both the corporation and the farmers downstream. It serves as a reminder of the pandemic’s far-reaching influence on the global food supply chain, as well as the necessity for robust and adaptable systems to deal with future crises.
2. The Dairy Industry
Another such example is the dairy industry. Demand for dairy products has fallen as a result of the outbreak, since restaurants and other food service businesses have closed. As a result, milk and other dairy products are oversupplied, forcing prices to plummet. However, the decrease in demand has also resulted in a decrease in milk output, further constricting supply and driving up prices.
As a result of the closure of several restaurants and cafés, demand for dairy products such as cheese, butter, and cream declined considerably, resulting in an excess of these items on the market and driving prices to plummet. Simultaneously, the epidemic impacted the supply chain, resulting in shortages and higher prices in some locations.
Dean Foods is one example of a dairy firm that was harmed by the pandemic due to the shutdown of restaurants and other food businesses. The firm filed for Chapter 11 bankruptcy protection in November 2019, claiming decreased milk demand and escalating costs. However, the pandemic and accompanying closure of restaurants and schools reduced demand for Dean Foods’ products, causing the firm to face even more financial difficulties. Dean Foods was bought by Dairy Farmers of America, the biggest dairy cooperative in the United States, in May 2020.
3. The Vegetable & Fruit Industry
The third example is the vegetable and fruit sector. Customers are migrating to more convenient and shelf-stable food options as a result of the epidemic, which has reduced demand for fresh fruits and vegetables. Reduced demand and the closure of food service businesses led in an excess of vegetables in several areas, forcing prices to decline. Simultaneously, the outbreak has affected goods transportation and logistics, causing shortages and increasing pricing in some areas. Many supermarkets and grocery stores have closed, reducing demand for fresh fruits and vegetables. As a result, there was an excess of these products on the market, which caused prices to decline.
Dole Food firm is one example of a firm in the vegetable and fruit sector that was badly hit by the epidemic. Due to the pandemic, Dole, one of the world’s leading producers of fruits and vegetables, had substantial interruptions in its supply chain and distribution routes. Dole’s product demand fell sharply as restaurants and other food service providers closed, but growing demand from supermarkets and grocery stores put extra strain on the company’s transportation and distribution systems. Furthermore, travel restrictions and border closures hampered international commerce, straining Dole’s supply chain even further. Dole reported a decline in sales and profitability in 2020 compared to the previous year as a result of these problems.
In addition to the meat, dairy, and vegetable and fruit industries, the supply chain issue caused by the COVID-19 pandemic has touched other sectors of the food and beverage industry. For example, the restaurant industry has seen a drop in demand as consumers shift to more at-home consumption, leading in a drop in demand for ingredients and supplies. Furthermore, the outbreak has impacted products transit and logistics, causing supplier and distributor delays and higher prices.
4. The Fish Industry
Because of international commerce and travel limitations, demand for seafood and fish products has decreased as a result of the epidemic. As a result, several areas have a surplus of fish and shellfish, resulting in lower prices and income loss for fishermen and fish farmers.
Norwegian salmon producer Mowi is one example of a fish industry company that suffered from the pandemic’s oversupply of fish. There was a surplus of salmon in the market due to pandemic-related disruptions in global supply chains and the closure of restaurants and food service providers, resulting in a fall in pricing. As a result, Mowi’s revenue has decreased. In its Q3 2020 report, the firm recorded a 12.7% decline in revenue compared to the same time last year, which was mostly related to reduced pricing caused by the salmon excess. Mowi also reported a 33% decline in operational profit in Q3 2020 vs the previous year. In response to the adverse market conditions induced by the pandemic, the business had to restrict production and undertake cost-cutting measures.
Conclusion
As a result of the outbreak, many businesses have diverted production to focus on critical commodities like as personal protective equipment, resulting in a scarcity of packaging materials. Food and beverage firms that rely on packaging materials to protect and transport their products have encountered delays and price increases as a result.
The COVID-19 pandemic has caused a supply chain crisis that has affected nearly every aspect of the food and beverage industry. Supply chain disruptions and a drop in demand have had a significant impact on the industry, which includes everything from meat and dairy to fresh fruit and seafood. Some businesses, however, have been able to adapt and learn from the crisis by diversifying their supplier base, building more flexible and responsive supply chain management systems, and investing in digital technologies. It will be fascinating to see how the industry changes and adjusts in the next years.
Based on these examples, it is obvious that the COVID-19 epidemic has led in a supply chain crisis, leading to food and beverage inflation. Some organizations, on the other hand, have been able to adapt and learn from the disaster. The following are three key organizational learnings:
- The importance of diversifying one’s supplier base to reduce the risk of supply chain interruptions. Organizations should diversify their supplier base rather than relying on a single provider to lessen the chance of supply chain interruptions.
- The need for more adaptable and responsive supply chain management systems to respond quickly to changing market conditions. Organizations should use a more flexible and responsive supply chain management approach to quickly react to changing market conditions.
- The benefits of investing in digital technologies, such as automation and data analytics, to improve supply chain visibility and responsiveness. Organizations should invest in digital technology such as automation and data analytics to improve supply chain visibility and responsiveness.
To summarize, the worldwide pandemic has had a significant influence on the global supply chain, revealing flaws and offering several problems to organizations of all kinds. The bullwhip effect has exacerbated the effects of these interruptions, resulting in widespread shortages, delays, and increased costs. While the epidemic has brought challenges for many SMEs, it has also given opportunity for those who can adapt and respond rapidly to changing conditions.
The pandemic has emphasized the need for increased supply chain resilience and agility, with firms and governments collaborating to guarantee the seamless flow of products and services in the face of future disruptions. This may be accomplished through a mix of technology, creativity, and cooperation, with an emphasis on decreasing bottlenecks and boosting supply chain operations’ speed and efficiency.
About The Author(s)
With over 20 years of experience in the food and beverage industry and supply chain management, Luiz Bouças brings a wealth of knowledge and insight to every article. From sourcing to distribution, Luiz Bouças provides valuable information and analysis on the latest industry trends and challenges. Follow SCHAIN-Advisory for in-depth analysis of the fast-moving consumer products industry.