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With Shelves Still Empty, Lean Supply Chain Practices get the Blame


CPG Factories Maxed Out in the Face of Surging Demand, Forgot the Part of Lean that Called for Backup Plans

Aug. 25, 2020
SCDigest Editorial Staff

Some six months after the Corona virus broke out in the US, grocery store shelves remain frequently out of many key products.

Early on the focus was of course on the great toilet paper shortage, but all these months later items from pasta to paper towels are still in short supply.

Supply Chain Digest Says...


Many consumer packaged goods suppliers have closed many of their own factories, in part due to productivity gains buy also to drive more utilization of the plants that remained open..

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The root cause, of course, is a huge surge in demand that has persisted, driven in part from a lock-down environment with many consumers spending a lot more time at home and consuming a lot more products there. Stocking up against potential shortages is another factor, a behavior exacerbated by the lack of products they see on the shelves.

An average of an amazingly high 21% of consumer paper products were out of stock at US stores on August 9, according to retail research firm IRI.

That is because manufacturers were in many cases already at or near max production capacity before the crisis and are simply incapable of responding with more supply built to handle the previous and largely low growth demand for their products before the pandemic.

And the lack of slack capacity is the result of lean inventory practices by manufacturers and retailers that didn't consider what would happen in case a pandemic pushed demand sky high.

An article in the Wall Street Journal last week said that one Georgia-Pacific plant in Alabama that makes the company's paper products saw orders for paper towels jump by 500% from some retailers.

Faced with that unprecedented demand and already working 24 x 7, Georgia-Pacific looked for anyway it could to boost output, and was in fact able to increase production by about 25% through tactics such as reducing the number of SKUs it made to decrease changeover times.

It still wasn't nearly enough.

Each product category in short supply has its own specific issues, but "all involved lean operations by manufacturers or raw-material suppliers, plus disciplined distribution and retailing channels geared to a normal level of demand," the Wall Street Journal article noted, adding that "The lean system went largely unquestioned, until one day just-in-time meant not-enough."

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Lean manufacturing was of course invented by automaker Toyota, but has seen the basic principles be applied to almost every sector. In the consumer goods to retail supply chain, notable was Walmart's move in 2006 to reduce its inventory levels by $6.5 billion to free up cash flow for other investments.

Walmart's strategies to see those inventory reductions involved a form of just-time practices through penalties or "chargebacks" for suppliers that delivered too early or too late, a common practice in retail under what are termed "vendor compliance" programs.

At the same time, many consumer packaged goods suppliers have closed many of their own factories, in part due to productivity gains buy also to drive more utilization of the plants that remained open.

Interestingly the Wall Street Journal article says that in the Toyota version lean as adopted my many manufacturers includes extensive backup plans in case of an event that interrupted plant operations or caused a sudden spike in demand.

That part of the lean playbook it appears has been left out of the consumer packaged sector's approach to lean, though in the end it is not the manufacturers who take the hit but consumers.

Any reaction the challenges of inventory levels in CPG? Have companies got too lean? Let us know your thoughts at the Feedback section below.








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