Demand Bull-whip

With the advent of the Corona Virus in the USA, there is pandemonium in the economy besides the pandemic that is creating a lot of turbulence.

The US Consumers are raiding the retail stores in a panic and buying anything they can. This shortage is demand induced - spike due to hoarding needs.  Consumers are essentially moving the inventory from the store shelves to their own pantries, perhaps expecting a Mad Max scenario to unfold in the next couple of months.

Now that the demand-driven shortage has created a bull-whip, retailers and manufacturers of grocery and essential items are in higher gear cranking their factories up to produce more products.

However, with the broad shut-down and shelter-in-place orders, there will be demand contraction for many products from durable goods to fashion and clothing and let alone the demand for travel and entertainment.  With the ban on travel and tourism, the entire sector has contracted to near-zero demand.

We do not know when the virus will leave and re-open the economy but the resulting scenario may potentially create demand shocks to different sectors.  There could be a V-shaped recovery based on pent-up demand for many sectors.

Supply chain Risk assessment

Businesses need to do a risk assessment of their supply chain scenarios using different versions of the demand plan.  This risk-assessment becomes critical especially in times of turbulence.

1. What is the most probable date of the Covid19 peaking in the US?  Are we prepared for the scenario where the shut down is prolonged?
2. What are the possible post-virus scenarios?
   1. V-shaped Recovery
   2. Prolonged slowdown
   3. A pick up in demand that can further result in incremental revenues for the year
3. Any other risk including supply shortage because of the inability to hire people who have been laid off during the shutdown.

   

V-shaped recovery in demand

In January I predicted a slow down caused by shortages of components that are manufactured in China due to the prolonged Lunar break and the Wuhan shut down.  What is worse than not being prepared for the slowdown is not being prepared for an unexpected V-shaped recovery.

If you don't anticipate the V-shaped recovery, you could go out of business permanently as those with the inventory and preparedness will gain share and become more dominant in your market.

The double-edged sword this time is the fact that your raw materials and components may be coming from China.  Currently, the air-shipping rates have spiked for china outbound traffic given global shortage of essential items all over the world.

We have trusted analytical methodologies to do a supply chain risk assessment.  Contact us if you need more info on how we can help you with solution options.