Covid-19 induced bullwhip effect

Dr. Christoph Kilger
Posted by Dr. Christoph Kilger on May 25, 2020 9:04:50 PM
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In the last weeks, toilet paper was short in many supermarkets due to Covid-19. This is a nice example of the dynamics in supply chains, where a small change might lead to tremendous fluctuations of demand and supply.

What happened? Due to the Covid-19 pandemic, people in many countries were asked to stay at home and do not go to work. This caused a significant shift in the consumption patterns of toilet paper: While the total consumption of toilet paper remained stable, the product and the distribution channel changed:

  1. In pre-Corona times, approx. 35% of total toilet paper demand was consumed from office or work environments (“professional toilet paper”) and the remaining 65% of the demand from households (“consumer toilet paper”). Currently, nearly 100% of the demand is from households.
  2. Consumer toilet paper and professional toilet paper are different SKUs: the product itself differs – consumer paper is thicker and more luxurious – and the packaging is different.
  3. Consumer toilet paper is distributed via DCs and supermarkets. Professional toilet paper is distributed via wholesales and professional facility services.

Due to its large shelf space requirements, toilet paper stockouts became visible immediately. As households apply local, mainly safety stock-based replenishment policies and toilet paper is perceived by many as a high-availability item, households responded to the stockouts by increasing their safety stocks – resulting in the classical bullwhip effect, wide-spread stockouts of consumer toilet paper and excess inventory of professional toilet paper.

The AIO Platform provided by aioneers enables supply chains to anticipate such changes and identify the root causes quickly, to adapt plans and replenishment policies accordingly, and to ensure execution of decisions:

  • AIO Insights provides end-to-end visibility of your supply chain
  • AIO Intelligence improves your forecast and supply plans
  • AIO Impact is the closed-loop decision execution platform for supply chains

aioneers: We are building high performance supply chains.

Topics: supply chain, covid19, bullwhip effect