The butterfly effect: how a bad soup in China caused a stockout of toilet paper

The butterfly effect: how a bad soup in China caused a stockout of toilet paper

Supply chains are complex and interrelated connections between different companies. During the last few decades, globalization led to supply chains spanning throughout the globe. Various sources of economies of scale created a de-industrialization of Western countries, with many relying on the vast and cheap(er) workforce of China and neighboring Asian producers.

China is effectively the factory of humanity. From energy to mining, from furniture to high-tech electronics, our sneakers and smartphones all come from that country. With several weeks of closed-down factories, we are now seeing the effects of stockouts appearing in many areas of our daily lives.

Add to the significantly reduced production levels a travel ban and reduced access to ports and airports: now goods cannot be shipped from their production center to anywhere else in the world. It will take months for production and transportation to be reestablished in China, and we will then see the high volume of transportation requests arriving on different airports, ports, railways and trucking industries in most countries.

Canadians have faced an extra supply chain disruption caused by the blockage of its rails as a means of pressure on the government over an oil pipe traversing protected territories. Commodities such as gas used for heating livestock lacked in many provinces (do you see the importance of a safe and reliable source of gas?). A few weeks before, the strike affecting rail companies once again risked the lives of millions of animals.

In periods of uncertainty, people sometimes react impulsively. Governments instructed people to buy dry and canned food and essential resources for a self-isolation period that may come ahead. Even though toilet paper appears on the list, a frenzy occurred as people feared to lack this essential supply and bought many times the necessary quantity, much more than other items on the list.

The impact of this considerable variation in demand is observed on the empty shelves. Inventory management policies such as lean and just in time rely on timely production and transportation, so the number of items stocked to satisfy the demand is always low. Consider a product with a steady use and steady demand throughout the year (such as toilet paper), and the variability in demand leads to very precise forecasts, low standard deviation, and very low safety stocks are needed. Until a bad soup in China disrupts global supply chains.

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