What are your daily supplies? What are the items that you use every day — the food, clothing, furniture, pens, transportation, utensils, or other possessions that enable you to live and work? Chances are, those items were produced and provided to you by private companies, placed on store shelves in your neighborhood for you to purchase or on websites to be shipped to your door. But you might not know how much work goes into creating even the most basic products, and the scale of connection required behind each of your daily supplies. These connections working together, called supply chains, are the mechanism through which we get everything needed for modern life.
For many people, 2020 has been the first time that they have been exposed to supply chains and how dependent on them we really are, because of the problems caused by COVID-19. For those of us connected to the industry, it can be easy to lose ourselves in the minutiae of the changes and challenges introduced by the virus. We here at Stimulus have written about a few specific impacts of the outbreak, but now we want to take a step back for those who might not be as familiar with supply chains, and look at both how supply chains are built and why these structures sometimes are susceptible to interruption.
From the phrase ‘supply chain’, it would be understandable to assume that distribution systems are shaped like a real chain — each link connected only to those immediately before and after it, in a continuous line from one end to another:
The reality is much messier. That single line could still exist, but probably looks a little more like this:
This happens because each company involved, each of those boxes in that jumble, rarely deals with just one customer. A distribution center can move products for many different companies, and a clothing manufacturer can produce garments for multiple brands at once. Not only that, but each company involved also has an interest in removing any costs of actions that are not directly involved in its primary service. If it’s not essential to the product they sell, companies would much rather outsource an activity to another company than deal with it themselves. This has been an ongoing process for decades and has reached a degree that might surprise you. For examples, if your internet or cable needs maintenance — the cable company doesn’t actually own the truck that the technician drives to your house. Instead, it is owned and maintained by a fleet management company, which they partner with so that the cable provider doesn’t need to buy vehicles or hire mechanics themselves. It is general practice for telecommunications companies, such as Comcast or Time Warner, to add their logo on the side of a supplier’s truck so they only have to focus on their core business of cable services.
For a more common example, take a look at the peanut butter in your cupboard. At the grocery store, it might appear to be one product, but it is in fact three. On the bottom of the jar, you can probably find the logo for the company that made the jar, and inside the cap, you can find the name of a separate manufacturer that exclusively makes lids. Of the jar you picked off the shelf, the peanut butter company only actually manufactures the label and the peanut butter itself. So to create the complete item, both of the companies that make the jar and cap need to receive the needed raw plastics, create the jar and the lid, and then send them to the peanut butter brand. Peanut farmers who have produced the raw peanuts send them to peanut shellers, who then provide peanuts shelled, inspected, and cleaned to the brand as well. The peanut butter company then processes the peanuts with sugars and oils, fills the jars, adds the lids, applies the labels, and ships the finished goods to distribution centers, some owned by the brand itself and some own by grocery chains. From the distribution centers, the jars finally make it to stores and onto shelves. The final, simplified process looks like this:
Even if it only uses a single peanut farm, our simple food product with three ingredients requires at least 11 different connections between 10 independent companies to get to the point where you can pick it off the store shelf. If any of these connections is broken for too long, the supply chain will be disrupted and the peanut butter will disappear from your local grocery. Modern grocery stores carry on average 33,055 distinct products at any given time, meaning that even if all of them were as simple to produce as peanut butter, up to 360,000 different companies could theoretically be involved in providing the selection you see on the shelves. The true number could be much lower since many brands share upstream suppliers, but it serves to show that the variety of food that we are accustomed to have at our local grocer requires the smooth operation of a truly massive system, which has been more challenging recently than ever before.
You may have seen articles over the past weeks warning about spot shortages of food items, or maybe the pronouncement by the chairman of Tyson Foods that “the food supply chain is breaking.” The word choice of Tyson is perhaps dramatic, but it is true that some of these chains have been interrupted. Every one of the connections above symbolized by an arrow is planned around expected need and demand for the product. Due to COVID-19, consumers have been acting very differently than they normally do, in some cases irrationally as an emotional response to the perceived danger, which has thrown these connections out of sync. Some of the connected companies up the chain, like Tyson, have had to temporarily close plants as their staff fall ill, which has interrupted the production of specific foods.
Overall, COVID-19 has exposed the lack of resiliency in food supply chains. Every company involved has a keen interest in maintaining their connections to their suppliers and customers, and in staying operational — but that task can be difficult if a company has more manual processes than digital. Worst comes to worst, they can find somewhere else to obtain their needed supplies, since the connections aren’t hard-coded into their design. They are adjustable, and while the above diagram might make it appear like the peanut butter manufacturer masterminds the entire chain, they are probably not in control of the structure of it past a certain level. For example, they can’t direct their jar provider to take their plastics from a particular source, even if they might have a preference.
Peanut butter is only one of many items that we come across in our daily lives. As a part of a new series of articles, the Stimulus team will feature content on more daily supplies — to include how people and companies get the daily things they need and who supplies them.