How COVID-19 is disrupting the food supply chain in New Zealand
A change in both mindset and process can ease the supply system both now and in the future
New Zealand Expert
By Ilan Oshri and Julia Kotlarsky, CIO
Since February 28 — the day the first COVID-19 case was reported in New Zealand — supermarkets have been struggling to cope with panic buying. Initially many of us have been amused to witness the disappearance of toilet papers from supermarkets’ shelves. However, as the number of COVID-19 cases has gone up, it has become more and more challenging for supermarkets to restock goods and refill the shelves with basic goods such as flour, pasta and rice.
We keep hearing from supermarkets and the government the same message: no need to stock up food, there is plenty of food in New Zealand. One supermarket manager said that in the last couple of weeks, shoppers in New Zealand bought enough food for 10 million Kiwis. Another one said that Kiwis should calm down as the nation coped well with World War II, earthquakes and volcano eruptions, so we should be fine fighting COVID-19.
But panic shopping and inability to cope with it by supermarkets and the food supply chain is happening not just in New Zealand. Similar reports have been in the media about the USA and the UK where supermarkets ran out of basic products, failed to meet delivery service commitments and on a few occasions online food delivery services have closed down, unable to meet the demand. This is very worrying for New Zealand, and it is not completely clear what is the source of the current mismatch between the extreme demand with what should have been a business contingency supply.
The factors at play in New Zealand’s food supply chain
To try and understand the source of the current mismatch, we need to consider multiple factors that are currently in play in the context of New Zealand. These include the behavior of people in a crisis, the flexibility of supply chains and a black swan event. (Black swan events are characterized by their extreme rarity, their severe impact, and the widespread insistence they were obvious in hindsight.)
It is easy to blame the people for panic buying, but you will only get half of the story. People need a minimum degree of certainty and clarity about the future to behave in a rational way.
Comparing the unfolding events of COVID-19 to New Zealand’s ability to cope with earthquakes and volcano eruptions is not helpful. Most natural disasters are localized, short, around an epicentre, and tend to affect a relatively small community. In most natural disasters, impacted parties can make a quick assessment of the damage and estimate what the future would look like in terms of whether there will be access to food, water and basic services (in most cases there will be).
COVID-19 presents a completely different challenge for the people of New Zealand. Being a black swan, it is an unfolding event with high degree of uncertainty with regard to the actual impact on our daily life and ability to consume and maintain a similar routine while we are in a lockdown.
What people are looking for is to improve the level of certainty they have over their life by ensuring that they have food and basic products. Seeing empty shelves in the supermarket does not provide this assurance, hence the ongoing panic shopping behaviour. People are also exposed to stories and photos from other countries where supermarkets have struggled to keep up with demand, and that further stimulated anxiety among New Zealanders. Anxiety is understandable in times of uncertainty, and no reassuring message by the government or supermarkets will ease people’s concerns.
The second part in this story is the supply chain of food, medicine and basic goods. Right now, it is not clear why statements made by both the government officials and supermarket representatives that New Zealand has plenty of food and other basic products nonetheless do not allow the entire supply chain to cope with the overwhelming demand.
Is it because the New Zealand supply chain’s business continuity is designed to cope with natural disasters and a black swan such as COVID-19 completely disrupted any contingency plans? Is it a problem of transport — freights and couriers are not able to cope with supermarkets’ purchasing spike? Or is there a shortage of goods in New Zealand so we should rely on supplies arriving from abroad? Perhaps it is not so much a problem of logistics but rather supermarkets’ purchasing strategy that is hoping to flatten the panic shopping curve by restricting access hours and stoking up similar quantities per day?
Actions the NZ supply chain can take now
There will be time to analyse the current mismatch between supply and demand which is now entering its fourth week in New Zealand, but certain actions taken now by supermarkets and the government do not help people regain confidence that food and other basic products will be available for them every day as the country goes into a complete lockdown.
As we are in the midst of these challenges, and not all information is available to analyse and draw conclusions, we believe one avenue that should have been explored, quickly developed and possibly even supported by government resources is delivery of online orders. Most of the panic shopping is for products that are not needed immediately at the shoppers’ household. These products are securities for the shoppers to ease on the relatively high level of uncertainty they have developed over the last four weeks.
Supermarkets could and should ease on daily traffic into their premises by vigorously advertising by offering generous discounts on online shopping and quickly developing a system that offers a 24×7 delivery to shoppers.
The logic for encouraging shoppers to switch to online retail systems is that such a shopping preference will allow supermarkets to improve their purchasing predictions, space out needed purchasing subject to demand recorded in the online retail system and provide their delivery partners with information needed to organize their logistics better.
This alternative channel should have significantly eased the on-premise demand and potentially over a couple of weeks would have provided safer shopping for New Zealanders with least contact possible.
Ramping up logistics capabilities is still a challenge. However, there are delivery channels that supermarkets can tap that are supported by smart digital platforms and that are now underutilised such as Uber Eats and Zoomy, and potentially other transport and logistics suppliers that are struggling to keep their fleets utilised because of the sudden downturn in the economy.
Embarking on such an approach is not easy, as it contradicts traditional business logic of purchasing, supply chain and logistics management. And even if the mindset has shifted towards the utilisation of broader platforms and relying on shared economy resources, developing such a capability is not going to be easy, especially under current circumstances. However, if the last four weeks have taught us anything, it is that there was a problem somewhere along the supply chain and change is needed.
Ilan Oshri and Julia Kotlarsky are experts in global sourcing and digitisation at the University of Auckland Business School.