When the pandemic’s impacts started to become apparent and localized in early 2020, I — like many others — tracked the viral stories about household products being out of stock and the runs on grocery staples. I paid close attention as social media do-gooders told me where I could find toilet paper and disinfectant, and I immediately jumped in my car to procure them. Then, I admit, I went online and ordered a case of pasta to ensure I had enough safety stock for my ritualistic “spaghetti Wednesdays.”
Despite my supply chain expertise, I had become part of the bullwhip effect that our global supply chains are still trying to recover from. On reflection, there was an innate selfishness to my hoarding behaviors coupled with a remarkable irrationality around the items involved. I am especially embarrassed by my purchase of the pasta because I know this is a food item that helps sustain economically challenged folks, and I am one of the least food-challenged people on Earth.
I wish I could say I learned some lesson from that first wave of shortages, but I did not. When the spring of 2021 brought about a shortage of chlorine for use in swimming pool sanitation, I again hoarded every bag of pool shock treatment I could find. Yes, I also have a swimming pool — and now, a three-year supply of chlorine.
I think most people who know me would describe me as a charitable, even generous man. Yet I found myself in the middle of the classic tragedy of the commons dynamic. According to Investopedia: “The tragedy of the commons is a problem in economics that occurs when individuals neglect the well-being of society in the pursuit of personal gain. This leads to over-consumption and ultimately depletion of the common resource, to everybody's detriment.”
During the height of quarantine, my purchasing decisions never factored in the broader needs of society, nor, even more narrowly, those of my neighbors. Unsurprisingly, this hoarding behavior cascaded into my work as a supply chain planning director. I instructed my planners to order up, produce more, and find more storage for raw materials and finished goods. They took my instructions to heart and built supply plans around our already upside-biased forecast while adding in some of their own fudge factors. Everyone from the master planner to plant schedulers and procurement folks rounded up their requirements, expecting a shortage in the supply chain to affect our business. They were protecting our interests just as I had protected my precious spaghetti supply. And truth be told, they also were avoiding the very real negative consequences associated with out of stocks. My team members felt that our jobs and the long-term health of our company depended on doing our best to ensure supply.
All of this was done with the full participation of our sales and operations planning (S&OP) stakeholders, most of whom met daily to discuss the ever-changing status of the pandemic. The notion of protecting the business became the prime directive of our leadership, and all rules of inventory management were tossed aside to do so. Million-dollar decisions were made in a scant few minutes based on limited data and with little thought for any greater good.
We loaded up on inventory to meet the demand requirements of our consumers, yet most of the products we sold were nice-to-have, first-world accessories. Few really solved or served any critical problems or urgent needs. We weren’t distributing lifesaving medicines. Looking back, I wonder if this personal and professional hoarding served any useful purpose. Consumers could find our products in any number of outlets, and most retailers had extensive trade inventory. It seems as if we were mostly reacting to a problem that did not exist.
Instinctual responses and cerebral solutions
So, what are the takeaways from all of this? First, we are only human, and most of us have a degree of risk-aversion that — when tested — forces us to consider and safeguard our basest needs. This selfishness manifests both personally and within our pack, our immediate tribe — our loved ones, our neighbors, our coworkers and our employers — and it leads to lower-order decision-making without consideration of long-term impacts or consequences.
My team dramatically over-ordered raw and pack ingredients for products that did not sell well during the pandemic, and we barely focused our attention on those that inevitably sold better. Furthermore, we inaccurately estimated the pandemic-based market reaction to our product set, resulting in a demand and material requirements mix that was fundamentally flawed. We also overcommitted on raw ingredients and packaging for a product line that we thought might help propel us into a new category. Looking back, we could have planned better, but we got caught up in an executional frenzy that did not include any sort of reflective pause to consider whether our decision-making made sense.
Second, we ignored the metrics. This was evidenced in S&OP executive review meetings, during which we did not present fundamental metrics such as inventory value that would have helped us maintain perspective and exercise better control. And we did not speak to tremendous inbound inventory en route via oceanic cargo ships. I suspect if we had dug in on any of our well-established metrics, they would have helped us slow or at least measure our response.
Third, we exhibited classic biased behavior in our forecasting process. We overestimated and became giddy when any consumer consumption seemed elevated. However, we only slowly reduced our forecasts on items that exhibited severe negative trends. Worse yet, anyone attempting to attribute lower trending to such negative items was treated as a pariah. In so many ways, we were not self-aware enough to see our biased behaviors as a risk to the health of the organization.
Probably my biggest lesson is that I need to be smarter to overcome some of my baser reflexive approaches to planning. I wore my problem-solving hat too much while neglecting the strategic hat that was needed in the moment. As a result, I listen more intently these days to those espousing behavioral economics as a driver of organizational decision-making, in particular, with regard to forecasting. There is some magic in these dialogues. I also devote more focus to conversations about decision-making during times of stress. And I have begun to study research regarding social cognition and the ability to have empathy and understand others’ perspectives during stressful times.
Our role as supply chain leaders must call us at times to transcend matters of mere data, statistics, forecasts and objectivity. My thinking on consumer behavior was too narrow and focused on shipments and consumption curves instead of demand drivers.
Lastly, reflecting on this post-reactionary period of COVID-19, I am much more patient and empathetic toward those planners who are sitting on a ton of just-in-case inventory that resulted from our collective primal planning reactions at the start of the pandemic. If an experienced supply chain knucklehead like me can overextend on spaghetti, it seems only fair that every planner should be given an organizational pass on our collective pandemic response.
Pat Bower will be presenting Lessons in Resilience: How S&OP Evolved During COVID at the 2021 ASCM Annual Conference.