Tuesday 24 March 2020

How the Distribution System Broke Down

Why has the distribution system broken down to such an extent that something as basic as a toilet roll is now out of stock? The quick answer is panic buying, and I am sure that panic played a part in all this, but there is still a limit to the number of bog rolls that will fit into a house, to say nothing of the disinclination of normal adults to have many of them taking up space in the average home.

I know that these days you cannot get a chest freezer for love nor money in the UK as the sharp-elbowed middle-class bought them all up at the beginning of this month and then filled their new purchases to the brim with meat. However, red meat was rarely in short supply and even chicken and fish was usually available. You don't put bog rolls and dried pasta in a freezer, so we can discount the owners of the new chest freezers from this.

Clearly, people did stock up in a hurry at the start of the month and are still buying more than they did last month for the simple reason that they are now at home. Last month they went to work and had lunch in a pub or cafe near their place of work. Maybe one night a week they decided not to cook so the family went out to an Indian restaurant or ordered pizza delivery.

Increasingly, many people do not do the old weekly shop at a giant supermarket; instead, they have the week's groceries delivered to their door by a man with a van. The supermarkets know roughly what they will sell in any given month of the year and have their supplies arriving on a daily basis. It's called just in time distribution and it works very well until it doesn't and then chaos ensues.

People buying more than usual hurt the system, but I suspect that a lot of the chaos came about because tens of thousands of young, single people who live in the cities suddenly realised that the distribution system that had served them so well all their adult lives was suddenly not working so they added to the panic.

These are the people who pop into a Tesco Express on their way home from work and buy some food to cook for that evening, with maybe a box of just 40 teabags or a small jar of coffee to go with it. If they buy milk it will be the smallest bottle they can find and sugar will be in a tiny bag. When they buy toilet rolls they tend to go for the pack of two, rather than the multipack of 36. It costs them more money shopping that way, but since they spend so much time outside their rabbit hutch sized flats I suppose they think that the less time they spend indoors the better for their mental health. Anyway, once they realised that their usual small shops were running out of groceries, they went to the big supermarkets and helped them run out of stock as well.

To make matters worse, the supermarkets have to pay a small fortune in business rates so it is no longer in their interests to maintain a large storeroom to keep stock on hand. Far better to use the giant warehouses that all the supermarket chains have and then truck the supplies in as the computer systems say they are needed. 

This brings us back to the just in time system which really does work perfectly until there is an unexpected surge in demand, and then there are just not enough trucks and drivers to keep the distribution system working. Once upon a time drivers could have been paid double-time to carry on working, but thanks to the EU and its regulations, driving hours are restricted. We may be legally free of the EU, but we have agreed to observe its wacky rules until the end of this year. That being so, the Coronavirus arrived just 12 months too early.

In a nutshell, what happened was that a perfectly fine-tuned, ultra-sophisticated system that works on getting supplies to the point of sale just as they are needed, broke down because of a surge in demand that nobody could predict.

The lesson for the future that we should all take from this is that we need to keep supplies on hand in our own homes. That is something that I will discuss in my next posting, so stay tuned for that.

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