Although COVID-19 has had a significant impact on our daily lives, fundamentals of nourishing the world have not changed. As consumers began to panic buy at the onset of shelter-in-place orders, the significance of logistics and supply chain were elevated. Today people have a much better understanding of the importance of protecting the food supply chain. Let’s take a look at what’s changed, the impact and what the future holds for food manufacturers and their 3PL warehousing partners.
1. How has the spread of Coronavirus changed food distribution?
With restaurants closed and people eating at home, there has been a shift in demand from foodservice to grocery retail. At the beginning of the pandemic, this temporarily caused some major disruptions to the supply chain. Unprecedented demand in retail grocery lead to stock outages at the store level and depleted inventories in forward warehouses. Conversely, foodservice distributors initially found themselves overstocked and in many cases were forced to dispose of expired goods.
2. How have retail food manufacturers responded in the wake of unprecedented demand?
- Focus on employee health and safety: New protocols to prevent the spread of the virus as well as managing absenteeism where employees tested positive or needed to quarantine have impacted production efficiency.
- Record sales volume: Food manufacturers, especially on the retail side, are experiencing record sales volume even as restaurants reopen. Consumers are still keeping their pantry’s stocked particularly with shelf stable goods such as canned meats, beans and peanut butter. With children at home and their parents working remotely, families are indeed eating more meals at home than they did prior to the pandemic.
- SKU rationalization in production: In many cases, food manufacturers are limiting production to their top selling items for now. This enables more efficient production of those “A” items.
- Bypassing forward warehouses: To service their retail grocery customers such as Walmart faster, food manufacturers are shipping direct to their distribution centers bypassing forward warehouses.
3. What has been the impact to 3PL warehouse providers?
Third-party warehouses such as The Shippers Group have been essential to help mitigate disruption of the food supply chain. When panic buying erupted, 3PL warehouses for food and CPG sprang into action. Order volume at the distribution centers spiked as retailers reacted to consumer demand and inventories within these distribution facilities were depleted. What followed has been temporary vacancies at these 3PL warehouses. With food manufacturers shipping direct and bypassing their forward warehouses to keep up with demand, their inventories at the third-party warehouse have been low. The result is a financial hit to inbound storage and handling revenues.
However, it’s not doom and gloom for 3PL warehouse providers. For companies like The Shippers Group, there have been new opportunities arise out of the pandemic. Demand has evolved for supply chain services that support the flow of cleaning supplies, personal protective equipment and hand sanitizer. As more consumers shop online, there are more e-commerce opportunities for third-party warehousing providers.
4. What does the future hold for food manufacturers and their 3PL warehousing partners?
COVID-19 has enabled us to test our contingency plans and agility. We’ve experienced the importance of trust in supply chain partnerships. As we manage our way through the ongoing pandemic, we will continue focusing our efforts on collaboration and improving information that will enable even better responsiveness. This experience has drawn focus to ways we can improve efficiency making us more lean, and in some cases it has also identified gaps where we are maybe too lean given these circumstances.
COVID-19 has tested us but it has not fundamentally changed food supply chains. In the short-term, we will manage volatility in demand as consumers react to lifestyle changes while dealing with a global pandemic. The overall outcome on our nation is a more collaborative, agile and efficient flow of food and CPG to consumers as we continue to discover ways to better enhance already robust supply chains.
The Shippers Group is a leading national third party logistics company located in 6 states. In addition to 3PL warehousing services, the company also provides contract packaging, ecommerce and transportation management services.