Relationships can make or break businesses.
A team of researchers in the New Mexico State University College of Business is wrapping up a data analysis project to determine how the COVID-19 pandemic drove food supply chain instability. The months-long project, which started thanks to an established partnership with a major food producer, is closing with a key theme: Businesses need stronger bonds to endure future large-scale disruptions.
“One thing they could’ve done was have better relationships with potential contract manufacturers to help them through this type of a crisis,” said Barry Brewer, associate professor of supply chain management and one of four NMSU faculty members who reviewed the data.
Brewer added that, in a prolonged crisis such as a pandemic, businesses should scrutinize the design of their supply chain to ensure it’s not only profitable but sustainable.
“That may require them to work more on collaboration beforehand,” he said.
It was prior relationships and collaborations that connected the NMSU team – which also includes faculty members Don Fuqua, Carlo Mora and Victor Pimentel and Ph.D. student Shravya Dharba – with the major food producer, a multinational company.
Pimentel, associate professor in NMSU’s Management Department, said he got the idea for the project during a conversation with a former student who now works for the company.
“I just threw it on the table,” said Pimentel, recalling the discussion. “Do you guys need or want an X-ray with what happened during the pandemic? Let’s do it.”
Eventually, the company gave the NMSU team a massive haul of raw data. The information contains all of the company’s wholesale food shipments to the Midwest for 2019 and the pandemic-tainted 2020. The company, which has partnered with NMSU in the past, asked that its name remains unpublished.
To give a sense of its size, Fuqua, an associate professor of information systems, noted that its products take up about 80 percent of a major food category at grocery stores nationwide.
At that scale, Fuqua, who has a background in engineering and headed up the project’s data analysis portion, had plenty to review. About 450 million pallets full of 500 different products from 33 product families went through five distribution centers and 500 smaller fulfillment centers. They also used 150 demographic variables from the U.S. Census Bureau.
In early 2020, the burgeoning public health emergency forced a shutdown. High unemployment numbers, as expected, had a significant impact on the food supply chain. Then something more unexpected hit. Fuqua noted that, as stores and select businesses reopened, the pandemic seemed to magnify existing weaknesses in the food supply chain, despite a 20 percent increase in sales.
Those sales figures, for the most part, were concentrated in grocery stores, Brewer said. Schools had closed and restaurants that remained open were minimized, so what is historically a multi-channel food supply chain converged almost exclusively to a single channel.
The company, Brewer said, didn’t have the capacity to respond. That’s why, Brewer suggested, it needed better relationships with contract manufacturers.
The team’s research also revealed other helpful insights. Areas with higher unemployment and lower education were creating a strong impact on food supply chain instability. Fuqua suspects it was because, with more people living paycheck-to-paycheck, more of them were shopping only when they were paid.
All of that, plus a high rate of returns, created a bullwhip effect – inventory swings that reverberate up the supply chain caused by shifting consumer demand and other issues.
The stress of the pandemic also unveiled, through the analysis of the food supply chain, a surprising degree of brand loyalty.
“Even though a lot of people were losing income, they weren’t changing their preferences,” Pimentel said. “They are loyal to their brand. My guess is that it’s comfort food. When things are going bad, you find comfort in those things.”
Perhaps the most valuable piece from the research is what companies can learn about themselves.
“One of the main things that we learned was there just wasn’t enough planning that went on,” Brewer said. “Everybody had just kind of assumed that we’re very capable in the United States, and if something hits, we’ll just be able to respond to it. I think we need to plan around potential supply chain disruptions and then understand what steps we need to take in the face of different types of disruptions.”
Added Pimentel: “The worst thing we can do is not learn from what happened. Having a corporate memory is going to be really important.”
Brewer, Fuqua and Pimentel are part of the NMSU Center for Supply Chain Entrepreneurship. The center focuses on helping businesses with their supply chain problems and giving students experience as they help provide solutions. Companies may contact the center at SCEcenter@nmsu.edu or 575-646-3195.
“NMSU wants to take a prominent role in supply chain activities in the region,” Brewer said.