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[–]mantra 3 insightful - 1 fun3 insightful - 0 fun4 insightful - 1 fun -  (1 child)

The specific reason why TP shelves were empty has NOTHING to do with profiteering or hoarding or even anything the store can control!

It's actually stupider: it's the upstream supply chains and how inflexible, brittle and rigid they are in "modern" 2020 American. This has recently been the most dangerous aspect of major economic disruption: supply chain collapse.

TP isn't even the only example - meat, veggies, etc. all have the same flaw and will empty out because of over or under capacity any time there is a major change in demand. That's why milk is being dumped, cows slaughtered and ground up into fertilizer, and meat shortages are occurring even with slaughterhouses getting back online.

So the problem is that supply chains are "tuned" to work with no more than 5%-20% volume variance. This is because we primarily have "Just In Time" aka JIT supply chains now. The reason we have laser scanners at checkout is to facilitate JIT: nothing is ordered by the store until someone buys the thing. The laser scanner dumps ever purchase into a database and an order for more is only triggered when the inventory hits a threshold point.

And then the same thing happens with the upstream supplier/wholesaler (which might be the same company for big supermarkets or is a generic grocery wholesaler): they will not ship anything until they get an order for a store and they often only fulfill the order once THEIR orders hit a threshold of shipping volume in a geographic area.

And then the same thing happens to them (e.g. with bleach or lysol) where the manufacturer of the product also only ships once they get enough orders to hit a certain shipping volume - often the manufacturer has ZERO inventory and they manufacture the product once they get enough orders.

And similarly the raw chemicals required for bleach or lysol only get ordered once the manufacturing run has been committed and only get delivered by that supplier once the order is in hand, and these suppliers do not manufacture the chemicals for the order until they get enough orders as well. They they have their suppliers doing the same thing.

The key is demand must percolate step-by-step up the supply chain and no one is holding any inventory anywhere along the supply chain. To avoid inventory at any given node, everything is carefully tuned to a volume level that is based on previous order statistics (I had an entire course in this for my MBA).

There are a few exceptions to this for supply nodes that simply can NOT NOT hold inventory or have a long lead time. The classic example is farmers - they are slaved to the season and the weather, and pretty much have to take whatever orders come. For this reason most US farmers now use commodity futures to lock in a price and to "buy insurance" for bad harvests. Another is clothing manufacturers in Asia.

The intent is to have as close to ZERO inventory in the supply chains as possible. Usually each node in the chain has 1% or less inventory. Any inventory you keep is taxed by state and federal governments and subtracts from your profit margin - it's like income tax - and it's avoided at any cost. Plus NO ONE pays you to plan ahead and worry about unpredictable exceptions like a pandemic or war or economic crash. So no one does.

So start with that and now change demand by more than 20%. TP demand changed by 30%-40% this spring due to COVID shutdowns. The inevitable result is the supply chain chokes out on the increased demand.

And the problem is made worse because nearly every supply chain has at least 2 separate product forms. Some have more than 2.

For TP there is industrial and retail product forms with 100% separate supply chains for each of them. Retail is what you buy at the store for your home. I has very specific quality standards and very specific legally-required labeling. The other type, industrial, is very different. It's a different size, it's typically 1-ply, it's labeled differently, etc.

So now you have a pandemic where you have most of the population staying home instead of being at work. At home you use retail TP. At work you use industrial TP.

And because of the supply chain and product differences, you can NEVER substitute industrial for retail due to legal, logistic and customer expectations/preferences differences. So once you shutdown the demand for industrial and push that demand to retail home use, you suddenly have a major retail shortage and major industrial surplus because the supply chains are super brittle and inflexible. But you can NOT sell industrial TP in a retail store. You may have seen labels on products that say "Not for resale" - that's how industrial TP is because of legal and tax reasons.

It literally takes several months to quarters to re-tool the production if you can change over at all.

For example near me is an industrial TP factory - that's ALL they make. They buy 20 foot wide, 8 foot round bulk rolls of 1 ply paper, unroll it, cut it up and roll onto typical 12"-18" TP rolls you see at work or in public restrooms, and all their machines are designed only for that input from THEIR supply chain and they machines can not be changed to make retail TP. And most of the people at this TP plant have been furloughed indefinitely - adding the current super-depression unemployment rate.

This is typically of the level of specialization that now exists in every supply chain in America. Because it profit-maximizes to do it this way. But it can NOT handle disruption and change well. In fact, it's what Taleb would call "Fragile".

Because of similar issues, veggies similarly have retail packaging and wholesales packaging with completely different supply chains once the product leaves the farm. And similarly you can not sell wholesale/restaurant channel veggies through retail stores.

And we actually saw this coming - or should of - basically anyone who truly claims to be surprised is liar or a moron. We saw "supply chain" collapse with Hurricane Katrina. Most grocery/supermarkets only carry 3 days of inventory because of JIT. With Katrina, all the supply chains into Louisiana, Alabama and East Texas completely collapsed in just 3 days. There were plenty of articles about this but not everyone was paying attention.

So this is how we ran out of TP, and hand sanitizer, and other things.

It was made even worse because if you hop more than 2-4 steps up the supply chain, you are suddenly relying on a factory in China. Most of these essentials were intentionally kept from export by China. China knew about the COVID-19 infection far earlier than they publicly claim. The evidence is very clear. So they halted export of PPE masks and gloves, ventilators, chemicals for bleach and hand sanitizer, etc. so they could use them for themselves. This halt came in December.

You can't really blame them. But you can absolutely blame the US and its leadership here for being so stupid as to become that dependent on China! We must recover manufacturing to the US because this is what happens. And we need to change inventory taxation laws to allow larger inventories of critical commodities and create emergency exceptions for things like food sales limits when they are in separate supply chains.

[–]Lastrevio[S] 1 insightful - 1 fun1 insightful - 0 fun2 insightful - 1 fun -  (0 children)

Ok but this still doesn't explain why the sellers couldn't just make the TP more expensive until so few people buy it that the amount of it in shelves is the same as before

[–]rdh2121 1 insightful - 2 fun1 insightful - 1 fun2 insightful - 2 fun -  (2 children)

This is because we have laws against profiteering during an emergency, with severe repercussions. The answer we usually see, and which we saw during the Coronavirus, is instead limiting purchases to a certain number per person, which is effectively a means of artificially influencing supply to help ensure that there's more to go around.

[–]Lastrevio[S] 1 insightful - 1 fun1 insightful - 0 fun2 insightful - 1 fun -  (1 child)

In my country there were no such laws IIRC. Also we see shops with empty shelves all the time in other non-crisis scenarios.

[–]rdh2121 2 insightful - 1 fun2 insightful - 0 fun3 insightful - 1 fun -  (0 children)

I don't want to out you if you don't want to say what country you're from, but I bet you do have some sort of law like this on the books.

If you really don't have them, it's possible that store owners chose not to gouge customers who may be in need, which could also encourage theft or even robbery, which would work against the owners. Holes in supply chains due to the coronavirus situation could be playing a part as well.