"Lean thinking", not panic buying, is why we're seeing shortages

Scott Morrison and state premiers have repeatedly called upon ordinary people to stop so called “panic-buying” and hoarding of supermarket items. It is commonly assumed that ordinary people are being anti-social, selfishly buying too much and hoarding and this is the reason for the empty shelves at our local Woolies.

Minister for Turning Australia into a Police State, Peter Dutton, has predictably responded with authoritarianism, warning “We will come down like a ton of bricks on those individuals because I think they’re the ones that have created this pattern of behaviour of hoarding and clearing out shelves”. Buying extra groceries to prepare your household for possible self-isolation or lockdown – as government officials suggested people should – is suddenly being treated like a criminal act.

Western Australian premier Mark McGowan insisted supermarkets employ extra security and committed to more police patrols of supermarkets. Yet in the same press release McGowan hinted at some of the problems in the supply chain that were causing shortages: “Regulation changes will be implemented shortly to allow for truck movements to occur, with less red tape. Currently the regulation sits with local government, however the Local Government Minister will do what is necessary to introduce new uniform rules. This will mean commercial deliveries to shopping centres can occur around the clock, allowing more stock to be delivered to local shops.”

The shortages in our supermarkets are nothing to do with the selfish instincts of humanity, but rather the complete failure of supply chains designed for competing against rival supermarkets rather than human need, to adjust to a relatively modest increase in demand. When people quite reasonably start to prepare for eating more at home, stock up on necessities like toilet paper, batteries and non-perishable food the inability of supermarket supply chains to adjust is exposed.

A recent Business Process Management Journal article outlines how aggressive competition by big supermarket chains to drive smaller competitors out of business creates a situation where supermarkets require “faster speed to market. Consequently, the urgency of just-in-time production and lean thinking has led to lower stock levels”. The whole supermarket model aims at keeping very little stock in the high rent retail stores. Instead stock is delivered numerous times a day based on finely tuned calculations of demand. The key driver of this model is to make it difficult for smaller retailers to compete with the bigger supermarket conglomerates. Coles and Woolworths have their own vast networks of warehouses, logistics staff, trucks and drivers to distribute goods.

“Lean thinking” is the euphemism for running supply chains on the cheap, cutting wages and limiting any flexibility in logistic networks to maximise profits. These supply chains operate on predictable, rigid seasonal models of demand which minimise costs. It is not profitable to plan for contingencies where household demands might increase.
When the government encouraged people to stock up, this logistics system struggled to started to collapse.

At my local Coles, half the stores shelves were empty on 25 March. Staff told me that the trucks from the warehouses had not arrived. Apparently, the companies coordinating the logistics of moving stock from warehouses only delivered to 50 percent of stores that day, too overwhelmed to make all their scheduled deliveries.

Warehouse workers report that warehouses are overflowing with stock. The problem is getting the stock to the shelves. Lack of equipment in the warehouses to move the stock is creating huge bottlenecks.

Every step of the capitalist supply chain is subject to ruthless calculations that maximise profit over human need. As the COVID-19 crisis changes our needs the competition driven, market -based system cannot keep up.

This week, the ACCC allowed supermarket chains to collaborate to increase deliveries of goods to supermarket shelves. Normally the ACCC regulates against this cooperation to prevent cartels forming which might see supermarkets collaborating to artificially raise prices. The existence of regulations like this highlights the way in which the market is unable to meet human need, it needs government intervention to stop monopolies forming and price even in “normal times”.

The media focuses on a few individual instances of anti-social behavior. The real anti-social behavior is the systematic price gouging carried out by supermarkets. Reports of $10 lettuces and $45 bottles of hand sanitiser are everywhere on social media. Predictably, the media and government are largely silent about these outrages, and Dutton is not threatening to come down “like a ton of bricks” on bosses cynically exploiting the situation.

Instead of sneering about disappearing dunny paper, we should celebrate the fact that ordinary people take the pandemic seriously enough to prepare. We should demand price controls, prosecution of price gouging rather than criminalising responsible household planning.

Empty supermarket shelves show that people are taking appropriate precautions even as our leaders prevaricate. If people are forced to go without, the competitive, market based system is to blame.