How Panic Buying Affects the Supply Chain

A long line of shoppers queueing along a sidewalk outside a retail store.

“Panic buying” can occur when consumers are intrigued by a product only offered for a limited time, or when they feel threatened that a product will disappear and no longer be available. When consumers engage in panic buying, they may even spend money they don’t really have to begin with. Buying a product in mass quantities can impair retailers’ abilities to keep their store shelves stocked or manufacturers' abilities to create enough product. While consumers may only panic-buy a product for a few weeks at a time, the entire supply chain may suffer negative consequences from these actions for months, sometimes even years, to come. When manufacturers are unable to manage production and warehouse inventory begins to dwindle, the entire supply chain can be affected. It can even cause supply chain disruption. Streamlining your operations through an integrated end-to-end inventory management system is key in working to counter the negative effects of panic buying.

What Is Panic Buying?

Panic buying behavior occurs when consumers buy unusually large quantities of one specific product, usually in response to a time-sensitive issue, such as a natural or social disaster. This consumer behavior is usually seen when the idea is sparked that a specific product will no longer be available, or that there’s been a disruption in production. Consumers usually stockpile what are considered “essential goods,” such as bottled water, batteries, or toilet paper.

Panic buying behavior may also occur if a manufacturer or retailer signals that a product will be discontinued, or if a product is on sale for a limited time. This stockpiling behavior may also occur because consumers feel pressured to get the product at the lowest price before it’s gone.

What Are the Effects of Panic Buying?

The potential effects of panic buying are varied; some consumers, for example, may not be able to purchase an item that they genuinely need because grocery store shelves are empty. Other consumers may find themselves falling into debt panic-purchasing items using credit. Supply chains and warehouses can also be negatively affected by this over-buying phenomenon.

SUPPLY CHAINS

Large retailers with long-established relationships with supply chains may fare better than smaller retailers that aren’t as established. The health of the supply chain can directly affect the retail market’s profitability, since it’s responsible for delivering these goods to the retailers and ultimately to the consumers.

The way supply chains are affected by consumer panic buying is usually explained as the “bullwhip effect.” Demand increases at the retail level and is immediately felt through the supply chain. Production is ramped up and manufacturing inventory increases, but in some cases, it’s not fast enough.

Consumers are waiting for these products in retail stores and their absence may cause another panic buying frenzy when they become available. This ripple effect from manufacturer to retailer repeats and increases and decreases in intensity, similar to cracking a bullwhip.

Supply chain ripples felt from the bullwhip effect can have negative consequences, including:
  • Delays in retail stock.
  • Manufacturing backorders.
  • Hiring and laying off of manufacturing workers.

In many cases, it takes several “bullwhips” before the supply chain evens itself out again, but usually not without damage.

WAREHOUSES

In a situation where consumers are buying an exorbitant amount of one product, warehouses may find it impossible to keep this product in stock. When manufacturers deliver on this desirable product, it’s often not enough warehouse inventory to satisfy retailer demand, negatively affecting the relationship.

As demand to move a product increases, a warehouse may need to hire truck drivers, shelf stockers, order processors, or inventory management specialists. However, as the ripple continues down the supply chain and the panic buying subsides, these workers are not needed anymore. Warehouses may find themselves laying off many employees after the supply chain regains sustainability.

How to Prevent Product Shortages

Exaggerated periods of panic buying are bound to disrupt the way a warehouse and supply chain operates. There are several strategies these entities may implement to help soften that impact.

LIMIT THE NUMBER OF PURCHASING ITEMS

Managing retail inventory is a daunting task when consumers are engaged in panic buying. To prevent a single product shipment from disappearing within minutes, retailers may limit the quantity each consumer is permitted to buy. Limiting the number of items purchased can help prevent hoarding, because consumers cannot buy excessive quantities of one item.

When a retailer limits consumers to only buying a certain amount of a product at a time, it gives other consumers the opportunity to purchase the product they need. This strategy also allows inventory to last longer on the store shelves, giving manufacturers and warehouses more time to deliver products before the supermarket shelves are bare.

USE AN OMNICHANNEL APPROACH FOR RETAIL

During a public health or social crisis, consumers may be wary about going out in public and being around other people. They may be focused on social distancing, which isn’t usually conducive to the standard shopping experience. Retailers should consider an omnichannel approach and offer delivery or online ordering in these situations. This allows the retailer to have more control over the desired product so inventory lasts longer.

Retailers looking to implement online sales must prepare for this new way of doing business. Effective and comprehensive consumer goods inventory management software is key to remaining organized and retaining accurate stock counts. Inventory management ensures you can fulfill customers’ online orders without delays or backorders.

ESTABLISH A TASK FORCE

When you see a shift in the chain, one strategy to combat its negative effects is to create a task force made up of a few employees from each department. These employees focus on how the change in the supply chain is affecting workers, customers, retailers, companies, and families of these employees.

Integrating your business’s accounting software with your supply chain tracking system helps you make smart decisions to keep your business afloat during a global crisis. However, you won’t know how these decisions and changes to your workflow directly affect your staff or other relationships you have within the supply chain. By implementing a task force, you’ll be made aware of these implications so you not only have the numbers you need to make beneficial decisions, but also the information on how these changes affect employees and others.

Looking into additional resources to help you navigate the challenges of consumer panic buying may make it easier to deal with these periods of high demand in the future. Mobile inventory software allows you to review your numbers from anywhere. Other solutions such as artificial intelligence, machine learning, or automated warehouse software may also be helpful.

Perfecting online services through comprehensive e-commerce inventory management software ensures you keep your customers safe and satisfied. Panic buying makes ripples in the supply chain and affects warehouse, retailers, and all businesses in between. You can mitigate these effects by ensuring you’re managing your inventory and remaining open to progressive ideas and changes in the way you do business.

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