Name: The Case of the Missing Toilet Paper
Uploaded: 2020-05-18
Duration: 8 min 36 s
Description: How the coronavirus pandemic exposed U.S. supply chain flaws.

How the coronavirus pandemic exposed U.S. supply chain flaws.

The Case of the Missing Toilet Paper

Magazine

How the 2020 pandemic exposed U.S. supply chain flaws.

So at the beginning of the pandemic, toilet paper is suddenly starting to be sold out everywhere. People are buying as much as they can get their hands on because they're worried they're going to be stuck inside for a long time and not be able to go outside because it's not safe. So they need toilet paper and they're not going to work. They're working from home. So all the toilet paper that they might otherwise using at their offices, at restaurants, wherever they go there now using it at home. But everyone says no, there is no real shortage. America is not running out of toilet paper. Um, it will be back in stock in a few weeks. People just need to stop buying quite so much and stop supporting it. But so here we are, two months later into the pandemic, and toilet paper is still really, really hard to find. This is a problem. How are they going to fix it? And so I did a deep dive into the toilet paper industry. Okay, so let's go back to March 12. If you think about it. The day before March 11th is when the WHO declares the coronavirus pandemic, and that is the day that everything changes for everyone. Almost everyone is preparing to work from home, and that's when you start to see people descend on the stores. And that day, toilet paper actually becomes the number one best selling item at grocery stores. Pictures are showing up on social media of fair shelf empty of paper products. That's a scary thing for a lot of people to see, because usually when you go to the grocery store, you can expect to find something as simple as toilet paper. It's not something that's really ever sold out, and all of a sudden it's this hot commodity item that you can't find anywhere. You can find it online. Think Amazon was probably the first place it was sold out and then soon after Walmart Costco, its Kroger's Albertson's. In some parts of the country, they're calling 911 because they can't find toilet paper, and it just shows you that, you know, as people started to panic a little bit, this kind of fuels their panic even more, and so any time they even see a roll of toilet paper there grabbing it because they don't know when they're going to see another one. And so sales actually surged 734% on March 12 for toilet paper. And that's when it becomes the number one best selling item in grocery stores. And it sold out for most of the country. You know, as much as companies and experts try to deny it at first, when everyone starts to perceive there is a shortage, they by going for the stock up on it and therefore perception becomes reality. And that's what's happened here. So even if there wasn't a shortage at the beginning, the perception that there was a shortage has now become reality. So the reason that toilet paper is such a uniquely complex challenge is because of the nature of what it is. I mean, think about it. You know they're bulky white rolls. You can't store a lot of it without investing huge amounts of money, so it's very expensive to make very expensive to store. And so it's become, you know, the kind of poster child of the trend in manufacturing over the past decade called just in time manufacturing. And what it basically means is you're producing just enough to meet demand at the time that it's needed the right amount at the right time delivered to the stores the customer buys it. Nobody's ever storing huge amounts of toilet paper for too long. That makes it a very lean operation. You don't have more than a couple of weeks of toilet paper on hand. I mean, just think about it for Walmart to store that much toilet paper. You're talking extra warehouses. Amazon extremely efficient company does not want to be, you know, having a warehouse full of toilet paper when it could be storing, you know, maybe six times, 10 times as much as something else. Like so for shampoo. Toilet paper is uniquely costly and uniquely capital intensive, and therefore you can't keep a lot of it around at one time. And so here you have the pandemic when it sells out, all at the same time very quickly, and suddenly the supply chain has no chance of catching up. So think about the investment that would be required for companies to produce more toilet paper and have more in hand. So you say you want to produce more tied to church If you want to fill up those bottles. You can open another assembly line for relatively cheap, probably under $10 million to do that with paper. These are huge machines. I mean, like two stories high in terms of machines, huge factories just because of the scale of the rolls of paper and what it takes to do that, you need to invest about 300 million. That's something that no company is going to do. Not to mention the time that it would take to do that. Maybe 18 months when we're not even in the pandemic anymore. Nobody wants to be stuck with mounds and mounds of toilet paper. You have three big players in the toilet paper industry. Um, the first one being Procter and Gamble. They move Charman, Um, and then you have Kimberly Clark, which makes Cotton l and Scott. And the third one is Georgia Pacific, which is not in the Fortune 500. But so, you know, I'm talking to PNG and Kimberly Clark, and what they're telling me is there, you know, doing everything they can to make toilet paper to meet demand. And so what they do is basically all of the down time all the time that it would take every time they want to make, you know, ultra strong versus ultra soft. They would have to stop machines, change at all the packaging, change out all the kinds of paper, and it's a significant amount of downtime. So they said, You know what? We're not gonna do that. We're gonna make fewer kinds of toilet paper, and we're going to keep the machines running. You know, we might take a break for an hour or two times a day. We're gonna have three shifts, maybe some even went from two shifts to three shifts. We're gonna run 24 hours a day, Um, and make as much toilet paper as we possibly can. PNG even says that some of their workers who would normally be in the office and could be working from home are now coming in and working on the floor of the plant just to make sure there's enough toilet paper for America there. Actually, as we speak, collecting all the lessons that they learned and having this huge internal meeting about how can we implement these lessons forward? How can we make sure that we know when there's a demand shock coming. That's something that all of a sudden is going to be selling out and increase production if they need to. But also importantly, at the same time, they don't want to be stuck making too much toilet paper when demand drops off. And as soon as people go back to work, you know demand could drop off a cliff. So importantly, they want to make sure that they can also take production down quickly when they start to get those signals That demand has fallen, and similarly with Kimberly Clark, which has said they've significantly reduced their toilet paper. You know, if you're seeing more kinds of cotton mills through often seeing them rather than the 12 packs, you're seeing them in more four paths and six packs, because that way they can spread the supply across more customers. So whereas one customer might be able to get a 12 pack now, you can have two customers buying six pack three, buying four packs. It's a little bit more fair. It keeps people happy. They're not freaking out. As much as they won't be able to find any toilet paper. They've also realized that Hey, you know, it's much more efficient and consumers don't mind. In fact, they actually like the choices that we're giving them. Maybe we don't quite need as many choices after the pandemic. And so when this all ends, you probably won't see as many different kinds of different toilet paper as you did before. The The industry has been so concerned over the last 10 years about just being so efficient. How do we cut every single cost? How do we beat? Make make sure we're lean, that it doesn't allow for really any of the protection that you could build in If you say, had, you know, a month's worth of toilet paper on hand just in case something happened, the supply chain was disrupted by a hurricane or a snowstorm. They do that to a certain extent when there's some weather, but only regionally. You could never really do that across the whole country. I don't think that I've ever thought before about weird is my toilet paper come from. It's something that we all really take for granted, and so it's really exposed how the modern supply chain that has brought us so much efficiency and made shareholders very happy in terms of cost cutting. Uh, and profits also doesn't really have a lot of buffer, A lot of protection, you know, where a lot of givin it in the case of a huge crisis like this one, where suddenly people need something very, very crucially and just want to buy it all at the same time.