How your purchasing behaviors can have a lasting impact on the economy

"It becomes a herd mentality."
Posted at 5:36 PM, Mar 17, 2020
and last updated 2020-03-17 21:23:11-04

RICHMOND, Va. -- Grocery and retail stores that provide daily necessities will remain open during Virginia’s response to the global COVID-19 pandemic. Shoppers across the country and in Central Virginia have been greeted by empty shelves where toilet paper or canned food are usually stocked.

Stores are cutting hours and doing their best keep up with the booming demand for certain products like cleaning supplies or toilet paper, but experts say all consumers have a role in making sure basic goods are available for everyone who needs them.

Dr. Jeff Smith studies supply chain analytics at VCU’s School of Business.

Although the instinct by some consumers to hoard products is a natural one during a pandemic, Smith said amplifying that emotion by millions of people creates a “herd mentality” that leads to product shortages and empty shelves.

“Everybody is trying to do the best they can, but the rationality kind of goes out the window,” Smith said. “It’s almost like a civil hysteria, that’s an unnecessary hysteria.”

Despite cuts in production in certain portions of the manufacturing sector, especially internationally, Smith said the American supply chain for grocery and household products is “fairly resilient” and “robust,” giving stores the ability to bounce back from dramatic spikes in demand.

However, individual and commercial consumers, such has health systems or corporate businesses, who buy more stock of a particular product than they currently need, only to have it sit on a shelf, drag down the speed of resupply for everyone else.

“It’s not like you don’t have inventory, you just don’t have massive amounts of inventory because we have pushed for lean systems over time,” Smith said. “On those situations where you have these products, [for example] surgical masks that people are buying for personal use, there’s only so many of those out there, and it will take time for that supply chain to replenish. I think we forget about how globally reaching and intense and tentacle that supplies chains are because they do have several touch points.”

Much like the push by health officials toward social distancing, the need for consumers to think about how their purchasing behavior impacts the greater market is critical, according to Smith.

“You need to be vigilant about what you buy. Get the things that are required to help you sustain, but don’t need to hoard toilet paper,” Smith said.

Most economists expect the long term hit to businesses and consumer spending because of COVID-19 will have long-term ramifications for the greater economy and potentially lead to a recession.

Smith said shock to supply chains will also have long lasting effects.

“There’s a concept in supply chain management called the ‘bull-whip effect.’ It’s essentially a ripple effect where it ebbs and flows because of big shocks to the system.” Smith said.

Here’s how the “bull-whip” effect applies to the current coronavirus related product shortages, according to Smith.

Some suppliers are in the process of increasing their product inventory to meet the spike in demand. When the market begins to normalize, suppliers will be stuck with store rooms of product and fewer consumers in need of it.

“A small shock on a front end component, like for instance a consumer demand, is like flicking the wrist [holding] a bull-whip. As it permeates up the supply chain, that starts to really amplify. So it’s demand application really,” Smith said.

Smith said the layoffs seen in the hospitality and other sectors currently could then ripple down to the manufacturing sector.

Smith understands the anxiety surrounding COVID-19 because his wife is a doctor in a local ICU. All the more reason, he says, to take smart, measured steps to slow the spread of the virus and the economic fallout it causes.

“We have protocols at the house. She comes home, she automatically showers. She takes whatever she’s wearing and throws it in the washing machine right off the bat. We do those things because she’ll come in contact with it of course, which means I’m coming in contact with it, which means I don’t come to the office so that I don’t infect people as well. We’re being as vigilant as we can.” Smith said.

Federal and state leaders are working on plans to soften the economic blow of the coronavirus outbreak. Virginia Governor Ralph Northam announced Tuesday an elimination of the one week waiting period to receive unemployment benefits and an easing of the penalties for employers who slow or stop operations if their workers claim those benefits.

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