Expert: “Panic” ordering by retailers contributing to supply chain woes

The ongoing supply chain crisis has affected stocks of different products worldwide. Experts cite several contributing factors that worsen the issue such as port congestion and energy shortages. Now, another factor they mention – panic ordering by retailers – appears to make the crisis worse than it already is.

One expert in particular says that some retailers are placing their orders too early despite the limited supply. Jonathan Savoir, the CEO of supply chain technology company Quincus, makes this assertion during his appearance in the CNBC program “Squawk Box Asia.” He says: “Suddenly, retailers and manufacturers are over-ordering because of these supply chain issues. That’s just leading to essentially an even worse scenario.”

Savoir’s remarks come amid rapidly increasing demand for products. This sudden spike in demand follows the reopening of many economies and the people gaining extra purchasing power. Companies have resorted to ordering early to keep up with the demand.

The Quincus CEO notes that this practice leads to what he defines as a “bullwhip effect.” The bullwhip effect refers to the small demand changes at the retail level causing progressively larger movements in demand. These movements affect wholesalers, distributors and manufacturers – with suppliers of raw materials set to feel the biggest impact.

“Because everyone is over-ordering and overstocking, manufacturers can’t supply fast enough [and] supply chains can’t keep up fast enough,” Savoir says. This leads to unfulfilled orders and distorted demand forecasts.

Asset management company RBC Wealth Management warned in an Oct. 15 note: “Because the problems are well-known – orders for raw materials, component parts and finished goods are now being placed earlier than normal.” It adds that the practice is “lengthening the queue” and “creating a vicious cycle.” (Related: Supply chain disruptions lead to shortages and soaring prices.)

RBC also warns that “the [supply chain] bottlenecks are unlikely to disappear overnight.”

Overstocking by retailers comes amid holiday shopping

Supply chain industry insiders have warned of product shortages and higher prices for goods, given the high demand and low supply. A report by the British supermarket magazine the Grocer attests to this as supermarkets in the U.K. grapple with higher demand.

British retailer Iceland Foods says sales of its Christmas frozen turkeys have seen a 409 percent increase. To keep up with the demand, it has ordered 20 percent more frozen turkeys than usual. Iceland Foods’ extra turkey orders come after a spike in online searches for Christmas as early as July.

Online delivery slots offered by supermarkets have also seen an increase in demand. Grocery chain Waitrose and online supermarket Ocado have reported Christmas delivery slots quickly getting filled up. Waitrose expects “demand for delivery slots to be high,” but adds that more slots will become available in the coming days.

Meanwhile, Ocado has apologized for the limited number of online delivery slots. “Christmas is a busy time and slots sell out very quickly. We’re sorry if you haven’t been able to get a Christmas slot in time,” it says.

The increased demand also impacts non-food items such as toys. Ed Desmond, executive vice president of the U.S. trade group Toy Association, has urged people to start shopping for presents early. He says: “If you see toys you think the kids are going to want for Christmas, pick them up now and tuck them away to make sure you have them, we just don’t know what’s going to happen when we get down the road closer to Christmas.”

Mike Watkins, retailer and business insight head at NielsenIQ, says that many shoppers have started buying for the Christmas holidays in advance. He says: “Shoppers tend to leave most of their Christmas grocery shopping later in November. [But] clearly this year, we’re seeing late-November demand brought forward into October because of the concerns consumers have read and heard about, turkeys being a great example.” (Related: Food bank shortages and lack of transport truck drivers threaten to ruin holiday celebrations.)

MarketCrash.news has more articles about retailers overstocking and over-ordering products to meet increased demand.

Sources include:

CNBC.com

TheGrocer.co.uk

WesternOverseas.com