Is the Food Supply Chain Breaking?

Stephen DeAngelis

April 29, 2020

The Covid-19 pandemic has created disruptions and chaos in every economic sector. It has also underscored the importance — and brittleness — of global and national supply chains. Recently, John Tyson, Chairman of the Board at Tyson Foods, published a full-page ad in several newspapers asserting the food supply chain is breaking. He wrote, “Tyson Foods is facing a new set of challenges. In small communities around the country where we employ over 100,000 hard-working men and women, we’re being forced to shutter our doors. This means one thing — the food supply chain is vulnerable. As pork, beef and chicken plants are being forced to close, even for short periods of time, millions of pounds of meat will disappear from the supply chain. As a result, there will be limited supply of our products available in grocery stores until we are able to reopen our facilities that are currently closed.”[1]

Trouble in the supply chain

As Tyson notes, meatpacking plants have been particularly hard hit. USA Today reports, “A rash of coronavirus outbreaks at dozens of meatpacking plants across the nation is far more extensive than previously thought. … And it could get worse. More than 150 of America’s largest meat processing plants operate in counties where the rate of coronavirus infection is already among the nation’s highest, based on the media outlets’ analysis of slaughterhouse locations and county-level COVID-19 infection rates. These facilities represent more than 1 in 3 of the nation’s biggest beef, pork and poultry processing plants. Rates of infection around these plants are higher than those of 75% of other U.S. counties, the analysis found.”[2] Tyson isn’t the only meat supplier having difficulty. MPR News reports, “The JBS pork company announced … that it would indefinitely close its processing plant in southwest Minnesota, just days after state officials announced that more than two dozen employees of the plant have tested positive for COVID-19.”[3] Other plants have also had to close.

Some experts believe working conditions are main reason meatpacking plants have been so hard hit. USA Today reports, “The meatpacking industry already has been notorious for poor working conditions even before the coronavirus pandemic. Meat and poultry employees have among the highest illness rates of all manufacturing employees and are less likely to report injuries and illness than any other type of worker, federal watchdog reports have found. And the plants have been called out numerous times for refusing to let their employees use the bathroom, even to wash their hands — one of the biggest ways to reduce the spread of the coronavirus.” According to MPR News, “Union officials had been calling on [JBS] to slow down production, so workers who normally work shoulder-to-shoulder on the line could work farther apart.” The industry is expected to change operating procedures as a result of coronavirus outbreak. Minnesota has already issued new guidelines for the meatpacking industry. MPR News reports, “The guidelines include best practices for screening visitors and employees; distancing on production lines and in shift and break schedules; [and] issuing personal protective equipment and facial coverings.” Yesterday, the President signed an executive order invoking the Defense Production Act to keep meatpacking facilities open. Operating them safety requires implementation of guidelines similar to those issued by Minnesota in order to protect workers.

The meatpacking industry isn’t the only food supplier facing shutdowns. Food Dive reports, “While food and beverage manufacturers scramble to keep up with demand as consumers stock their pantries, many now must also contend with coronavirus outbreaks in their factories. The reactions are varied. Some are shutting down plants indefinitely until all workers can be tested. Others have reduced production capacity. Several have temporarily closed to deep clean their facilities and configure their spaces for greater social distancing.”[3] Food Dive is tracking the status of operations of major manufacturers’ plants. The publication provides information on closings and re-openings as well as other plant details.

Moving forward

Unlike some plants, food factories can’t easily pivot to make other items. As Ted Stank, professor of supply chain and logistics at the University of Tennessee, notes, “There are a lot of issues that play into [whether a manufacturer can easily pivot]. The first is the nature of the product line/service the company offers. Some companies are engaged in making products that simply don’t align very well with the kinds of products emerging as critical shortages during this crisis.”[5] Because people need to eat, pivoting a plant from providing food to some other kind of product doesn’t generally make strategic sense; however, the Hershey Company is creating a new manufacturing line to produce face masks. The Shelby Report notes, “The Hershey Co. is committing $1 million to acquire, install and staff a new manufacturing line dedicated to the production of face masks. The new line, which will be capable of producing up to 45,000 masks per day, will become operational near the end of May.”[6]

Even if a pivot out of food production is unlikely, within a specific plant, product mix may shift. For example, the pandemic increased consumer interest in shelf stable foods and a shift to produce more of such items may be warranted. ResearchAndMarkets.com predict a nearly 400% rise in packaged food sales as a result of the pandemic.[7] The company notes, “Long-life foods have experienced a surge in demand as consumers stock up on staples out of fear of shortages and to limit the need to venture out for food. Sales of processed, canned and frozen foods are rising as many consumers look to long shelf life products.” Stank insists the best way to adapt to changing circumstances is to innovate. He recommends three things companies can do to improve their supply chains moving forward. They are:

1. Foster a culture of innovation. Stank asserts, “Let those people who come to work on the line or on the shipping dock or in the truck every day come up with the ideas – it is a guarantee that they have them; they may not all be good, but then again there is likely one or more that are game-changers.”

2. Leverage current supply chain relationships. Stank states, “Leverage the supply base, both goods suppliers and service providers. … They tend to have better ground-level knowledge of their corner of the operating realm and can see solutions that someone else might not. The kinds of workarounds that are happening in transportation today to move products through a broken and disrupted global supply chain are amazing. And these kinds of solutions are facilitated by strong networks and relationships.”

3. Take risk management seriously. Stank calls risk management as important as any other response to crisis. He states, “Start taking risk management seriously so that perhaps we can avoid crises instead of responding to them! My opinion: A robust and rigorous Supply Chain Risk Management process should be as important to an organization as Integrated Business Planning, resource planning, financial planning, etc. Far too many big firms still just pay lip service to SC Risk management. … A universal truth is that forewarned is forearmed.”

Concluding thoughts

Tyson concludes, “It hasn’t been easy, and it’s not over. But I have faith that together, we’ll get through this. We will continue to bring new ideas to the table, solve new problems, and create new opportunities. We must come together to keep our nation fed, our country strong, and our employees healthy.” There are plenty of important decisions that need to be made, even when plants are temporarily closed. Bain & Company analysts observe, “Leaders must grapple with a longer-term question: How should we retool our supply chain to protect against shocks while staying competitive on cost and value? For years, ‘faster, cheaper and more efficient’ has been the supply chain manager’s mantra. Quick delivery, lean operations and a widely distributed footprint have been the top priorities. But in a matter of a few short weeks, the global coronavirus panic demonstrated starkly that many management teams have vastly underestimated the value of supply chain resiliency and visibility. Shoring up their supply chains and shielding them against future shocks will challenge leaders to strike a new equilibrium between efficiency and reliability. But the challenge also opens up an important opportunity to create value.”[8]

Footnotes
[1] John Tyson, “Feeding the Nation and Keeping Our Team Members Healthy,” Tyson, 26 April 2020.
[2] Kyle Bagenstose, Sky Chadde and Matt Wynn, “Coronavirus at meatpacking plants worse than first thought, USA TODAY investigation finds,” USA Today, 22 April 2020.
[3] Staff, “JBS closing Worthington pork processing plant indefinitely amid COVID-19 spread,” MPR News, 20 April 2020.
[4] Staff, “Tracking coronavirus closures at food and beverage factories,” Food Dive, 27 April 2020.
[5] Ted Stank, “What’s the Secret of Companies Able to Pivot Supply Chains During Pandemic?IndustryWeek, 22 April 2020.
[6] Staff, “Hershey Commits $1M To Production Of Disposable Face Masks,” The Shelby Report, 28 April 2020.
[7] Oliver Morrison, “Increased demand for shelf stables could stick: analyst,” Food Navigator, 27 April 2020.
[8] Miles Cook, Peter Guarraia, and Jörg Gnamm, “Generating Value While Restarting Your Supply Chain,” Bain & Company, 24 April 2020.