Supply Chains in the COVID Era and the Case for Economic Resiliency

JC Penney, following in the footsteps of Sears and Kmarts [sic], has at long last declared bankruptcy. But it’s not only discount retailers. Anon we meet that darkest day, upon which 21 Savage can no longer walk in Neiman Marcus and spend a light fitty. The Dallas, Texas-based luxury department store chain was laden with debt following years of wandering in the proverbial desert, kicked around from owner to owner after the death of the co-founder’s son, Stanley Marcus, in 2002. Sure, everyone in the COVID economy is hurting. But are some small businesses perhaps poised to take advantage of some of the gaping holes in our economic system exposed by the struggles of big retailers?

BIG BUSINESS FACING SUPPLY CHAIN COLLAPSE

When everything with COVID19 popped off, I fielded questions on Facebook and Twitter about whether society would collapse. Would the world end as we knew it? I’m halfway to an MBA, you see, I said, so that makes me an expert, obviously. No, society isn’t going to collapse. Even if it got really bad, I said, the worst it’ll probably get is that a two-day Amazon Prime delivery is now going to take three to five days.

My prediction hasn’t been wrong. Amazon is delaying Prime shipping (no discounts on that subscription, sorry). It also acknowledged that it’s going to have to eat it, profit-wise, this quarter, owing to costs related to COVID. Yet unclear is whether it will be forced to pay for its retaliatory firing of a union organizer in New York.

Meanwhile, Wall Street, a zombie still salivating over the staggering corpse of the Donald Trump bull market, is perpetually optimistic about Amazon and other companies like Kroger, Home Depot, Lowes, Target, and Wal-Mart. These companies are staying open amid lockdowns as “essential businesses.” Analysts think they’ll be able to use sales bumps to refinance massive piles of debt. Home Depot and Wal-Mart are heavily laden with debt, and increased costs are sure to eat up most COVID-induced revenues– if not more and beyond. This is aided by even lower interest rates from our beloved Federal Reserve. However, it’s not clear that this will actually shake out in the favor of these companies. People, after all, curb spending in an economic downturn, lockdown-related spending disparities aside. In other words: We’re still flying blind.

…WHILE PPE IS STILL MIA

Meanwhile, months into the pandemic, N95 masks are nowhere to be found. Although KN95 masks (“K” for those made in China) can be found at 5-10 times the normal price. No one is sure how the richest man on earth is ostensibly struggling to find access to protective masks. Yes– those lumps of spun polypropylene and fabric pressed into a dome shape are apparently so elusive that not even an oligarch who builds rocket ships for a vanity project can figure out how to get more. The great mysteries of our time.

In the food sector, meatpacking plants were shut down amid COVID outbreaks. Many Wendy’s locations ran out of beef, leading people to the only possible witty retort.

Greektown. Closure of Detroit’s casinos have led to budget losses of several hundred thousand dollars per day for the city, leading to questions about the viability of an economy so heavily dependent upon one single source of income.

DISRUPTING THE MONOLITHIC SUPPLY CHAIN

We’re seeing a lot of disruptions to what I’ll call monolithic supply chains. This isn’t the cottage industry. It’s giant factories that supply giant suppliers. I spent a lot of time studying managerial accounting looking at the vast number of markups that are accounted for in each product. It’s like a construction project. The more layers you add, the more steps, the more costs. Everyone has to take a cut.

This is obviously expensive. But it works in the age of mass production and cheap labor. However, it becomes far more problematic when parts of that supply chain get disrupted. Your giant meatpacking plant that relies on low-wage labor? Shut down because of the proliferation of COVID among its workers, who now don’t want to return to work owing to the threat of getting sick or getting their families sick. That quarry? Paper mill? Whatever? Shut down by executive orders on business closure. Et cetera. Upstream problems create problems downstream, and, eventually, a little old lady can’t buy toilet paper at the grocery store.

Interestingly, the platform companies that are killing it right now like Amazon are still mired in the muck, because they are unable to disintermediate— the fancy business term for cutting out the middle man- the retail process for products with complex global supply chains. Toilet paper that gets produced by a paper mill has to get shipped somewhere before it gets shipped to a retailer, typically. Similarly, clothing produced in sweatshops gets warehoused before being shipped to its American distribution centers before being shipped to consumers. All of these steps are vulnerable to disruption.

But if we look at where production starts downstream, we can start to see some glimmers of hope. Well, maybe. Let’s have a look.

A sold out freezer section in an Arizona target earlier this year. Ain’t nobody want them nasty off-brand Eggo pancakes, or whatever.

BIG AG VS. THE FAMILY FARMĀ 

US President Donald Trump’s attempt to force the opening of meatpacking plants as “essential infrastructure” prompted questions of whether the US was prioritizing the Big Mac over human life. Of course, it is more a question for employers who are concerned about liability if they force workers to work in conditions in which they could get sick. It’s also a question in cases where workers can legally call off sick or take paid or unpaid time off to avoid the risk, limiting the plants’ access to labor supply in general. The meatpacking example has taken center stage in a national debate over whether we should have universal, paid sick leave (spoiler alert: we should).

In contrast, though, the family farm isn’t as affected by this. This is telling in rural areas that are, so many months in, yet largely unaffected by the pandemic. The same is true for small manufacturing operations that can keep operating in spite of the shutdown. If the neighborhood grocery store is still open– and can get meat from its local butcher, who can get it from his local farm- that’s a win for everyone, right?

I thought about this again on Saturday while shopping for soil on a garden odyssey. We hit four shops. Two were closed and two were sold out. The third, a mom-and-pop hardware store on Detroit’s west side, had dozens of bags of reasonably priced topsoil. Home Depot’s garden center, which notably is one of the only retail locations that sells native Midwestern tallgrasses and wildflowers, is mostly shut down these days. Going into the store is somewhat postapocalyptic, and a limited number of customers are allowed in at once, tallied by third party contracted security at the front.

Windsor-Essex (Ontario) boasts a vibrant landscape of wineries, family farms, and its most productive agricultural industry, the greenhouse sector. While farmers continue to grapple with the questions about the safety or mobility of migrant labor, the family farm may suffer from the COVID19 crisis disproportionately less than will the factory farm.

ALTERNATIVES TO THE BIG BOX ECONOMY

These disruptions have created opportunities aplenty for the aforementioned cottage industry. They also allow smaller producers to rethink their business models. I’m not just talking about people sewing face masks– that’s necessary, sure, and a lot of people are not only making money doing it but also having fun doing it (Fun! In the apocalypse! Imagine!). I’m talking about the fact that while this is awful for everyone, the cracks that the pandemic is exposing are opportunities for exploring new, more efficient, and perhaps more humane ways to think about markets and supply chains.

New Yorker restaurant critic Hannah Goldfield noted this in some New York restaurants that have switched to more of a retail model to survive during COVID lockdowns. Chefs know food better than anyone, she argues, so why not imagine a grocery retail market where they can pick out the best stuff and get it for you at better prices?

While half of businesses think it’s going to take them a long time to recover from this even as the economy reopens, some surveys are projecting that up to a third of small businesses won’t reopen. This is obviously pretty awful. Especially awful is that we spent all of that taxpayer money on corporations, which just spent their money on stock buybacks.

Sure, it’s going to be bad for awhile. But it’s valuable for us to ask questions about where our stuff comes from. That is, you know, provided we want to keep having access to ever more and more it.

Will Americans die for the agro-industrial complex’s divinely endowed right to manufacture factory-farmed beef? The burger is a stable of American cuisine, of course, but beef supply chains have struggled with COVID19-related closures. “TECHNICALLY,” Bernie Thoughts once said, “IT’S CALLED A BURGER SANDWICH.”

Nat Zorach

Nat M. Zorach, AICP is a city planner, community development professional, and MBA candidate at American University's Kogod School of Business, based in Detroit.

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