ILLINOIS (From news reports) -- As consumers have been panic buying toilet paper, shelves at some local supermarkets and drugstores are bare. But how does a manufacturer respond to coronavirus-sparked shortages of this inexpensive commodity?
We reached out to Georgia-Pacific, the paper-products giant owned by Koch Industries, which makes the AngelSoft and Quilted Northern brands, to find out. Koch Industries, one of America's largest private companies with more than $110 billion in total revenue, is run by Charles Koch, the conservative billionaire behind Americans for Prosperity who's now worth $40.6 billion by Forbes' estimates. (His brother David died last summer.)
Consumer-related panic buying due to COVID-19 has caused "a significant increase in orders beginning last week," Fernando Gonzalez, president of Georgia-Pacific's consumer business, explained by email. "These increases have been as high as two times our normal demand." However, Georgia-Pacific also sells its toilet tissue to hotels and businesses, and the B2B part of its business has been softer; the company expects those sales to decline as consumers ditch their business travel and vacation plans.
The upshot: Though the Atlanta-based company discussed the coronavirus-sparked shortages in board meetings, so far it's working through its existing excess inventory and increasing production at its existing facilities in order to meet consumer demand. Georgia-Pacific declined to provide more specifics or disclose any sales numbers.
Manufacturers can't just ramp up and build a new factory overnight even if they wanted to. And in the case of panic buying of toilet paper, it wouldn't make sense to do so. As Harvard Business School professor Willy Shih wrote on Forbes earlier this month, manufacturers of toilet tissue optimize their supply chains based on the assumption that consumption is stable, neither seasonal nor subject to supply spikes. When consumers stockpile, they don't really need more; they'll just end up working through those extra rolls later over time. The supply-chain whiplash, or bullwhip effect, of empty shelves due to panic-buying simply distorts true demand information.
For Georgia-Pacific, which supplies hotels (where demand is softening as COVID-19 travel restrictions expand), conference centers (ditto) and businesses (where there will be less demand as more companies put in place work-from-home policies), there's even more logic to steering clear of rash moves. That helps explain why the Koch-owned company is simply, as Georgia-Pacific's Gonzalez noted, "optimizing excess inventory and....working closely with our shipping and logistics partners to expedite those shipments go out to our customers as rapidly as possible."
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