From supply chain to supply pain: How getting products became a problem

Shortages, delays and soaring costs have become commonplace since the outset of the pandemic. But experts say there were signs of an impending crisis long before anyone heard of COVID.

Restaurateurs had no inkling in February 2020 of what they’d be facing in a matter of weeks. Because a virus on the other side of the world had jumped from bats to humans, dining rooms would be shut down, customers would be directed to stay home, and employees would be furloughed by the millions. Operators were thrown without warning into a crisis that was unimaginable even days beforehand.

But one thing shouldn’t have been a total surprise, say observers of the systems and processes that had kept supplies flowing through restaurants’ back doors.

Before Americans added “COVID-19” to their vocabulary, the pipeline had seldom been disrupted, and those rare instances were usually short-lived. Yet experts knew the supply chain was shakier than it appeared. With enough of a jolt, those problems would hit home big time.

A bat virus proved to be just that catalyst.

“What is clear is the pandemic laid bare what was the underlying reality, which was the supply chain was stressed even before the pandemic,” John Porcari, a leader of the White House Supply Chain Task Force, told a press briefing. “And we clearly have changes to make to build a more durable, resilient supply chain.”

“All of these items were coming to a head.”

“The supply chain is kind of like our electrical grid: We thought our supply chain was a well-oiled machine, and we didn’t give it much thought until it wasn’t,” said Charlie Souhrada, VP of regulatory and technical affairs for the North American Association of Foodservice Equipment Manufacturers, better known as NAFEM.

Equipment remains extremely difficult to source. Many chains have pushed back or suspended openings because they can’t outfit the kitchens of new stores. Even if the needed items and materials can be found, they may take far longer than any semblance of the pre-pandemic norm to reach a site.

Souhrada traces the problem back to 2018 when few people outside the medical or scientific communities had even heard of coronavirus.  To protect American producers, the Trump administration imposed a 25% tariff on steel imports and a 10% surcharge on incoming aluminum. Shipments from many countries dropped, and the cost of what arrived provided cover for American suppliers to charge more, too.

Simultaneously, the White House imposed separate tariffs on many finished products imported from China. The country is a leading manufacturer and exporter of many items used in restaurants, from furniture to carpeting to uniforms to small wares.

“Those moves kind of set the tone for some material shortages that suppliers throughout the country are still facing today,” says Souhrada. “The shortages are for things like metals—steel and aluminum. Those have been in short supply since 2018. Plastics—any types of resin—were in relatively short supply through about April 2021. I wouldn’t say they’ve moved that much since then.

“Semi-conductor chips caught a lot of attention,” Souhrada continues, noting how the tiny computer switches are an essential part of today’s “smart” kitchen devices. “Those have been in short supply since April [2021] and have been in even shorter supply since August.”

Complicating matters were the challenges in domestic transportation faced by all manufacturers and importers. The movement of raw materials and finished goods, whether from a port or a U.S. factory, was impeded by a nationwide shortage of truck drivers, shipping containers and even freight-train engines.

And then the pandemic hit, taking needed plant and transportation personnel out of the picture. Factory workers were encouraged along with everyone else to shelter at home, and they could hardly build a fryer or a combination oven in their living rooms.

“All of these items were coming to a head,” says Souhrada.

The final complication is the relatively small size of many equipment manufacturers. For every Middleby or Hobart, there are dozens of small fabricators. “That means they have fewer resources internally to accommodate such a shifting landscape,” Souhrada says.  They couldn’t pivot, as countless restaurant operators could, because they lacked the capital.

Meat of the matter

Ironically, scale is cited as one of the factors squeezing the nation’s pipeline of food supplies, particularly proteins. President Biden has repeatedly pointed out that most of the beef, chicken and pork processed in the U.S. moves through just four sources, creating a bottleneck and driving up the price. He even blasted that situation in his State of the Union address.

His administration hopes to ease the flow of meat by funding the startup of many smaller processors. The president says those additions should also ease food inflation.

Operators say their problems in getting food supplies have paralleled the difficulties in procuring equipment, though only to a point. Initially, vendors couldn’t supply their foodservice customers because raw materials were in such short supply.

“What happened behind the scenes, especially on the protein side of the business, was that producers started to curtail raw material productions,” recalls James O’Reilly, the CEO of the Smokey Bones casual barbecue chain.

The agriculture industry lacked the supplies to grow the crops that fed the livestock that became link sausages, chicken sandwiches and quarter-pounders.

“Many if not most of our suppliers had to slow down production because there was so much uncertainty,” O’Reilly said, adding that Smokey Bones sees itself as a protein candy store. “We had many difficult conversations with our supplier partners where they said to us, ‘We love you, but we just don’t have enough supplies.’”

Food processors didn’t lay off their workers the way equipment fabricators did. The employees were regarded as essential workers, meaning they were expected to keep working despite the risk of contracting COVID.

Many did get sick. In May 2020, 22% of the workers at a Tyson plant in Storm Lake, Iowa—about 550 people--were reportedly diagnosed with the potentially fatal illness. At a pork processing plant in Logansport, 890 people, or nearly 40% of the workforce, tested positive, according to published reports. At least one other plant had to shut because of the high infection rate. 

Other processors were similarly stricken. In all, 334,000 meatpacking workers contracted COVID before May 2021, according to a study that was published in the journal “Food Policy.”

Still unknown is how many employees shifted to other industries or lived off government subsidies to avoid getting sick and bringing home the virus to their families. All the supply sector knew was that manpower became as scarce as other key resources.

“Everyone was like, ‘Whoa, maybe I’ll just shut down the second shift and try to hobble through this,” says Phil Kafarakis, CEO of the International Foodservice Manufacturers Association, or IRMA. “It happened so fast. The nature of the event was so fast. Our business models were so rigid. What was the way to proceed? There weren’t any examples.”

Even if meat and other foodstuffs were coming out of a plant, there was still the challenge of getting them to a restaurant. Operators direly felt the nation’s shortage of truck drivers, a situation that persists.

The other major factor was the choice many food brands had to make if they had a presence in both foodservice and retail food stores. The rosiest projections in the pandemic’s earliest days called for catastrophic drops in restaurants’ sales and traffic. Meanwhile, consumers were finding empty shelves at their neighborhood supermarket.

Processors retooled their production line to crank out the retail versions of their products, leaving many restaurants with a choice of either paying what consumers paid, dropping an unavailable item from their menus, or finding new suppliers.

Smokey Bones decided early on that it had to offer certain items to deliver on its promise of being a protein candy store.

“We entered into top-to-top meetings with our top six to 10 protein suppliers,” said O’Reilly. “The message was very consistent, and that was, capacity was significantly affected and would be for some time.”

What’s next?

The situation has eased somewhat on the food side, but operators of all stripes report that an item readily available today can’t be found. They liken the situation to the arcade game Whack-A-Mole, where players try to smash moles back into their holes as they pop up rapid-fire in no discernible pattern.

“There’s a lot of creative problem solving,” said O’Reilly. Still, “we view this as a medium-term situation-- we do not see this as resolving itself in a few weeks.”

In the meantime, “this has become much more of a day-to-day issue for us,” he continues. “We spend a lot more time working on this part of the business and talking about it.”

“There’s a new normal that’s already being established—deeper, wider,  more frequent communication with your customers,” said IFMA’s Kafarakis. “It gets down to almost shift planning. You’re seeing a lot more of that.

Plus, “the dynamics of redundancy have been brought to life,” he continued. “Instead of having two suppliers, now you maybe have three or four.”

The equipment situation similarly continues to pose a challenge.

“We are in growth and expansion mode,” said O’Reilly. “We’re seeing significantly lengthened lead times on getting critical components--equipment, furniture.”

Souhrada also credits ingenuity with easing the supply crimp on the equipment side. “Based upon on some of the information we gained from our members in a study we produced, the pressure points are leveling off somewhat because manufacturers have learned to adapt,” he says.

But “they’re still playing Whack-A-Mole with what components they may be short on today,” he continues. “Most of these shortages will likely continue through 2022 and into 2023.”

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