May 27, 2020

Yossi Sheffi writes: When companies cannot meet the full demands of their customers, leaders need to set clear decision criteria and the mechanisms to back them up. The COVID-19 pandemic has upended normal life and many supply chains. Between hoarding (such as toilet paper), unexpected demand surges (such as yeast, for baking), and spot supply shortages (because of factories or warehouses closed due to infection or mandate), some products are in short supply. The most tragic examples, of course, involve shortages of ventilators, personal protective equipment, and pharmaceutical supplies required to care for people infected with the coronavirus.

When disaster strikes, suppliers, original equipment manufacturers, and retailers may find that they cannot offer all their products or fulfill all their customer orders. They must decide who gets what. But how?

Past disruptions reveal the ways companies on both ends of the supply chain have handled such challenges, both in terms of the tactics they employed and the considerations they used for their decisions. These examples illustrate the diverse approaches executives can use to determine who gets what.

Six Tactics for Managing Supply Shortfalls

The main tactics executives have chosen for prioritizing products and customers when they are unable to fulfill all orders involve some type of allocation. Regardless of the specific approach employed, there are always competing priorities that have to be taken into account, leading to the need for careful consideration.