Why panic buying toilet paper is even worse than you think

America should have plenty of toilet paper, pandemic or no. But the coronavirus came and we panicked.

The spike in demand couldn’t have been anticipated by national suppliers. Stores were forced, on a dime, to order more paper from distributors. Retailers and distributors likely had to dip into their inventory. Manufacturers had to increase their output. Lots of people had to work very hard to keep Tampa Bay rolling through the chaos.

The good news: Our nightmare will end. Once people stop panicking so much, and the national tissue ecosystem adjusts to our strange new normal, stores will be once again flush with sanitary wipes.

That’s the opinion of Susan Cholette, a professor of decision sciences at San Francisco State University’s Lam Family College of Business. She’s just not sure exactly when that will be.

But Cholette noted that the toilet paper that shows up in our stores is largely supplied, manufactured and distributed in North America.

“There is no reason to assume that months from now, we're not going to have plenty of toilet paper," said Cholette. “Realistically, the slowest thing is that there are only so many trucks that can deliver.”

Still, our current toilet paper situation offers a biting lesson about the long-term consequences of panic buying.

Cholette studies supply chains for a living. She noted that the toilet paper industry has figured out over the years how to operate as efficiently as possible. That means during normal times, toilet paper manufacturers and distributors want as little of their product sitting in warehouses as possible.

When demand for a product like toilet paper goes haywire, it screws up the entire supply chain. This happens because of a phenomenon economists call the “bullwhip effect.” The further you go up the supply chain — from a retailer to a distributor to a manufacturer to a raw materials supplier — the worse an industry becomes at gauging demand.

Even on a good day, the people who supply the toilet paper industry have to make educated guesses about how much to make. During a pandemic, when people are panic buying, the estimates get harder to nail.

This makes some intuitive sense. The raw material that goes into making toilet paper is wood pulp.

How can a wood pulp supplier know with any precision what a Publix customer will want — particularly when the customer is behaving irrationally?

Georgia-Pacific manufactures Angel Soft and Quilted Northern toilet paper — among many other products. The company has three facilities in Florida, employing nearly 1700 people. In March, the company wrote on its website that it’s estimating the typical American family will use 40 percent more toilet paper than average while the coronavirus pandemic forces people to stay home.

Follow trends affecting the local economy

Subscribe to our free Business by the Bay newsletter

We’ll break down the latest business and consumer news and insights you need to know every Wednesday.

Loading...

You’re all signed up!

Want more of our free, weekly newsletters in your inbox? Let’s get started.

Explore all your options

Eric Abercrombie, a spokesman for Georgia-Pacific, noted the company is used to meeting changing demand. As of last week, the manufacturer, which makes both paper towels and toilet paper, had not converted any of its paper towel production capacity into toilet paper manufacturing.

If a company such Georgia-Pacific overestimates consumer demand and it produces too much toilet paper, it could soon have nowhere to sell it.

“They are going to have to figure out how are they going to react when the demand dampens a little bit,” said Asoo Vakharia, talking broadly about the industry, not specifically about Georgia-Pacific. Vakharia is the director of the Supply Chain Management Center in the Warrington College of Business at the University of Florida.

Even if toilet paper suppliers perfectly predict how much consumers will buy, they could still face challenges. If retailers — Publix, CVS and the like — perceive a shortage at the manufacturing level, they could place redundant orders with multiple distributors. That’s a phenomenon economists call “shortage gaming.”

In a “gaming” scenario, once a retailer gets the product it wants, the retailer could cancel the rest of its orders with other distributors, forcing unwanted inventory on a manufacturer.

Vakharia said even when the toilet paper market returns to some level of normalcy, the consumer should still expect some funkiness. Once everybody has stocked up on toilet paper, they’ll likely move on to panic buying some other good, the professor said.

We’ve already seen this to some extent with hand sanitizer, live chickens and even guns. Each of those commodities has its own supply chain, which will be affected by consumer irrationality.

In the long run, the panic we’re seeing now will make things less efficient, Vakharia said. When things are inefficient, costs go up for everybody. Eventually, the consumer will pay for all of this panic.