How supply chains are adapting to meet COVID-19 needs

Yahoo Finance’s Alexis Christoforous and Brian Sozzi discuss the current state of consumer demand withKoch Industries EVP and Enterprises CEO Jim Hannan.

Video Transcript

ALEXIS CHRISTOFOROUS: So we've heard a lot about just how hard the shutdown hit all sectors of the US economy and how many companies have had to adapt. Our next guest knows all about that. Jim Hannan is Executive Vice President and CEO of Enterprises at Koch Industries. He oversees Georgia Pacific, which if you're not familiar with that, it makes-- it makes products you are familiar with, things like Dixie cups and Brawny paper towels-- also wood panels for home construction.

Jim, good to see you. Welcome to the show. I'm curious what demand is like for these products? I know I personally really like the Brawny pick-a-size paper towel. Haven't been able to find it. Finally got through on Walmart and had some sent to the house. I felt like I got gold sent to my house. Is demand is still strong for those paper goods?

JIM HANNAN: Alexis, the demand is still strong, and what we've seen across the paper segments is that when people moved into their homes to do their business and do their things, they've got higher demand. So we're seeing about a 40%-- up to a 40% increase in at-home consumption. And as you might guess, there's a corresponding decline in away-from-home consumption.

And what that's meant is all of the supply chains have had to quickly try to adapt to that kind of an increase. As you know, those products are different when you use them at home than they are when you use them away from home. And so that's been a big change.

And by the way, I'm with you on the Brawny pick a size and the--

ALEXIS CHRISTOFOROUS: [AUDIO OUT] --since sliced bread, right? I hear you. So then how have companies had to pivot then to make sure that those shelves are stocked? Because, I mean, weeks into this and it's still challenging for a number of companies to get those products to the store in a timely manner.

JIM HANNAN: It is. You know, and it really starts with what happens in our factories and our people.

And so if I step back, you know, we've taken considerable extra precautions in our workplaces to make sure we have a safe-and-secure environment, following the CDC guidelines, practicing social distancing, doing all the things we need to do with hygiene, sanitation, and then really relying on our people to make good decisions, and they've done that and done a tremendous job of it.

With that, it's given us the ability to run-- and not just in Georgia Pacific but really in all of our businesses. We're deemed essential anywhere in the world, for the most part, and so consequently we've been open for business throughout this.

And what that's meant typically on these paper products is we've had to shift our production to the extent we can on our asset basis. We've had to tighten the supply chain down, reduce inventory, and do everything we can to fill those shelves with our preferred partners.

And to your point, when you see a 40% increase overnight in at-home demand, it is very difficult to keep the pipeline full. We're starting to see, as you noted with your recent gold purchase online, there is starting to be some filling of the channel happening now, but it's difficult to take up a 40% increase in demand overnight.

BRIAN SOZZI: You know, Jim, you oversee many other business too, Stainmaster, a brand that I've grown up with-- also Containerboard. You know, as you take a step back, you study the data, you talk to clients, what does the economic recovery feel like to you right now? Is it a V-shaped recovery, or do you think it's going to be a little bit more prolonged?

JIM HANNAN: You know, I think we're planning for all scenarios, Brian, but, in most cases, I think it's going to take some time. There are places-- the two you mentioned, for example, on the carpet side, we've seen a pretty significant slowdown in that space, and we don't expect that to recover quickly. On Containerboard, you know, we have seen a bit of a shift. E-commerce has continued to pull more boxes, as you might imagine. And in the more industrial sides of the business related to Containerboard we've seen some slowdown.

And so all of those-- all of those things are going to take some time to recover. We're not planning for a V. There are places we think we'll see quicker movement, but in general, we're planning for this to be a bit prolonged and trying to use what we've learned in this pandemic situation, in all of our businesses-- again, not just Georgia Pacific-- to try and take advantage of our lessons here.

BRIAN SOZZI: You know, Jim, just staying-- Jim, just staying on Containerboard, we've seen a spike in online sales. Are we at that point where there are just not enough boxes to go around?

JIM HANNAN: We are not. We-- there's been a corresponding decline in some of the other industrial segments. If you think about places like automotive or, you know, large purchases for durables, those things have slowed down. We've shifted production to make sure that the e-commerce side of the house is being satisfied and working with our customers there, and that's not been a considerable pinch point.

ALEXIS CHRISTOFOROUS: Hey, Jim, I know that you've had to pivot some of your factories to make PPE, right, some shields and even ventilators. Is that still happening now, or have you-- have you pivoted back?

JIM HANNAN: So we are still making components for ventilators in Molex. We're working in our Phillps-Medisize business to develop a rapid-response COVID test with another partner. We've got headbands for face shields being made in a company called Koch Engineered Solutions. So we have lots of examples across the platform.

You know, in our Infor business, which is enterprise software, we've developed a dashboard for hospitals and other health-care organizations to attract critical PPP. And 85% of the testing that is being done for COVID, for example, is moving through Infor software at one place or another.

So there are many places in our business we're still engaged in what I would call a response effort, and that may continue for some time.

ALEXIS CHRISTOFOROUS: All right, Jim Hannan, EVP and CEO of enterprises at Koch Industries, thanks so much for your time this morning. Be well.

JIM HANNAN: Thank you.