Supply Chain Management Strategies Post COVID-19

piyar
Piyal Sarkar
Ryerson University, Canada

The supply chain is a network of organizations involved in producing, distributing, and delivering a product to end customers and is considered the backbone of many industries. With increasing globalization and outsourcing strategies, supply chains are becoming very complex. As a result, supply chains are more vulnerable to disruptions, and industries are facing a huge challenge in both supply chain planning and design. On March 11, 2020 the World Health Organization (WHO) declared COVID-19 a global pandemic. The COVID-19 outbreak resulted in international border closures and shutdowns of many critical facilities and thus has exposed the fragility of the global supply network.

The outbreak of COVID-19 has made many organizations realize the importance of supply chain resilience, and post COVID-19, many firms across industries will consider reconfiguring their supply chains to be ready for disruptions. Supply chain resilience is the ability of firms to prevent and quickly recover from costly supply disruptions. This article highlights some key strategies for building resilience in supply chains and reveals some new insights that have emerged within various industries as a result of COVID-19. Ultimately, the main purpose of this article is to inspire the broader OR/MS community on this emerging issue facing supply chains.

A recent article from McKinsey & Company highlights that a typical supply chain is vulnerable in five areas: planning and supplier networks, transportation and logistics system, product complexity, organizational maturity, and financial resiliency. The first stage to support resiliency is to identify the supply chain’s exposures and vulnerabilities. These vulnerabilities can be categorized into macro risks and micro risks. Macro risk is the risk caused by natural disasters (e.g., weather-related events and earthquakes) and man-made risk (e.g., political conflict, war, and terrorism). Micro risk, on the other hand, is attributed to the internal factors of a company, such as relationships with stakeholders and supply chain members. Both macro and micro risks can contribute to supply chain disruptions that result in longer lead times and uncertainty in demand.

To mitigate these risks, companies first have to understand their supply chain structure. They have to map the supply network and identify which supply chain members (such as manufacturers, distributors, and retailers) are most vulnerable. It is very common that a firm does not interact with its supply chain beyond the Tier 1 firms, i.e. a company’s direct suppliers. However, in reality, the most supply chain criticality may lie in the further removed sub-tiers of the network.

The relative fragility of the supply chain can be measured quantitatively using network analytics algorithms and can be compared with standard industry benchmark (in terms of supply chain node criticality index) to draw meaningful comparisons . For example, the supply chain members that have higher interconnectivity or more dependence may be more critical or more exposed to disruptions. Post COVID-19, business leaders may reconfigure their supply chains to adopt effective resilience strategies. For example, digitizing the entire supply chain system may help in creating a better coordination among the supply chain members . Digitization creates a complete integrated system that is transparent to all the members involved in the supply chain, and it enhances members’ capability to anticipate risks; thus, digitization could play a vital role in developing resiliency.

Next, we will discuss operational strategies related to resiliency. The study of highlights that the key operational strategies for building supply chain resilience are flexibility, redundancy, supply chain collaboration, and supply chain agility. Flexibility is the ability to adapt to changes at minimum cost, time and/or effort. Flexible strategies help in rapid supply chain recovery during disruptions. Redundancy creates resilience by allowing firms to use spare resources during demand and supply surges, such as surplus inventory or multiple suppliers of the same product part. However, incorporating redundancy into a supply chain may sometimes be very costly, such as through holding costs for surplus inventories or administrative costs for multiple suppliers. Supply chain collaboration refers to the ability of the supply chain members to act as a single entity and work together for the mutual benefit of all the members. This cooperation enables better supply chain planning and risk profiling and can substantially mitigate uncertainties in supply chain. Supply chain agility refers to the change in supply chain process in response to any disaster. Supply chain agility comprises of two factors: supply chain visibility and supply chain velocity. Supply chain visibility is the ability to monitor the entire supply chain environment while supply chain velocity focuses on the strategies of quick recovery against disruptions.

Finally, in light of COVID-19, we address one other important perspective on supply chain resilience: the intertwined supply network (ISN). An Intertwined Supply Network (ISN) represents the interconnectivity of the supply chains that support various markets and society. For example, in March 2020 during the COVID crisis, Vincenzo Boccia, the president of the Italian chamber of commerce Confindustria, highlighted the interconnectedness of different industries’ supply chains and stated that it is very difficult to determine the most vulnerable supply chain in Italy since the suppliers in the automotive sector are at the same time producers for valves for respirators . The existence of intertwined supply networks means that supporting one industry’s supply chain resilience has complimentary benefits for other industries. This means the ISN is societally important during the pandemic in that supporting one industry’s supply chain may simultaneously contribute to the survivability of other supply chains related to food distribution, communication, and other essential services. Thus, the COVID-19 outbreak has reinforced that resilience strategies need to be designed with intertwined supply chains in mind for overall market and societal well-being.

In this article we discussed the different sources of supply chain disruptions, the concept of supply chain resilience, and the various strategies to make supply chains more resilient. We also highlighted the importance of ISN viability to ensure long term survival during large disruptions. Supply chain resilience is an emerging area to explore for budding OR/MS researchers and an essential field for supply chain practitioners.

supply_chain_ISN

A typical ISN network

 

References:

Alicke, K., Azcue, X., and Barriball, E. (2020a). Supply-chain recovery in coronavirus times-plan for now and the future. https://www.mckinsey.com/business-functions/operations/ our-insights/supply-chain-recovery-in-coronavirus-times-plan-for-now-and-the-future.

Alicke, K., Barriball, E., Lund, S., and Swan, D. (2020b). Is your supply chain risk blind-or risk resilient? https://www.mckinsey.com/business-functions/operations/our-insights/ is-your-supply-chain-risk-blind-or-risk-resilient.

Ho, W., Zheng, T., Yildiz, H., and Talluri, S. (2015). Supply chain risk management: a literature review. International Journal of Production Research, 53(16):5031–5069. Ivanov, D. and Dolgui, A. (2020).

Viability of intertwined supply networks: extending the supply chain resilience angles towards survivability. a position paper motivated by covid-19 outbreak. International Journal of Production Research, pages 1–12. Tukamuhabwa, B. R., Stevenson, M., Busby, J., and Zorzini, M. (2015).

Supply chain resilience: definition, review and theoretical foundations for further study. International Journal of Production Research, 53(18):5592–5623.