Coronavirus Increases Supply Chain Risk Management Priority

Stephen DeAngelis

June 09, 2020

For years I’ve been writing about the importance of supply chain risk management and how it’s often given short shrift in business discussions. Eric Kimberling (@erickimberling) an Enterprise Resource Planning expert, writes, “The coronavirus pandemic disrupted supply chains across the globe, and suddenly everyone is paying more attention to what was an overlooked subject just months ago. … When COVID-19 disrupted the delivery of essential goods such as food, pharmaceuticals, healthcare and even toilet paper, virtually everyone gave the supply chain more attention. Supply chain vulnerability shouldn’t have been hard to spot. But hindsight is always 20/20.”[1] How far in advance should companies and governments have seen the pandemic coming. Patrick Van Hull (@PatrickVanHull1), a thought leader in the Kinaxis Strategy Office, points out, “In July 2005, epidemiologist Dr. Michael T. Osterholm wrote in Foreign Affairs magazine that, ‘the arrival of a pandemic influenza would trigger a reaction that would change the world overnight.’ As dooming (and now prescient) as those words were, Dr. Osterholm also added some hope. ‘Can disaster be avoided? The answer is a qualified yes. Although a coming pandemic cannot be avoided, its impact can be considerably lessened. It depends on how the leaders of the world — from the heads of the G-8 to local officials — decide to respond. They must recognize the economic, security, and health threat that the next influenza pandemic poses and invest accordingly.'”[2] His recommendations weren’t followed, and we find ourselves in wrestling with the results.

Multi-dimensional risk planning

Dr. Osterholm wasn’t alone in warning about the consequences of a pandemic. Bill Gates raised a similar concern back in 2015 and epidemiologists and science fiction writers have been issuing warnings and raising concerns for decades. Since the last real pandemic, the so-called Spanish Flu, occurred over a century ago, it’s little wonder warnings about a new pandemic fell on deaf ears. Today, ears are no longer deaf to the topic of supply chain risk management. According to Brent Moritz, an associate professor in supply chain management at Penn State University, pandemics represent a special kind of supply chain disruption and he discusses seven dimensions that demonstrate why.[3] Those dimensions are:

1. Geography. “In most cases,” Moritz writes, “a supply chain disruption is limited to a region or country. … Under normal circumstances, resources from one region can support affected regions. … This is very difficult to do when everyone is simultaneously affected.”

2. Scope. “Beyond geography, Covid-19 has nearly unprecedented scope. … Unique about Covid-19 is that it is affecting both goods and services.”

3. Demand vs. supply. Many supply chain disruptions affect supply. … Covid-19 is (and will be) affecting demand.”

4. Prior planning and experience. “For many disruptions, planning and prior experience are guides. … Yet, limited prior planning exists for a global pandemic such as Covid-19. … Perhaps more important than inventory and planning is the lack of experience: Experts refer back to the 1918 Spanish Flu outbreak for guidance, yet no public health experts have personal experience with this type of global pandemic.”

5. Financial system. “Most often, when there is major disruption, the financial impact is relatively contained. … In contrast, we have seen global stock markets crash and central banks and governments undertake unprecedented actions to support the economy. The reason for this is that the Covid-19 demand shock is leading to a financial disruption.”

6. Term. “For most disruptions, the term is limited — or is at least quantifiable. … However, the term for Covid-19 is relatively unknown.”

7. Human impact and behavior. “For the majority of disruptions, the human impact is relatively limited. … In contrast, Covid-19 has many unknowns. Most of us are not infected, but it is still very natural to be concerned for family members, friends, co-workers and heroic first-responders.”

Moritz warns, “Supply chain leaders should prepare for additional disruptions in supply and transportation.” He recommends supply chain managers take the following three steps: “First and foremost, take care of your people, including employees and customers. … Second, be flexible and encourage flexibility. Inevitable disruptions will surface as schools remain closed, and more individuals contract or care for those with Covid-19. Letting people know they should remain home if they feel ill or are in contact with someone who has the virus is key. Third, this is a good time to review and update emergency plans and contact information.”

Additional actions

Van Hull notes, “Shortly after Dr. Osterholm’s article, in May 2006, AMR Research (acquired by Gartner in 2009) published Supply Chain Saves the World with a chapter dedicated entirely to preparing for pandemics. In its ‘top five actions to take now’ AMR advocated for investments in five focus areas that would benefit supply chains in any circumstances.” Companies would have done well had they heeded the advice. The investment areas were:

  • Supply chain risk planning: AMR recommended things like developing a flexible supplier network. During a pandemic the ability to shift to alternative sources could prove crucial. Such actions could also “mitigate risk of smaller disasters and local disruptions.”
  • Homebound workforce. AMR recommended investment in a mobile workforce. During a pandemic, a homebound workforce could continue business as usual. They asserted the benefit of a mobile workforce during normal times included “better customer service, decreased cost of sale, and redundant operations.” During the current pandemic, companies with rigorous omnichannel strategies in place have done better than companies without such strategies.
  • Self-service activities. AMR suggested companies should invest in services requiring minimal human intervention. Benefits during a pandemic included the ability to continue business with a limited in-house staff. During normal operations, self-service operations reduce the cost of labor in fulfilling routine orders.
  • Training. Training seldom receives the attention it deserves. AMR recommended investing in workforce training (e.g., managing skills and services) so the company could continue to function as a viable business during a pandemic with less disruption. During normal operations, AMR believed training would foster collaboration between employees and spur innovation.
  • Risk management. AMR separated risk planning from risk management, because management involves putting plans into action. It noted, during a pandemic, good risk management allows “operations [to] continue because of informed choices, strong cash management, and appropriate proactive investment.” During normal times, good risk management allows the company to make informed choices for all investments.

When you look at Moritz’s multi-dimensional pandemic landscape and AMR’s areas of investment, you begin to appreciate how involved supply chain risk management processes can be. Cognitive technologies can help deal with this complexity. Cognitive systems can use data all sorts of data (geographic, health, sales, political, etc.) to create models that help companies see potential developing scenarios so they can made appropriate plans and informed decisions.

Concluding thoughts

Van Hull suggests, “From the standpoint of redefining what resiliency means to supply chain, start with the baseline that disruption is imminent and unavoidable. This belief must change expectations, from figuring out how to manage through disruptive moments on the fly to making it a business-critical need to know where and when the chain will break, with some idea of how to fix it.” Kimberling adds, “None of us can predict the future, but we can learn from the past and better prepare for what we don’t know. While it is clear now that many supply chains had become complacent in recent years, the urgency is greater than ever to create a supply chain that is conditioned for the future. The silver lining is that we have the past history, intelligence and technology to solve supply chain disruption. You can use that to put the pieces together, create a solid strategy and execute on a supply chain transformation plan that makes the most sense for your organization.” I’m not sure we can solve supply chain disruptions, but technologies, like cognitive computing, can certainly help us better prepare for disruptive events and make better choices about how to mitigate impacts once disruptions occur.

Footnotes
[1] Eric Kimberling, “Supply chain recovery post-COVID-19: Risk, disruption and tech,” TechTarget, 19 May 2020.
[2] Patrick Van Hull, “Now is the time to redefine supply chain resiliency,” Kinaxis Blog, 28 April 2020.
[3] Brent Moritz, “Supply chain disruptions and Covid-19,” Modern Materials Handling, 19 May 2020.