This piece was contributed by Lizzette Perez Lespier, PhD & Saba Pourreza, PhD of the Congdon School of Supply Chain, Business Analytics, and Information Systems at The University of North Carolina, Wilmington
The COVID-19 pandemic has introduced unexpected stresses on many systems, creating immediate challenges, and specially having a major impact on the exchange of goods throughout the world. It is a common practice for people to either visit their local stores or to order products online every day, but most don’t think about what happens behind the scenes to get that product ordered, manufactured, and delivered right to your local store or to your doorstep. The explanation behind this “magic”, that allows consumers to be able to get what we want and when we want it, is a very efficient supply chain.
Let us think of a supply chain as a network of all the activities involved in delivering a finished product or service to the customer. These include sourcing raw materials and parts, manufacturing and assembling the products, warehousing, order entry and tracking, distribution through the different modes of transportation, and delivery to the customer. Consequently, supply chain management is the vital business function that coordinates and manages all the activities involved in the flow of materials from suppliers to customers to reduce overall cost and increase responsiveness to customers.
Two essential elements of supply chains that impact supply chain decisions, and that ultimately disturb its performance are: sourcing lead-times and the amount of variability in the supply and demand. Over the last 25 years, the industry has moved towards more lean supply chains. Lean supply chains aim to achieve continuous flow by identifying and removing the sources of errors and minimizing variability in processes with minimum waste and maximum efficiency, without the need of excess stock or capacity. Overall, this model has been very successful, but the pandemic highlighted how this model can struggle when the system experiences a sudden shock such as dramatic demand swings, resulting in the inability to respond in a short time window. This explains why it became a challenge during the pandemic to maintain adequate supplies for items such as toilet paper, face masks, and sanitizing wipes in the presence of high spikes in demand.
Producers and distributors were faced with increased demand for consumer-packaged goods due to shoppers’ panic-buying in bulk. This is a common reaction in times of crisis when consumers feel a need for some control. This sudden increase in demand and the inability for supply chains to respond quickly, is the reason behind why the empty shelves in grocery stores and out-of-stock products online.
Let us take toilet paper, for example. Demand has skyrocketed, but shelves are empty due to production capacity and lead times constraints. The raw material used to make the tissue paper you buy at the store is linked to the finished product by a sophisticated network. The factory where it is manufactured might not have enough labor or truck drivers to get the raw material to the factory or finished product into warehouses, and from there onto shelves. On the other hand, manufacturers that rely on labor-intensive processes that require people to work closely together have been disrupted because of social distancing requirements, by labor shortages due to sickness, and by lockdown measures or plant closures to contain the spread of the virus. This is what we mean when we say that the end-to-end global supply chain has been affected.
While the Covid-19 pandemic is the latest in the series of disruptions, it is certainly not the first. Natural and man-made disasters all have brought major shocks to the global supply chain, but what is different with the recent pandemic is the first experience shock at the local level while the latter impacts the entire world’s supply chain.
The ability to endure, adjust, and grow from disruptions is identified as building resilience. The very first step into building resilience in supply chains is to have companies understand and identify their vulnerabilities. These vulnerabilities can be managed by the capabilities built in the overall supply chain network. This strategy will allow companies to invest in the areas that they are more susceptible to. The pandemic has been the hardest in labor-intensive industries. For that reason, many have opted for the use of automation, robotics, artificial intelligence, 3D printing, and internet of things, which have helped them achieve their desired operational levels.
The pandemic has shown the importance of supply chain visibility and real-time data. Digital platforms enable companies to have that end-to-end visibility to locate where their products are in the supply chain network. For example, they could locate where their inventories are in the system and re-route them to a different distribution location or move the item via different modes of transport, ultimately getting the product to market as smoothly and as timely as possible. Furthermore, visibility also allows organizations to have real-time information of their inventory levels and allows them to fine-tune inventory management decisions to hold more inventory on hand where it’s needed to help satisfy fluctuations in demand. In instances, visibility has enabled companies to take immediate actions by diverging their essential production from suppliers in a disrupted region to a secure region closer to customer demand.
Another consequence of disruptions is that organizations are forced to redesign their supply chain. As part of the redesign, organizations are increasingly bringing their production closer to customer demand with on-shoring or near-shoring, which can consist of switching to local suppliers. However, this is not a guarantee of a robust supply chain nor can it be always plausible for every industry. For that we are also seeing a push for more supply chain partner diversification. The ability to diversify the supply base network grants companies’ flexibility. It is crucial to diversify your source of supplies so that when one supplier is impacted, you can turn to the other. Sourcing from various geographically dispersed suppliers could minimize an organization’s risk exposure and provide greater flexibility and agility.
In the end, building a resilient supply chain network is an organizational task. Every organization should collaborate and coordinate with all their core business functions to manage and assess risk in their supply chain. With more online shopping, companies are investing in cybersecurity tools to mitigate any potential vulnerabilities in their supply chain. This helps guarantee the continued availability of goods and services.
Robert T. Burrus, Jr., Ph.D., is the dean of the Cameron School of Business at the University of North Carolina Wilmington, named in June 2015. Burrus joined the UNCW faculty in 1998. Prior to his current position, Burrus was interim dean, associate dean of undergraduate studies and the chair of the department of economics and finance. Burrus earned a Ph.D. and a master’s degree in economics from the University of Virginia and a bachelor’s degree in mathematical economics from Wake Forest University. The Cameron School of Business has approximately 90 full-time faculty members and 30 administrative and staff members. The AACSB-accredited business school currently enrolls approximately 2,600 undergraduate students in three degree programs and 750 graduate students in four degree programs. The school also houses the prestigious Cameron Executive Network, a group of more than 200 retired and practicing executives that provide one-on-one mentoring for Cameron students. To learn more about the Cameron School of Business, please visit http://csb.uncw.edu/. Questions and comments can be sent to [email protected].
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