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Supply Chain Resilience And COVID-19

Author: Jamie Walker

At: July 21, 2023

1.1.INTRODUCTION

This world is faced with unique and complex challenges, which are there to disrupt businesses, lives, and confidence, but firms who can find their legs within these unique and complex situations will always emerge winners. The covid-19 pandemic has triggered a lot of closure in distribution and production, which has caused a lot of downstream interruption in the supply of various products. Thus making it a struggle for supply chains to meet demand patterns, logistics challenges, and supply constraints.

Supply chain resilience is characterized by many definitions, according to (Christopher & Peck, 2004) offers one the concise definitions defining resilience to be “the ability of a system to return to its original state or move to a new, more desirable state after being disturbed” while (Ponomarov & Holcomb, 2009) defined supply chain resilience to be “the SC adaptation capability to prepare for unexpected events, respond to interruptions, and recover from them to maintain continuity of operations at the desired level of connection and control over the structure and function”. Some other authors such as (Ivanov et al., 2014) (Tukamuhabwa et al., 2015) (Kamalahmadi & Parast, 2016) (Ivanov & Dolgui, 2018) (Ivanov, 2018) (Kohan & Nowicki, 2018) (Ribeiro & Barbosa-Povoa, 2018) have contributed to the definition of supply chain resilience.

The current coronavirus pandemic has been able to demonstrate to individuals, firms, and even the government, the extent to which the supply chain is vulnerable to the far away event located at the far-away place, and therefore, businesses are to accept the fact that both social pressure and regulations should be considered when designing resilience programs to stocks. However, for this to be achieved, (Sheffi, 2005) proposed a major way of developing a resilience program; first is the creation and increment in the redundancy throughout the supply chain, and second is the building of a flexible supply chain which will ensure that the firm can withstand any form of disruption and its ability to adequately respond to any fluctuation in demand. Lastly, changing the firm’s culture to aid quick recovery and be able to profit from the disruptions. This is graphically displayed in Figure 1 below.

Figure 1:

Source: (Sheffi, 2005)

The coronavirus pandemic has a huge impact on the supply chain when compared to other singular industrial/natural disasters that are geographically centred, given that the covid-19 pandemic is not restricted to a geographical area to a specific known period. Also, several sections of the sector can be paralyzed by this pandemic (Logistics, Markets, manufacturing, and distribution centres). Therefore this research will focus on some key ideas and insights about supply chain resilience from existing academic literature and use them to analyze examples of supply chain responses to disruption and change resulting from COVID-19.

For this research, this paper will be organized in the following; first will be a general overview of supply chain resilience that will give a brief background on supply chain resilience, how it is utilized during the covid-19 pandemic, why it is needed, and its effects on performance. Secondly, the session of this paper will discuss the various literature on supply chain resilience and the covid-19 pandemic. The next section will provide examples of supply chains responding to significant changes caused by COVID-19, by providing as much detail as possible on the composition and structure of the supply chain, how COVID-19 has caused changes or disruptions, how the organizations involved have responded (if they have), and how effective their responses have been. Lastly will be the conclusion section.

1.2.KEY CONCEPTS AND ARGUMENTS CONCERNING SUPPLY CHAIN RESILIENCE.

Resilience is a multidisciplinary and not just a multidimensional concept, in the sense that it is known to be an emergence from a production of various disciplinary concepts and ideas that started from material science in describing the ability of the materials to be able to jump back to its initial or normal shape after any form of deformations has being done (Sheffi, 2005).

Resilience can be categorized under the developmental theory within the scope of social psychology; Resilience is now a concept/theory in itself, which entails the reconfiguration, adaptation, and integration of resources to react to any external threats within the environment.  Risk management, psychological adversities, and social and ecological vulnerability have all identified and acknowledged the significance of resilience in various pieces of literature (Ponomarov & Holcomb, 2009). Preparing for unexpected risk events is one of the abilities of supply chain resilience; once the supply chain structure is resilient, response and quick recovery to any form of disruption is well managed, in that the original situation is returned or moved to a new one. From previous studies, Soni et al. (2014) summarized 10 concepts of supply chain resilience, but some will be discussed in this research. Which are the visibility of the supply chain, information sharing, collaboration, revenue and risk-sharing, and the supply chain structure.

1.2.1. THE VISIBILITY OF THE SUPPLY CHAIN

This is concerned with the manager’s insight into the current changes that will enable the firm to achieve agility. Supply china visibility is needed to enable the firm to identify changes better and also speed the response level to any changes that will occur (Christopher & Peck, 2004).

1.2.2.  SHARING OF INFORMATION

Human resource and material availability are all dependent on the presence or absence of necessary information to enable the manager to make the appropriate decision that can harm the rate at which the firm is efficient. More confidence is assured in the supply chain if visibility exists, and this prevents any form of overreaction, inefficient decision process, and any form of unnecessary intervention in a risk event situations (Kamalahmadi & Parast, 2016). Also, according to (Ribeiro & Barbosa-Povoa, 2018), “in order to increase the resilience of a supply chain, it is essential that all supply chain partners have access to relevant information”.

1.2.1.  AGILITY OF THE SUPPLY CHAIN

According to (Zsidisin & Wagner, 2010), a very important skill for firms today to survive in the global economy is the skill of being responsive, which describes the ability of a firm to be able to adjust quickly its current supply chain structure and operations to fit the current situation, but the attribute of agility is also closely tied to the effectiveness of the supply chain strategic management. According to Swafford et al. 2008 “the ability to cope with unexpected challenges, to survive unprecedented threats of the business environment, and to take advantage of changes as opportunities.”

1.2.2. PLAYER’S COLLABORATION

This deals with the transparency in communication and cooperation amongst suppliers and manufacturers. However, the transparency in communication and cooperation amongst supply chain members is highly dependable on the availability of information that is visible to all actors within/along the supply chain.

1.3.FOUNDATION AND KEY PILLARS OF A RESILIENT SUPPLY CHAIN

According to (ISM, 2020) (Ivanov & Dolgui, 2018) (Noel et al., 2013), supply chain resilience is basically on the foundation of some key pillar, which is Flexibility, which determines the agility and quick adaptability of any form of disruption, for example, the supply base (geographically diversity and second source options) Manufacturing (a form of the redundancy and the complexity of the network), Inventory (building a better buffer against high-risk supply nodes), Second key pillar is collaboration, this deals with the trust base relationship that co-exists between the supply chain partners and various key strategic networks, for example, firms should ensure that suppliers sharing tools and data are digitally integrated. Thirdly is the Digitization of the supply network, which ensures all forms of digital technologies at all levels of the supply chain are well harmonised, perfect for business continuity and transparency during any event of a disruption. This can be done through the introduction of an enhanced predictive capacity, real-time connectivity, and the use of machine learning and artificial intelligence to strengthen the supply chain. The last pillar identified is configuration and control; this elaborates on the need for a holistic view of the possible risk and how policies can be implemented to ensure a better process in the management of any disruption, for example, a clear and concise definition of the various mitigation action need to be configured.

1.4.LITERATURE REVIEW

Firms currently have a strong supply chain resilience against disaster and other disruptions; the development of a supply chain resilience program by Nissan, which ensures adequate flexibility in the re-allocation of demand and supply in any event of a disruption, adequate visibility and monitoring, and also a diversification in the geographic of its supply. (Dmitry & Ajay, 2020).

(Holling, 1973) first introduced the concept of Resilience in the literature of ecology by separating it from the concept of stability; other previous studies have also highlighted the prominence of processing the necessary capacity to overcome any disruptive event such as that of the covid-19 pandemic. (Fahd et al., 2019)  investigated the influence of supply chain resilience on a firm’s reputation, and the results from the study indicated that supply chain resilience plays an active role in ensuring that firms maintain a good reputation.

Supply chain resilience is attributed to a reactive dimension (recovery and responsiveness) (Kamalahmadi & Mellat-Parast, 2016); therefore make, a lot of firms be concerned about building a supply chain resilience structure to cope with any unstable business threat from the environment. (Dmitry & Ajay, 2020) Modeled the effect of the coronavirus pandemic on the supply chain by considering the velocity of the pandemic, the distribution and market disruption, and the duration of production.

According to (Dmitry & Ajay, 2020), low-frequency-high-impact (LFHI) is considered to pose some level of risk to the supply chain, and such risk can be referred to as a ripple effect on supply chains. (Fahd et al., 2019) In assessing the impact of a disruptive event on the supply chain status, velocity, collaboration, flexibility, and visibility are major elements in supply chain resilience, but alertness, risk management culture, redundancy, and robustness are the element identified by scholars (Chowdhury & Quaddus, 2016) (Jüttner & Maklan, 2011) (Pettit et al., 2013) (Noel et al., 2013) (Zsidisin & Wagner, 2010) (Lee & Rha, 2016)

However, (Dmitry & Ajay, 2020) indicated that suppliers of Apple product in Malaysia, Europe, and South Korea have all felt the impact of the Coronavirus lockdown, combined with the scarcity of these parts from their respective sub-suppliers, also are various suppliers, who are currently operating at an average production rate of 50%, which have led to an extended final production timeline for more than 57% out of the 600 US companies surveyed, thus resulting in negative revenue flow impact of about 5.6% -15% according to (ISM, 2020)

1.5.EXAMPLES OF SUPPLY CHAINS RESPONDING TO SIGNIFICANT CHANGES CAUSED BY COVID-19.

According to (Dmitry & Ajay, 2020), the coronavirus pandemic has caused a ripple impact on the global eCommerce, according to (Dmitry & Ajay, 2020) the europium eCommerce industry volume in May 2020 grew by a percentage level of 89% which makes it Europeans largest eCommerce market, while in the united kingdom, more than 24% of its consumers indicated that they would prefer to continue shopping via the eCommerce method until life is returning to normal before the existence of the covid-19 lockdown. Also, Tesco who is a United Kingdom-based retailer, and Walmart who is a US-Based retailer, felt the impact of the covid-19 in that their sales grew by about 49% and 74% in the first quarter of 2020, respectively, and more than 90% and 141% in May respectively (Olaf, et al., 2020) A tabular summary of the impact of covid-19 on the supply chain is shown below in Table 1

Table 1: THE IMPACT OF CORONAVIRUS PANDEMIC SUPPLY CHAIN GLOBALLY

Source: PWC

Supply chains are currently experiencing a unique challenge in the eyes of the public, given that the entire world struggles with the economic and human crisis, but how has supply chain resilience been able to adapt to this current crisis?

1.4.1.  THE SHOCKS IN SUPPLY

For quite a long time, COVID-19 has been negatively affecting China; professionals were zeroing in on ‘supply stocks’. These were disturbances to the accessibility of products sourced from China, both finished products available to be purchased and items utilized in plants in developed markets. Firms scrambled to figure out what production process was practical that will ensure that demand is met. Thus Supply chain resilience was the available option; few firms in China adopted an efficient supply chain resilience strategy which has persistently consolidated production and extended the sources to meet the demand.

1.4.2.  THE SHOCK IN DEMAND

As the disease outbreak crisis worsened and countries began to institute lockdowns, something entirely different was encountered by supply chains: systemic demand shocks, where consumers stock up on consumer staples to comply with limits on transactions, often purchasing supplies for months in a single day.

Ironically, the most talked-about example, toilet paper, is typically the go-to example of a perfectly predictable product, as end-use is generally fairly constant. There seemed to be a fear that food supply chains would not be able to respond to this huge, unprecedented demand spike.

Consumer staple supply chains have responded to the call, with a few exceptions. Store shelves were replenished, and this has provided a measure of reassurance in a frightening time for individuals. But the supply chain professionals behind the scenes have achieved this with a stupendous extraordinary effort, as the iconic planning models are still not designed to accommodate such severe peaks in demand.

The replenishment models that dictate orders to stores from retail chain fulfilment centres can be notoriously manual and devoid of sophistication. They are ideally suited to continuous demands that are relatively smooth. There was a scramble to redirect inventories, determine goals and override IT supply proposals with pipelines being emptied.

Effective replenishment on the supply side is the outcome of optimizing production with all surplus capacity in use. The complete pipeline has probably not yet been restored because food supply chains are typically finely tuned for steady demands. For food supply chains, the resilience problem is less important since they appear to be far more local than non-food supply chains.

1.4.3. THE AFTERSHOCKS

How demand spikes appear to intensify as they pass up the chain is represented is referred to as BULLWHIP. A small increase in demand at the level of the market will lead to a significant increase in output at the food producer or its suppliers of packaging.

A lack of insight into the essence of the rise in demand is among the main drivers of the bullwhip effect. One imagines that all players in the supply chain are very well aware of why demand is rising and that the sales of the commodity do not reflect an organic evolution.

There is one conventional cause of the bullwhip effect, however, which must be handled, and that is ‘shortage gaming.’ This explains how the tendency for downstream actors to falsely inflate their supply needs when there is a shortage of a commodity is to demand a greater share of a frightening resource.

However, in production systems, the supply chain has not seen the end of manual interventions. To measure store-level specifications, many replenishment systems use simple moving averages. Supply chain planners would have to change supply amounts manually and scramble to adjust their planning processes for such an enormous demand surge polluting these moving averages.

The capacity to build comprehensive demand strategies is an addition to the complexity that is going forward. Many factors add particular confusion. As the degree and length of restricted movements are unknowable, it is difficult to foresee how customers will behave going forward.

Will demand return to a standard baseline, or will waves of large-scale transactions occur? It is also difficult to understand to what degree restaurant closures would have a direct effect on the number of grocery purchases.

1.4.1. THE NEW NORMAL DURING THE COVID-19 CRISIS

The economic effects are beginning to be felt, and a deep recession of unknown duration is predicted by many economists. Indeed, while some supply chains are spinning extremely hard to keep up, others are being forced to ramp down, such as Volkswagen in the automotive industry.

For supply chain planners, the dynamic called the inventory bounce is one pitfall to avoid moving forward. When demand reaches a new steady-state that is lower than the previous steady-state, to allow the stock pipeline to lower to a new steady-state level, there must be a production cut. Production is increasing a bit at that point to match the new demand.

The inventory bounce fooled some upstream supply chains in the last major recession ten years ago into thinking that demand was rebounding. The bullwhip effect kicked in, and it amplified the bounce. Havoc and affliction prevailed

1.6.CONCLUSION

There exists a complex and global supply chain, where the relationship of this network is the existence of a lot of relationships within the network of many suppliers and customers; this makes supply chain risk to be on the increase and affects how normal operations and supply chain stability are fulfilled. As such, the supply chain structure must be resilient to unforeseen events that will rather react negatively and vulnerable. How resilient a supply chain is will enable firms to reduce the probability of occurrence or reduce the negative impact on the supply chain entity. Therefore, it is of great impart for managers to take adequate measures to mitigate the possibility of a negative effect of risk, either directly or indirectly, to the company.

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