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May 27, 2020

Joseph Haddad: COVID-19 supply chain disruption

May 27, 2020

Joseph Haddad is a rising senior majoring in supply chain management in the Broad College of Business. The following has been repurposed from a paper Haddad wrote for SCM 372 Manufacturing Planning and Control.

Never before have we seen such an enormous pandemic-related supply chain disruption — which has implications of potentially driving companies into bankruptcy and thrusting the world into another recession. 

Companies are being tasked with solving many critical problems like fulfillment of demand, increased lead times, lack of flexibility, capacity issues, supplier shutdowns and more — all of which have led to a severe and widespread crisis in the supply chain industry.

According to the Harvard Business Review, the world’s largest 1,000 companies or their suppliers own more than 12,000 facilities, factories and other operations in COVID-19 quarantine areas. Resiliency of current supply chains has been challenged and many links have broken. 

Some companies have had to shut down because their physical stores have not been identified as critical infrastructures that impact national security or public health and safety. Instead, most have had to rely on online sales, but many have not prepared for the extensive demand.

For example, the capacity for online unemployment claims has seen a staggering increase of 6000% which has crashed internal servers on numerous occasions and forced unemployment agencies everywhere to scramble to increase server and employee capacity.

Just like how the weather changes in Michigan, so can uncertainty in a firm’s supply chain. Whether it be from suppliers, consumer demand or directly related to force majeure, uncertainty must be taken under consideration. While many companies have set lead times and reorder points in an effort to mitigate uncertainty, these systems, along with transportation systems, have been shocked due to governments shutting down crucial touch points. 

The traditional view of supply chain management calls for cost minimization, but this does not always allow for flexibility during disruptions. For instance, low levels of inventory have become customary due to storage space costs, theft, insurance, devaluation and obsolescence. Also, machinery in factories lack the ability to adjust capacity or what they produce. Both create an inability to adapt to a changing environment, leaving companies devasted.

In addition, single sourcing has many cost-cutting benefits when large quantities of orders are placed with a single company. However, single sourcing can be problematic if a company’s supplier goes bankrupt or has its supply cut off. In this case, the company has put all their eggs in one basket, which leads them to have almost no flexibility when flexibility is needed.

After this crisis, almost all corporations will need to redesign their supply chains to increase flexibility. There must be investment in equipment that will allow for precise adjustments of demand, possibly even investments in machines that have the capability of producing a multitude of products. There most likely will be a push towards multiple sources to assure supply and flexibility. 

The world of supply chain management and how managers continue to deal with unprecedented disruptions is perpetually changing and requires innovation. As companies redesign their supply chains, they must ceaselessly strive to achieve the perfect balance between total cost of ownership and total product experience that could prove harmonious for their organization.

By: Joseph Haddad


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