Opinion: What we can learn from COVID-19 supply chain issues
Global supply chains have been hit hard by COVID-19. The automotive industry is among the primary industries that experienced major disruptions and Michigan felt the economic devastation with record unemployment rates.
As supply chain academics, we have been conducting research to understand the impacts of the pandemic to supply chains, how companies have responded and what they should do.
In partnership with the Automotive Industry Action Group and QAD, we have conducted a multi-industry, multi-country survey. We have also conducted interviews with professionals and participated in innovation-incubating hackathons. The following is a brief summary of what we have learned:
► Supply chain issues still persist: While consumers may think that current product shortages, such as for appliances and lumber, may be due to demand increase, that is not the only reason. Manufacturers are dealing with issues ranging from logistics capacity crunch to labor constraints. For instance, recent data reveals that there is significant increase in ocean container-shipping and U.S. port congestion. The year-to-year increase in the number of containers hitting the port of LA now ranges from 20% to 56%. Some segments of trucking in the U.S. is also experiencing capacity shortage resulting in significant increase in spot rates, which in turn decrease the rate of truckers accepting orders from their contracted shippers.
► COVID-19’s one-two punches: COVID-19 pandemic is very different than other natural disasters in many ways; among them is the complex pattern of simultaneous and/or sequential disruptions of various types (demand surges, supply, labor and demand shortages).
► React fast or else: Most of the U.S. companies were fast in reacting to the pandemic and prepared their facilities, workforce and processes to reduce the risk of virus transmission by utilizing a variety of resources (e.g., playbooks, guidelines).
► Supply chain coordination has been a challenge: The most challenging activities for restarting operations were related to supply chain coordination. The good news is many companies have been experimenting with various collaboration platforms and enhancing communications.
► Flexibility and redundancy came to the rescue: The most common actions taken by companies included adapting production plans in the face of disruptions and utilizing safety stocks.
► Every cloud has a silver lining: The pandemic created slack resources (e.g. idle workforce and facilities) for organizations to innovate. Some examples include searching for new businesses (even those outside of their primary industry served), producing PPE, implementing more automation and cross-training their workforce.
► Predictive tools and visibility can be game-changers: Unlike other natural disasters, COVID-19 evolves over time affecting different parts of the world, which creates challenges for companies to understand its real impacts on various parts of their supply chains. Therefore, investing in technologies that enhance supply chain visibility and early disruption detection top the list of necessary proactive actions for companies in the long-term. Companies that have already invested in those before the pandemic reaped their benefits and reduced the impacts of the disruptions considerably.
The COVID-19 pandemic’s geographic origination point (i.e. China instead of the U.S.), its timing (i.e. right before Chinese New Year, a time of extended factory shutdowns that was known to manufacturing industries), its spread pattern (i.e. non-uniform spread around the globe in waves) prevented a more catastrophic impact to the supply chains of many U.S. companies, especially the automotive industry.
Things could have gotten a lot worse if any of these were different. It may sound strange but this time we got lucky to some extent, but how about the next time? Companies need to start or continue investing in strategic disruption mitigation strategies so that they are more prepared next time around.
Hakan Yildiz and Tingting Yan are both associate professors of global supply chain management at the Mike Ilitch School of Business with Wayne State University.