The coronavirus has disrupted life across the world in ways that many never imagined. One the key parts of life that has faced upheaval has been business, and supply chain management in particular. Sharing his expertise, Dr. Ted Stank, Bruce Chair of Excellence in Business and Supply Chain Management here at the Haslam College of Business, discussed the implications of the virus for supply chain management in the United States and aboard.
Stank spoke of the coronavirus’ impact on supply chains here in the United States actually came in two different waves as the virus made its way around the world. The first impact that the virus when China started to shut down their economy in their fight against the disease.
“Almost every supply chain,” Stank said “even if it’s not the immediate product we consume, some major component of nearly every product at least somewhat comes from Asia-Pacific so we started getting very scared in January that weren’t going to be able to get a supply as China shutdown.”
The more noticeable impact, at least for the average American consumer, came when the virus made landfall in the United States. The result was a massive change in the demands for many products across the national business landscape.
“The other shoe dropped a couple weeks ago” Stank said “as it started taking effect here in the United State and we started seeing demands for some products completely drop off, you know, not essential. And then the panic buying of toilet paper, cleaning supplies, particularly non-perishable foods like canned foods and rice and things like that, started taking off so the supply chain were totally out of balance because of that crazy swing of demand.”
However, the free market, like many times before, has sorted itself and has found new equilibrium for the time being. Business seem to have conformed to the new normal in this country and across the world.
“As we’re nearly three weeks into this, as people are starting to realize how serious this could be, supply chains are starting to stabilize. For one thing, I think people are starting to buy less panic buy so supply chains are starting to replenish. If you go into most grocery stores, there are products on the shelves, even though they might be limiting, but that flow has returned and we’re able to catch up a little bit.”
From a macro point of view, the virus will contribute to the declining utilization of lean operations, a mindset of business in which companies operate with lower levels inventory and quick turnaround time for the production of goods or services.
“We’ve been moving away” Stank said “from this extreme perspective on lean operations for a while now because we just keep getting hit by these disruptions. None of them this severe, obliviously. Most of the disruptions have been geographically isolated so if you’re flexible, you could kind of find your path around the areas that were affected, hurricanes, earthquakes or even a geopolitical issue where certain country is disruptive. This is the whole world.”
Stank also spoke how the memory of this pandemic will influence the business world for years to come. Also, he acknowledged the experiences during this time will weigh on the minds of leaders as they plan for risk in the future.
“It’s probably been a hundred years” Stank said “since anyone has seen anything like this. And so, I think that as we get more sophisticated about risk management and risk planning, certainly all of us who live through this are going to have in the back of our minds the potential for this happening again and how do we have contingency plans around it. And it will probably have an impact on inventory levels and things like that.”
Stank, who has spent many hours on the phone with industry groups in the past few weeks, shared the type of mindset that many leaders of businesses are taking as they deal with the crisis.
“The commonality” Stank said “has been ‘abandon everything that is not immediately urgent.’ So, any type of projects, any initiatives, strategic planning, all of that has gone by the wayside and people are now totally focused on everyday just dealing with the urgency of sourcing, making and delivering goods. I have also heard now that a lot of the big retailers that sell clothing and kind of non-essential items are shutting down, some of those manufacturers are furloughing 70% of their workforce.”
While many companies are closing their doors and furloughing their workers, for many key companies, they are experiencing the opposite, ramping up production to meet surging demand.
“The companies” Stank said “that are in essential industries, food industries, cleaning and paper supplies, pharmaceutical and medical devices, those kind of things, they are in they are just in total war mode where from top levels down all the way through the organizations, they are in daily crisis meetings talking about where their real hot points are, what are the problems coming up. They’re having daily meetings with their service providers to make sure their service providers can handle shipment after shipment. I mean they are literally on a shipment by shipment level, they are review to what is happening here with the shipment, ‘Can it make it?’, ‘Do we need to call in different sources?’, etc.”
While many refer to a ‘war’ against the virus, the dangers for industry during this pandemic are very different than during a typical war as Stank explains.
“The biggest thing” Stank said “people are worried about, that I’m worried about, is supply chain management, because it’s an operational area, is heavily dependent on people. And similar to the hospital scenario if health care providers start getting sick, similarly if warehouse workers, if truckdrivers, all the people along the supply chain that make things happen, port workers, if they were to get sick and we didn’t have the appreciate labor to do it, then the supply chain shuts down and that’s a calamity situation. I somewhat amused in the beginning that people were making a run on products like toilet paper and bottled water because this isn’t a war. Infrastructure isn’t being damaged, it’s people being damaged so our water supply isn’t going down …”
While referred to a ‘war’ against the virus, the dangers for industry during this pandemic are much different than during a typical war as Stank explains.
Supply chain management also plays an important role in the fight against coronavirus, but some disagree on the right utilization. Some people including members of Congress, governors and medical equipment suppliers want the federal government to use the Defense Production Act to centralize the supply chain, but Rear Admiral John Polowczyk disagrees. Polowczyk is the Vice Director of Logistics for the Joint Chiefs of Staff and currently leads the FEMA supply chain task force.
“They want me to do all the buying, all the distributing, and all the allocation,” Polowczyk told Axios “I'm not going to re-create that, … I'm looking to break down barriers ... to help them feed product where it needs to go.”
Stank holds a similar view, believing that the nation’s medical industry is too complicated and widespread for such a centralization.
“I would agree with the Rear Admiral.” Stank said “I don’t think people realize the complexities of supply chains and I think it would be a logistical nightmare if we said we were going to centralize everything and then distribute from there. It just wouldn’t work.”