Redefining Supply Chains to better respond to global catastrophes

The current situation

COVID-19 has pretty much made the majority of the world sit inside its homes for the last 7-8 months resulting in a massive disruption in major industries like Tourism, Retail, Aviation, Hospitality, Realty, to name a few. Historically, every time there has been a global catastrophe, Supply Chains have taken a massive hit. It is, therefore, high time that businesses come together to Reorganize, Redefine, and Redesign supply chains globally.

This article tries to touch upon the important points that need to be followed to establish supply chain management systems that are responsive to not only global threats but local as well. In addition, it also talks about the perfect Supply Chain Management System, and the measures to Reorganize, Redefine, and Redesign the supply chains in the current context or in the context of a global catastrophe.

It is noteworthy to understand that all global catastrophes share similar effects on the supply chain management system in the sense that it either disrupts and disables the entire supply chain or slows it down enough, leading to difficulties in demand and production matching.

Image Source- https://www.worldometers.info/coronavirus/

According to the images above, the following statistics can be reported for the global pandemic wreaking havoc on all possible areas of our lives-

[Data is taken as of 8:45 PM, IST, on 21st of August, 2020]

Globally-

  • Mortality Rate- 3.48%
  • Recovery Rate- 67.95%
  • Currently Infected Rate- 28.57%

USA-

  • Mortality Rate- 3.09%
  • Recovery Rate- 53.80%
  • Currently Infected Rate- 43.11%

Brazil-

  • Mortality Rate- 3.20%
  • Recovery Rate- 75.69%
  • Currently Infected Rate- 21.09%

India-

  • Mortality Rate- 1.89%
  • Recovery Rate- 74.37%
  • Currently Infected Rate- 25.63%

Although it seems that India is performing better than its counterparts, as India only accounts for 12.77% of the global cases, has a lower mortality rate and higher recovery rate than the rest of the world. India’s currently infected rate is also lower than the rest of the world.

However, despite the data showing the fact that India is in good shape, it has managed to climb up the ranks in being one of the worst-hit countries of the world. This is primarily because of a multitude of factors-

  1. An ever-increasing population
  2. The growing disparity between the rich and the poor
  3. A failing public healthcare system
  4. Poor Public and Private transportation system
  5. Government laws pertaining to healthcare, resource management, sensitization of people

An ideal Supply Chain Management System

Before proceeding onto the topic of an ideal SCM (Supply Chain Management) System, it is imperative to revisit the definition of supply chain and SCM respectively.

“Supply Chain can be defined as the total network of people, information, processes and activities between a company and its suppliers with the sole aim of supplying a product or service to the consumer”

“Supply Chain Management is basically managing the flow of goods and services right from the time of procurement of raw materials to the transformation of the said raw materials into products and services”

Thus, to understand the importance of Supply Chain Management, it is worthwhile to analyze a Supply and Demand graph. It is common knowledge that the intersection of the demand and supply curves point out the equilibrium price of a product and the optimum quantity supplied. From a supplier’s point of view, it is always necessary to meet the demand at any point in time. Both scenarios where supply lags demand (leading to an excess demand) and supply leads demand (leading to a drop in demand) is harmful to businesses.

A robust SCM system helps in countering the demand aided with the help of strong forecasting models and statistical methods. Thus, SCM system plays a major role in meeting the demands of products and services and when in global catastrophes, this elaborate network which is like the well-oiled cogs of a clock suddenly come to a staggering halt. This leads to a drop in supply which generates a gap in demand to be filled.

In the first image below, the difference between the quantity demanded and the quantity supplied (Qd – Qs) is the gap in demand which leads to a rise in prices of products which leads to a drop in overall output (GDP) of the nation.

Coming to the sub-topic at hand, a perfect Supply Chain Management System has to have a number of features that distinguishes itself from all other inferior SCM systems present in the world. These qualities which entail a mix of quantitative and qualitative are as follows-

  1. Responsive and Agile
  2. Leveraging Technology
  3. Foresight enabled
  4. Mixture of Just In Time and Inventory Storage
  5. Lean Manufacturing
  6. Choosing the right suppliers and establishing long term relationships with them
  7. Hyper efficient inventory management

Measures to fight back

  • Generic Measures
    • Now that businesses are understanding how COVID-19 has impacted the supply chain, there will be investments in warehouses that are equipped with the state-of-the-art 3D printing technologies and having its own fleet of autonomous vehicles. Last Mile Deliveries, Reverse Logistics, Digital Supply Chains, are all potential possibilities in the near future.
    • The sole Just In Time methodologies assume largely that global disruptions like these won’t occur but given the uncertainty (we’re living in a VUCA world after all) of the times, it is best to combine JIT with optimum levels of Inventory Management (like 45 days of Inventory Storage- Rebuffering).
    • Inventory counting mechanisms need to be automated which will lead to correct predictions for Reordering Point and improve the overall Supply Chain efficiency. Diversifying suppliers across geographies would allow organizations to have greater leverage in times of duress.Also, although in-transit inventory reduces the overall cost for a company, during times of stress, it becomes a company’s greatest bane because of the congestions in the gateways, terminals and hubs (nodes of the supply chain). This needs to be taken into account to Reorganize, Redefine and Redesign supply chains globally.
  • Specialized Measures

There are certain measures to if not fight back then certainly minimize the disruption caused by any global catastrophe. Certain tools equip SCM managers to effectively mitigate the effects of a global pandemic and enable the Supply Chain to work with minimal impacts. Some of these necessary theoretical tools are-

  1. Institutional Theory- This theory in SCM deals with the fact that organizations with isomorphic structures will adopt the best practices from one another leading to fiercer competitions and the need for innovation ever so frequently. In the pandemic or catastrophe context, organization will mimic the supply chain responses and innovations of others. This will be increasingly legitimized as well across the middle and top management tiers. Desperation in meeting the huge demand gap will lead to further copying of best practices
  2. Resource Dependence Theory- This tool studies the effect of external resources of an organization or a company and how they affect the organization. Ideally organizations should strive to reduce the dependency of these factors. PESTEL Analysis and Porter’s Five Forces studies these factors deeply and helps identify the areas to improve in this regard.

Porter’s Five Forces covers the following aspects-

  1. Bargaining power of Suppliers
  2. Threat of substitutes
  3. Threat of New Entrants
  4. Bargaining power of buyers
  5. Rivalry amongst competitors

PESTEL Analysis covers five important aspects-

  1. Political
  2. Economic
  3. Social
  4. Technological
  5. Environmental
  6. Legal

The government’s effort to fight the pandemic directly affects the flow of resources between firms’ thereby widening the gap between supply and demand as seen above.

3. Game Theory- At its core, game theory strives to predict the actions of different decision-makers who are assumed to be rational in nature and who always try to maximize their payoffs. The vast array of interaction between these decision-makers help organizations understand the relationship and various variables important to succeed. In light of the pandemic, Government will step in as a major player to alleviate the crisis which in turn will affect the way how firms interact with each other. This will change the inherent rules of how Game Theory functions. Shifts in supply and demand will make forecasting a tedious job.

Sources-

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