Redefining Supply Chains to Better Respond to Global Catastrophes

The Current Situation

COVID-19 has made the majority of the world sit at home for the past two years resulting in a massive disruption in major industries like tourism, retail, aviation, hospitality, and 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 Digital Dribble article will touch upon the important points that need to be followed to establish supply chain management systems that are responsive to global as well as local threats. In addition to this, it will also talk about the perfect supply chain management system and the measures to reorganize, redefine, and redesign the supply chains in the current context or the context of any other global catastrophe.

It is noteworthy to understand that all global catastrophes have similar effects on the supply chain management system in the sense that they either disrupt and disable the entire supply chain or slow it down enough to lead to difficulties in demand and production.

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 21^st 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%

India only accounts for 12.77% of the global cases and 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 of being one of the worst-hit countries in the world. This is primarily because of the following 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 about healthcare, resource management, sensitization of people

The Ideal Supply Chain Management System

Before moving to 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 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 points 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) are harmful to businesses.

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

Coming to the sub-topic at hand, a perfect SCM must have several features that distinguish it from inferior SCM systems. These quantitative and qualitative factors are:

1. The responsiveness and agility of the SCM
2. Its ability to leverage technology
3. How foresight enabled the SCM is
4. If it is a correct mixture of ‘just In time’ and ‘inventory storage’
5. Lean manufacturing of SCM
6. Choosing the right suppliers and establishing long-term relationships with them
7. Hyper efficient inventory management

Measures of Resistance

• Generic Measures
  • Now that businesses have understood how COVID-19 has impacted the supply chain, there will be investments in warehouses that are equipped with state-of-the-art 3D printing technologies and have their fleet of autonomous vehicles. Last Mile Deliveries, Reverse Logistics, and Digital Supply Chains are all potential possibilities shortly.
  • The ‘just in time (JIT)’ methodology assumes that global disruptions are a one-off occurrence. However, 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. 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 congestion 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

Certain measures must be undertaken to 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 function with minimal impact. 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 competition and the need for frequent innovation. In the case of a catastrophe, an organization will mimic the supply chain responses and innovations of others. This will be increasingly legitimized across 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 on an organization. Ideally, organizations should strive to reduce the dependency on these factors. PESTEL Analysis and Porter’s Five Forces study these factors deeply and help identify the areas to improve in this regard.
3.  Game Theory– At its core, game theory strives to predict the actions of different decision-makers who are assumed to be rational aand who always try to maximize their payoffs. The vast array of interactions between these decision-makers helps organizations understand the relationship and various variables important to succeed. In light of the pandemic, the government will step in as a major player to alleviate the crisis which in turn will affect the way 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.

Porter’s Five Forces cover the following aspects-

1. Bargaining power of Suppliers
2. Threat of substitutes
3. The 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.

Interested in reading more about how the pandemic has affected businesses? You might enjoy this article. 

Sources-

• https://www.thehindubusinessline.com/economy/pandemic-geopolitics-are-redefining-global-supply-chains-says-tata-groups-chandrasekaran/article32168600.ece#
• https://www.weforum.org/agenda/2020/04/covid-19-pandemic-disrupts-global-value-chains/
• https://www.allthingssupplychain.com/the-perfect-supply-chain-fact-or-fiction/#:~:text=The%20perfect%20supply%20chain%20can,place%20at%20the%20right%20time.
• https://www.infosysconsultinginsights.com/2020/05/01/re-balancing-our-supply-chains-post-the-pandemic/