COVID-19 and supply chains: what the experts are thinking about now
May 21, 2020
Three experts reflect on what the global pandemic has taught us in terms of building more resilient supply chains.
Until a few weeks ago, many of us didn’t give much thought to supply chains. But the global pandemic — and the experience of scrambling for toilet paper and other supplies — has all of us thinking about how we get access to goods.
In Distribution Disruption: How to Build a Better Supply Chain after COVID-19, Professor Walid Hejazi takes a closer look at supply chains with three experts in operations management.
In this virtual talk, Professors Opher Baron and Dmitry Krass explain what supply chains are and how they can be redesigned to cope with disruptions. They also speak briefly about CovidPPEHelp, a new online platform developed by Operations Management and Statistics professors at the Rotman School. The platform eliminates many of bottlenecks inherent in the personal protective equipment (PPE) supply chain by improving information flows and providing a space for PPE suppliers, donors and customers to connect.
Also, Gavinder Bhatia (EMBA ’15), vice-president and general manager of cakes and pies at Weston Foods, provides an industry perspective. She recalls what was going on behind the scenes in the food manufacturing industry during the early days of COVID-19 crisis and what she and other manufacturers are thinking about now.
Here are a few of their responses to the big questions surrounding supply chains and COVID-19.
How do supply chains work?
Simply put, a supply chain is an interlinked chain of organizations that ensure that a product will make it on the shelf at the store.
“Supply chains are built to deliver products at minimal costs,” says Krass, who is the Sydney C. Cooper Chair in Business and Technology at Rotman. “That means squeezing out inventories and making sure deliveries are made just in time. There's no need to invest in extra production capacity because that will only create costs in the system.”
While efficient supply chains keep costs low, they aren’t set up well for shocks.
When demand for a product rises sharply and unexpectedly, it can trigger a bullwhip effect, where the signal for increasing demand becomes exaggerated at each step in the supply chain. This can lead to a lot of inefficiencies.
For example, if customers were to suddenly buy every last roll of toilet paper at a store, the retailer might react by doubling its normal order for the following week. The distributor might interpret this larger order as a signal that demand is growing for the product and double its order to the manufacturer. This pattern of increasing orders continues along the supply chain, resulting in a surplus and increased production costs.
How can we build better supply chains?
Most importantly, Krass says supply chains need to maintain better information flows and become more transparent.
When the demand for PPE surged, new suppliers emerged, as many manufacturers changed up their production lines to start producing equipment. The real challenges were — and continue to be — in matching suppliers with customers and making sure manufacturers are certified to make medical-grade equipment. This problem inspired Krass and Baron to launch CovidPPEHelp.
Additionally, building up inventories and incorporating idle capacity in the system would make supply chains more resilient. (However, figuring out who would cover the costs that these safeguards would incur is a separate and complex matter.)
“We need to have some ability to increase capacity on the fly and be ready with additional, flexible inventory that we can tap into,” explains Baron, who is a Distinguished Professor of Operations Management at the Rotman School.
“This crisis has exposed some of the risks that weren’t properly accounted for before.”
—Dmitry Krass, Professor of Operations Management and Statistics
The PPE shortage highlighted our reliance on international suppliers for certain products. Do we need to rethink global supply chains?
“The quick lesson here is that we need some sort of insurance policy,” says Baron. “We cannot rely totally on international supply for some products.”
Local supply chains need to be more flexible than they are now so that they can respond quickly in times of crisis. Baron suggests that governments subsidize training programs and pre-approve certain facilities for manufacturing essential products. For example, local breweries could be outfitted to produce medical-grade hand sanitizer and called upon in emergency situations.
“This crisis has exposed some of the risks that weren’t properly accounted for before,” explains Krass. “Until now, nobody thought we would need to have local suppliers or producers for hand sanitizer and face masks.”
When COVID-19 was declared a global pandemic, what was going on behind the scenes in the food industry? Were food shortages ever a concern?
During the early days of the crisis, Bhatia and her colleagues at Weston Foods — like most Canadians — wrestled with the feeling of uncertainty.
“I think we were all in the same boat, we were struggling with questions like: What if? What happens next? What does this mean?’” she says.
Weston Foods quickly prioritized protecting employees and keeping communities fed.
They secured masks and other protective equipment and adjusted production lines to allow for more physical separation between employees.
“We needed to make decisions very quickly about how we were going to increase the amount of bread on the shelves,” Bhatia explains.
They stopped production for products that required allergen cleaning or other downtimes to make sure units were making it to stores.
Ultimately, food shortages were never a major concern.
“I wasn't concerned about food supplies. I knew at a very minimum that we would be looked after for bread and baked goods because of how we were taking care of things as a business,” says Bhatia.
Learn more about building better supply chains. Watch the full webinar:
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