By Dr. Kandis Boyd Wyatt
Faculty Member, Transportation and Logistics, American Public University
Resilience is essential to supply chain management since most clothes, goods, and tangible services were made in another state or possibly another country. The ability to move products or services is the essence of supply chain management — the process of getting a product from seller to buyer.
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Supply chain management includes raw materials acquisition, shipping — whether by land, air, water, or pipeline — and distribution to buyers via a store or third-party provider. Other aspects of supply chain management include accounting, marketing, logistics and delivery.
However, COVID-19 disruptions in the supply chain have affected many experts involved in the supply chain, including purchasers, suppliers, quality control personnel, strategic planners, process analysts and project managers. Supply chain managers oversee the entire process and produce efficiencies, which ultimately maximize profits and enhance the supply chain. But have global supply chains been more resilient and more adaptable in the face of the disruption caused by the pandemic?
Designing Resilient Global Supply Chains
A recent study from Boston Consulting Group (BCG) indicates how companies can design more resilient global supply chains. The BCG report puts emphasis on the importance of resilience across manufacturing and supply networks, regardless of the cost.
The report also notes that a short-term financial hit to a supply chain is far more lucrative than a one-day crash when the next devastating pandemic or natural disaster occurs. Supply chain management is a constant flow between purchasing, operations and process management, so the key to resiliency is making adjustments when manufacturing demand exceeds the supply.
However, making a rapid adjustment is easier said than done. The management of the chain of supplies is very complex; it involves a company’s ability to negotiate, buy, make, move, sell, and repair/maintain a product or service by utilizing energy, methods of delivery, and sustainable materials.
Product costs are not the same as consumer costs, so effective supply chain managers are needed to ensure profits while an organization manufactures the best products and services. The supply chain management flow includes several people, including retailers, wholesalers, distributors and manufacturers.
Reverse logistics is another aspect of global supply chains. Reverse logistics involves moving unwanted or damaged goods and services from customers back to sellers.
The Bullwhip Effect in Supply Chains
When customer demand rapidly falls on a product or service, orders fall short of projected expectations and there is an overabundance of supply. In turn, the overestimation of customer demand prolongs delivery time and creates disorganization.
To account for unforeseen spikes in the supply chain, suppliers ramp up their inventory. But when demand decreases — which has happened during the current pandemic — that produces challenges throughout global supply chains.
This change is called the “bullwhip effect” — a single and sudden change in one aspect of the supply chain that affects the entire supply chain. For example, products that are seasonal, like pumpkin-related products, can cause a bullwhip effect because the product is in demand for only a few weeks.
New product introductions, like the newest version of the iPhone, also create this bullwhip effect as well. When a new iPhone is first introduced, there’s a mad rush to buy this product, but demand quickly falls off.
Similarly, sometimes nostalgia causes people to buy products like a commemorative plate. The bullwhip effect can happen with these types of products as well, but demand can also fall off over time.
Some spikes in customer demand are unforeseen, however. For example, a shutdown of meat packing plants due to COVID-19 produced a temporary meat shortage. The demand for meat quickly increased, which in turn spiked prices at stores.
Supply Chains Are Interdependent, Which Has a Global Impact
It’s important to understand that supply chains have interdependencies which produce a global impact. For example, the COVID-19 pandemic produced worldwide shortages in products such as hand sanitizer, cleaning supplies and toilet paper. Similarly, the pandemic created surpluses in the demand for restaurant supplies, airline tickets and hospitality-related excursions.
According to Oliver Freeman of Supply Chain Digital, an Interos study revealed that “more than 90% of companies expect the disruption of global supply chains caused by the pandemic will have long-lasting effects on their businesses, and nearly 98% of ‘senior decision-makers’ in the United States alone believe that their organisation’s supply chain has already been disrupted.”
BCG’s Managing Director and Partner Megan DeFauw states, “Companies should consider a wide range of levers to increase resilience ─ from investments in end to end supply chain visibility to inventory re-optimisation, to manufacturing footprint changes.”
Software Tools Reduce Risk and Enhance Organizational Resilience
To improve their resiliency, more companies are investing in software tools to produce more visibility, transparency and data-based statistics. This software reduces risk and protects companies against any future shocks that may cause a bullwhip effect. This software can also create doomsday scenarios so a company can produce alternate plans before a supply chain is tested and stressed.
Ultimately, organizational resilience is finding ways to evaluate potential disruptions and supply changes before they occur. An end-to-end monitoring system offers the opportunity to create streamlined, continuous observation platforms.
About the Author
Dr. Kandis Y. Boyd Wyatt, PMP, is a professor at American Public University and has 20 years of experience managing projects that specialize in supply chain management. She holds a B.S. in meteorology and an M.S. in meteorology and water resources from Iowa State University, as well as a D.P.A. in public administration from Nova Southeastern University.