Building pandemic resilience in global supply chains

As I write this, the COVID-19 cases have risen to nearly 1.5 million worldwide. Outside the continuous updates about the numbers of people infected, inside the ICU, and deceased, the pandemic has shown the glaring deficiencies of our connected globalised civilisation. A study by Deloitte states that global automotive production went down by 40% in March 2020 as Hubei in China is the major supplier base for the industry; the global maritime traffic went down by 10% in February, compared to that in February 2019. While many have blamed the globalisation of supply chains in the last 30 years for this, very few have analysed how globalised we are.

Just to put this in perspective, the same Deloitte report states that over 200 of the Fortune 500 companies have suppliers in the city of Wuhan, from where the virus originated; an Accenture study states that nearly 94% of Fortune 1000 companies have had supply chain disruptions due to COVID-19, leading to nearly 75% of the companies recalibrating their business outlook for the year to negative or strongly negative.

The pandemic thus provides a unique case for understanding the global connectedness of supply chains through two dimensions – one is the lopsided nature of globalised supply chains originating from China and its manufacturing hubs; and the second, the high level of human mobility required to manage these globalised supply chains, all converging within a few industrial hubs in China. This lopsided nature of economic globalisation can be attributed to the fact that for most of the organisations or supply chains, globalisation has mostly happened due to cost-saving and profit optimisation efforts leading to outsourcing, ultimately being reflected as the concentration of global suppliers in one or fewer geographies or countries, that align their policies with the host-nation’s for cost-saving and profit optimisation.

These supply chains are global but non-diversified, meaning that global supply chains that are geographically concentrated are profitable but not resilient. In the normal scenario, when faced by non-contagious disruptions, these supply chains create enough inventory-based buffer to function during the duration when production or supply is stalled, but they cannot function when the disruption is as global and as comprehensive as due to COVID-19.

One unique dimension of this globalisation-led outsourcing and dispersal is its traditional resilience strategies, comprised of buyer-driven intra-organisation quality assurance mechanisms with total disregard to the geography or the context-based quality dimensions like personnel welfare, work-place context quality or government policies and regulations. Further, supply chain management research has itself been lopsided, where the dominant resilience-based research focuses only on intra-organisation strategies arising out of externalities. These strategies and mitigation plans rarely take account of government lockdowns or pandemics. The market-led management of supply chains from the resource efficiency and cost management perspectives also governed the supply chain management of essential items, including healthcare equipment and pharmaceuticals and made them vulnerable to pandemics like COVID-19, requiring government interventions, blocking the movement of these products outside their respective countries.

Uniquely during the current pandemic, the supplier or the producer of most of these goods not only stopped producing them but also became their consumer, thereby creating a multifold demand-supply gap, as compared to during other pandemics. In such a lockdown scenario, most of the supply chain strategies across products did not take care of the fact that disruption of supply chains for essential healthcare items have a multiplier effect in terms of disruption to other supply chains, as these healthcare supply chains ensure the quality of life of the personnel employed in other supply chains. No academic research in supply chain resiliency strategies focused upon this multiplier effect of the adverse impact of one product category’s supply chain upon others.

While organisations did not pay heed to the fact that standalone supply chain resiliency strategies can have little or no impact during global pandemics, at the macro-economic level, all trade ties did not take care of the fact that economic integration also leads to integrated disruptions and that the absence of multinational or multi-organisational resilience strategies amplifies local disruptions into global ones.

It’s worth pondering then that given the fact that today global supply chains are at the forefront of all COVID-19 related debates and discussions, what’s the way out for them in the short and long-term? Outside the template-based solutions provided by management research, like assessing immediate risk impacts, understanding human resource, and regulatory impacts and finally evaluating and implementing alternatives and scenarios, organisations and nations need to look into more comprehensive measures in the long-run.

Such resilience strategies should consider national and local level contexts, including vulnerability to government regulations and vulnerability of human resources to such externalities. Designed in consultation with multilateral organisations like WHO and WTO, these strategies should be designed to optimally geographically diversify supply chains for multiple products.

Further, supply chains for essential products like healthcare and medical supplies should be pan-national and geographically dispersed to make them bi-directional. Bi-directional supply chains for these goods will allow mitigation of externalities when the producer or suppliers stop producing or supplying, as well as become buyers or consumers. Also, replication of these supply chains across regions (intra-country), countries (intra-continent) and across continents would be required.

At the supply chain and production plant level, factories would require flexible designs to have cross-product production systems that can switch easily from, say, cars to ventilators, perfumes or breweries to sanitizers and disinfectants, and rubber and plastic manufacturing can be converted into units for surgical gloves, protective suits and masks, etc.

Essentially, we need to understand that with a population base of nearly eight billion, there will always remain some probability of such pandemics and disruptions across continents. As an advanced civilisation, our success depends on remaining prepared to mitigate these disruptions to the best possible extent while also understanding the impossible nature of anticipating all such disruptions all the time.

(The writer is Associate Professor, OP Jindal Global University, Sonepat)