Economics of the pandemic: are your supply chains resilient?

By Carolyn Jackson
Wednesday, 18 March, 2020

Economics of the pandemic: are your supply chains resilient?

If supply chains can keep pace with demand, food manufacturers may be one of the few industries that could actually see some economic benefit from the COVID-19 pandemic.

While the global share market is on the decline, many packaged food manufacturers have bucked the trend as a result of the panic buying which has increased the demand for non-perishable packaged food. But can the supply chains cope?

In many countries, including Australia, the supply chain hasn’t been coping. We’ve all seen the empty supermarket shelves and heard about the toilet paper crisis by now. So far this is just a matter of logistics, ie, getting the products to the shelves. But if the global suppliers that feed the manufacturers shut down as a result of the pandemic, this could have wider implications and a different story could evolve if this risk isn’t managed.

According to Professor Goker Aydin of Johns Hopkins University Carey Business School, a resilient supply chain must be able to detect early warning signs of disruption. “If the disruption lasts longer, we may see many manufacturers, and maybe even retailers, suspending their operations, as they run out of the key inputs they need.

“Of course, for a business to detect that a disruption is on the horizon, it must have a good handle on what its supply chain looks like. It’s not enough to know your suppliers, you must also know who your supplier’s suppliers are, and so on. Without that kind of detailed map of the supply chain, it is difficult to know the vulnerable links.”

Associate Professor Tinglong Dai of Carey Business School has also commented about the global supply chain risk in the face of the pandemic. “The scale of this crisis is unprecedented in modern times,” Dai said. “For weeks, China essentially locked down the entire country. Most of the factories ceased production and once-bustling cities became ghost towns. This situation is definitely not something one could fully anticipate or plan for.

“This is a crisis moment, but this could well be an opportunity.

“In the short term, many businesses, especially those in the service industries that depend on “crowds” and high customer volumes, may run into cash flow troubles. Companies that are more resilient will be able to survive or even gain market shares. In the long term, companies should think about turning crisis management into risk management. Every major business that is heavily dependent on suppliers or consumers located in regions affected by the coronavirus should think about diversifying their supply bases. Executives must get serious about making their supply chains more resilient and should be rewarded for doing so.”

Aydin warned that even the best risk-management strategy with the most diversified suppliers may not be equipped to handle something on the scale of COVID-19 in the short run.

Dai agreed but commented that manufacturers should be looking for other related opportunities. “We may see strong growth in online service at a time when people worry about stepping out for basic shopping. This could be an opportunity for some businesses to develop their online capabilities or even omni channels. Of course, you could still face a lot of logistic constraints.”

Image credit: © Silvana

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