Supply Chain in the COVID-19 spotlight

Companies would be wise to understand that bringing complexity into supply chains comes with a very real cost. Therefore, the reasons for introducing inflexibility should be compelling and real – even if the economic equation can be difficult to quantify at times. A number of real-life examples from the recent pandemic could help supply chain managers to overcome scepticism about the cost of complexity and benefits of simplicity. Any successful change in the existing paradigm will have to be accompanied by either strong external incentives – such as tax breaks, grants or alternative options – or a mindset shift.

By Professor Ralf Seifert (IMD Business School) and Richard Markoff

About one year ago, the world began to grapple with the growing impacts of the pandemic. Looking back, it has been a year where supply chains have found themselves in the public eye, for changing and surprising reasons.

The shock of the initial lockdowns

For weeks at the start of 2020, as COVID-19 was impacting China, the talk was of ‘supply shocks’. These were disruptions to the availability of goods sourced from China, both finished goods for sale and products used in factories in developed markets. Companies scrambled to sort out what production was feasible, and what demand could be met.

At that moment is was fair to think of supply chain resilience, particularly decisions made to have global supply chains with few backup sourcing options. It was reminiscent of the Iceland volcano in 2010 or the Japan earthquake and its consequences in 2011. We have previously talked about the lessons learned on resilience for value chains under threat and the five supply chain resilience levers companies should put in place.

Some companies will have integrated these learnings while others, in the interests of costs, and at the sacrifice of agility and resilience, have been relentlessly consolidating production and extending sourcing, and the impacts were being felt. Business Continuity Plans have been helpful but can only go so far. … … …

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