COVID-19 fractures the global supply chain

A worker fills a box with toilet paper at the Tissue Plus factory in Bangor, Maine. Photo: Associated Press
By Amanda M. Perez

A worker fills a box with toilet paper at the Tissue Plus factory in Bangor, Maine. Photo: Associated Press

COVID-19 fractures the global supply chain

By Amanda M. Perez
The novel coronavirus has spread so widely around the world that it is affecting almost all links of the global supply chain.

In the midst of the COVID-19 global pandemic, not only is the world experiencing a health crisis, the outbreak has now disrupted global supply chains across the world. 

According to Harihara Natarajan, associate professor of management at the University of Miami Patti and Allan Herbert Business School, the level of uncertainty is causing people to buy at a higher rate than normal. 

“The biggest example of this panic buying is toilet paper. We’re not consuming toilet paper at a faster rate than before, but people are buying toilet paper at a much higher rate than  previously. And, that’s what’s causing all the shortages,” said Natarajan. 

On a global scale, Sammi Yu Tang, associate professor of management at the Miami Herbert Business School, said that the companies that are most vulnerable to this situation are those that heavily depend on factories in China and other parts of the world for parts and supplies.  

“Now, with inventories exhausted and Chinese factories remaining closed or having trouble getting shipments to the U.S., we will likely see a slowdown or even temporary shutdown of U.S. assembly lines and manufacturing plants,” she said. 

Natarajan explains that it is a ripple effect. 

“Factories around the world are operating at reduced production levels because employees are staying home to contain the spread of the virus. So, now you don’t have a workforce to produce,” he said, adding that even if a factory is up and running, it may not be getting the needed raw materials from suppliers. 

The second part of the problem is trying to get the product out of warehouses to distribution centers and into retail stores. 

“In turn, without the ability to sell product in retail stores you are not generating cash, which means you cannot pay employees—which again affects the ability to produce more. So, this starts the kind of vicious negative cycle that can perpetuate,” said Natarajan. 

Tang points out that sales at companies that rely on traditional brick-and-mortar channels to reach their customers may drop significantly as consumers are encouraged to practice social distancing. She said it is crucial for these companies to quickly resort to other channels and collaborate with delivery service partners to get their product in the hands of consumers. For some other companies, demand is skyrocketing.  

“For example, the face mask manufacturer Prestige Ameritech in the U.S. has ramped production from 250,000 masks to 1 million a day. But it is still struggling to meet demand. Hand sanitizer and other disinfectants are in a similar situation,” she said. 

Tang states that supplier diversification has proved to be effective in mitigating supply risk at a single source by having more than one supplier, possibly in multiple regions. 

“When one supplier is disrupted due to a natural disaster, logistics delay, labor strike, or disease outbreak, companies can quickly route orders to other non-disrupted suppliers, which can minimize the damage of supply disruption,” she explained. “The trade war between the U.S. and China since 2018 has compelled many companies to re-examine their global supply chain design and look for supply options outside of China. COVID-19 will accelerate that process.” 

COVID-19 is impacting more and more countries besides China. Tang pointed out that even supplier diversification may not provide a complete solution. Some companies with a diversified supply base may also start to see the impact when they find their entire supply base being disrupted, one after another. This unique situation is calling for more innovative risk mitigation strategies to increase global supply chain resilience.

Looking into the future, Natarajan explained that companies need to work toward examining how their supply chain could be reimagined. 

“It’s also a significant challenge,” he said. “You want to be nimble on the one hand to react to these kinds of disasters, but at the same time you want to build cost efficiency. This is the tradeoff that companies have to fight and choose.”