Supply Chain Expert Talks About Lessons Learned in the COVID-19 Crisis
By Keith Morelli
TAMPA (May 11, 2020) -- One previously obscure field that COVID-19 put a spotlight on is supply chain management. Most consumers probably had never given a second thought about the complex method that gets products and services from producer to customer. But empty toilet paper shelves and meat counters brought to the forefront the failures – and successes – of supply chain management during the crisis.
While still in the grip of the pandemic, retailers are beginning to get their feet under them, opening step by step on a path that they hope will lead to a full recovery of the economy in the months ahead.
What are the lessons learned by supply chain managers? There are a few, said Seckin Ozkul, a faculty member in the Marketing Department of the Muma College of Business who specializes in operations and supply chain management.
“When the panic buying due to COVID-19 subsides, which it already is in some areas, the supply chain will continue delivering the same demand that is historically proven to be accurate plus some safety stock, for additional demand, that is normally used when unexpected situations arise,” Ozkul said. “There may be some disruptions to specific supply chains that were heavily involved in countries that closed down due to COVID-19, however these will normalize over time.”
The data collected during the outbreak will be valuable in dealing with future disruptions to supply chain demand during pandemics such as COVID-19, he said.
“I believe this data will serve us well in planning for the ‘next’ national crisis," he said. "It will help us prepare and make it a little easier to bear for retailers and consumers.”
An example of this, he said, is the toilet paper reaction of consumers during the crisis.
“Now that we have this data,” he said, “toilet paper manufacturers will increase their inventory and production at the first signs of major disruption such as a pandemic or natural disaster of the same magnitude.”
Boiled down to its simplest form, supply chain is based on the classic “supply and demand” issue, Ozkul said.
“That’s something I cover in the first lecture of my core business course of operations and supply chain management,” he said. “Our regular historical demand has spiked due to COVID-19 impacts, however our supply is the same (or a little less for some products due to operations and supply chain limitations).
“Therefore, we see empty shelves since the ‘normal’ supply that is delivered, evaporates immediately because of this spiked demand. The result: panic-buying syndrome and a hoarding mentality.”
This question naturally arises, he said. “Why don’t companies increase their production to meet this spiked demand?”
The answer is this: “They try to increase production capacity by increasing work hours, adding shifts, working over the weekend, etc.,” he said, “however this has also proved to be challenging with social distancing norms, so even though they may increase work hours, there may be a decrease overall in the amount of workers due to social distancing. The result is about the same production capacity.”
This type of capacity increase would work, when companies are able to bring back their whole work force and it is safe to operate as they used to, sans social distancing norms.
Another way of increasing production capacity is to add more production facilities such as factories, as well as adding more manufacturing machines, he said.
“However, this is not a good move for most businesses, because they make an investment on this additional capacity and once this spiked demand goes away in a couple of months and their demand goes back to normal, they will have all this additional production capacity and they will not be able to get a good return on investment,” he said. “That is why most companies are hesitant to increase their capacity just to be able to overproduce during the limited spiked demand months we are observing.
There is some good coming out of all this, he said.
“Now that we have observed and collected data on a global disruption such as COVID-19, the operations and supply chain industry can be better prepared and we can actually take the necessary precautions so we don't see the impacts as much as we saw it with novel COVID-19," he said. "We're only going to come out better on the other side of this, once this is all said and done."