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The global supply chain is breaking under the COVID-19 pandemic

24-Mar-2020 3:20 PM EDT, by West Virginia University

From medical equipment shortages to panic-buying, the links in supply chains are breaking but will serve as valuable learning lessons for the future, said Ednilson Bernardes, professor and program coordinator of the Global Supply Chain Management program, West Virginia University John Chambers College of Business and Economics.

A Brazilian Air Force veteran, Bernardes worked for the world’s third largest aircraft manufacturer and observed the dynamics and challenges surrounding global supply network operations firsthand.

Quotes:

VIDEO File: Ednilson Bernardes discusses the global supply chain and COVID-19 

How has COVID-19 affected the global supply chain thus far?

“The new pandemic has stressed supply chains worldwide and we are seeing shutdowns unheard of in modern peacetime history. The modern supply chain has become incredibly vulnerable to a threat like the COVID-19 pandemic. I am certain that there will be changes to the way we design and operate global supply chains once we emerge from the aftershocks.” 

It seems that the medical supply chain is broken. Can you shed any light on the shortages of masks, ventilators, test kits, etc.?

I would say that the design of the new U.S. medical supply chain is exceedingly fragile. In these early stages, we can already experience a shortage of personal protective equipment across the country, such as N95 respirators. As the cases spread, so will the scarcity. Hospitals screening a few patients a day for COVID-19 will start testing several hundred. This shift in operation tempo will result in further disruptions in the chain of medical supplies. Now, most of these items, from protective gear to active ingredients to produce critical medicine, are currently produced abroad, and those manufacturers are experiencing both a surge of demand globally and local disruptions as their sites become affected by the pandemic. 

“For instance, in one of my current research projects, we have been examining the supply chain of opioids in the U.S. Based on data from the FDA, over 80 percent of manufacturing facilities used to produce components for American drugs are located abroad. Besides, many raw materials come from a very narrow geographical base also, such as Malaysia, which represents a significant proportion of the latex needed for sterile gloves. In the face of these challenges, it is very positive that the federal government enacted the Defense Procurement Act recently to accelerate the development of healthcare supplies. 

“Another crucial aspect is that the medical supply chain has become leaner over the years, so there is less of a buffer to cushion the ramp-up of other emergency measures. For instance, many large pharmacy retail chains and hospital chains have not stocked medical products in their warehouses because the costs are just too high. Instead, they have agreements with their distributors to hold an agreed-upon number of hours replenishment of inventory. As the stock of these retailers and hospitals now depend entirely on that of their distributors, shortages at the distributor can impact retailers immediately.

“The government’s strategic reserve of healthcare supplies can function as a transition buffer while manufactures ramp up production. However, the level of those stocks is not high, and those states that have requested it have already experienced rationing. The new pandemic has highlighted crucial vulnerabilities in the medical supply chain, which current design is based on global sourcing from a limited set of regions to cope with thin margins.” 

What are we seeing right now with the retail and food supply chain?

“For the food supply chain specifically, we are not experiencing a food shortage. Again, supply chain systems are adapting to a new reality. 

“First, they are adapting to panic-buying and the sudden surge in demand. Second, they are also adapting to unique parameters for distribution and fulfillment. As one side of the supply chain goes offline in the form of restaurants closing, the associated inventory is rerouted to other parties of the chain such as retailers and grocery stores. 

“However, the quantities and other aspects are different. At any rate, for now, food producers have been operating in an almost business as usual situation. Items that will likely impose some changes on consumer behavior, for the time being, are specialty items, such as imported spices and certain fruits and vegetables coming from abroad.

“Global supply chains have a tremendous impact on our modern lifestyle. For instance, I'm able to cross the street and grab a miniature pineapple produced thousands of miles away, exclusively in South Africa, conveniently, at the right level of ripeness, and an affordable price. This possibility is quite frankly is almost short of a little miracle. But such convenience comes at a cost, and we can experience some of its aspects now during the COVID-19 pandemic. Yet, even though we may not have all the range of brands we have grown accustomed to or all the unique fruits and vegetables we like, for now, the food supply chain is operating normally, and we have enough products in the system.” 

To the folks who are hoarding toilet paper and other goods -- do their actions affect the supply chain?

“We are witnessing panic-buying due to uncertainty and fear. As panic-buying wipes out certain products from the shelves, such as toilet papers or paper towels, demand inertia creates shortages in the system. 

“The shelves are empty because of the sudden increase in demand due to panic-buying exhausting the supply available at the retailer and transmission of replenishment signal from the retailer to the manufacturers in the form of orders taking a little time. 

“Inventories, in general, are available. Manufacturers of consumer goods typically have several days' worth of stock available at their distribution centers. What we will eventually see is an abundance of items seating at retailers, as the actual demand, for say toilet papers, are not increasing. We will not use more toilet paper than before. Consumers have just stocked up months' worth of inventory at home.”

When all is said and done, will there be lessons learned and shifts in how supply chains operate?

“I am positive that there will be changes to the way we design and operate global supply chains once we emerge from this pandemic, which is showing us how vulnerable some of the chains have become.”

West Virginia University experts can provide commentary, insights and opinions on various news topics. Search for an expert by name, title, area of expertise or college/school/department in the Experts Database at WVU Today

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js/03/24/20 

 

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