Today it is possible to state confidently that the COVID-19 pandemic has dealt massive damage to global logistics and supply chains. Lockdowns and restrictions on transportation and traveling made many businesses suffer or shut down. Therefore, it is important to analyze the past and understand what risks affect global logistics, what impact can the events similar to the COVID-19 pandemic cause, and how to cope with them. In addition, an overview of guidelines for recovering after the pandemic will be provided.
The global risks for logistics and supply chains can be divided into several categories, depending on the main threat factor. For example, business risks might affect the efficiency of working processes and damage the company’s financial health. Choi (2020) separated business risks into disruption risk, which challenges the normal operation of logistics systems, and financial risk of becoming capital-constrained due to unexpected global events. However, the probability of these risks becomes bigger in light of extra challenges brought by the pandemic.
COVID-19 has added a new dimension to usual safety risks such as transportation failures or natural disasters. According to Jabbour et al. (2020), pandemics create a significant source of external risk to the stability of supply chains. By this moment, COVID-19 has passed the point of being an ambiguous threat and became a well-known risk. Therefore, logistics managers must take lessons from the COVID-19 pandemic and use this knowledge for building smarter and more resilient supply chains.
Impact on Supply Chains
In 2019 COVID emerged as a somewhat ambiguous threat, and the world mostly failed to realize the scale of danger until it became too late. Gunessee and Subramanian (2020) argued that coronavirus impacted both supply and demand ends of worldwide supply chains due to its ambiguity. For instance, the supply chains of various medical products were disrupted by pressure and ambiguity (Gunessee & Subramanian, 2020). The demand for respirators, ventilators, and drugs became volatile due to panic buying in multiple countries. As a result, an apparent need for medical equipment led to shortages in the face of uncertain demand (Gunessee & Subramanian, 2020). In addition, the coordination within supply chains suffered, especially when the unorthodox suppliers decided to satisfy the growing demand for medical products. For example, Dyson, the British manufacturer of vacuum cleaners, produced an excessive amount of ventilators without a clear demand (Gunessee & Subramanian, 2020). Overall, an uncertainty based on ambiguity has led to a so-called “bullwhip effect” and the eventual disruption of global supply chains.
COVID-19 has forced the companies to implement various measures for the mitigation of damage to their supply chains. Gunessee and Subramanian (2020) separated these measures into “organizational” and “individual” coping strategies. In general, organizational strategies consist of mitigation and preparedness, while individual ones are behaviorally based (Gunessee & Subramanian, 2020). Due to the initial ambiguity of the COVID-19 threat, the most harmful individual coping strategies, such as avoidance or overconfidence, have often undermined the effectiveness of organizational measures.
The companies have developed a general set of organizational coping strategies. For example, organizations widely implemented coping strategies of stockpiling, local and global supply chain blending, and collaboration (Gunessee & Subramanian, 2020). However, many organizations failed to act properly and protect their chains of supply. Gunessee and Subramanian (2020) stated that businesses were paralyzed by status quo bias and overconfidence. The illusion of control resulted in an unwillingness to develop and implement more significant measures of supply chains protection. According to a risk assessment by The Global Fund, the companies claimed that COVID-19 “would not be a major disruption” (The Global Fund, as cited in Gunessee and Subramanian, 2020). In the end, the careless stance towards COVID-19 resulted in the ineffectiveness of coping strategies and significant damage to supply chains.
Guidelines for the Future
The past cannot be changed; however, it is possible to learn from the mistakes and develop more effective guidelines for addressing the challenges of supply chains management. After the damage caused by the COVID-19 pandemic, the companies should be aware of drastic consequences and the price of overconfidence. Given the failures of the past, Jabbour et al. (2020) proposed the following adjustments as the aftermath of the pandemics:
- Prioritizing supply chains, critical for society, for instance, pharmaceutical supply chains, grocery retailers, logistics, and transportation;
- Implementation of more sustainable consumption model by supply chains that deal with consumer goods;
- Reassessment of logistic decisions which involve transportation modes, warehousing, and handling of the materials;
- Investing in the aspects of E-commerce, such as efficient logistics, order fulfillment, and customer service management.
Overall, the supply chains may experience significant changes even after the end of the pandemic. For example, Jabbour et al. (2020) predicted that national governments would likely invest in the regulation of “key supply chains”, taking the initiative from companies. In addition, end-consumers might keep on shortening the supply chains through online services. As a result, the supply chains may become localized and dependant on government control.
The COVID-19 pandemic will have a lasting impact on the global supply chains. The uncertainty about demand resulted in shortages, or, on the contrary, excessive production of goods.
Stemming from overconfidence and underestimation, the damage caused by the pandemic highlighted the inefficiency of the existing coping strategies. Overall, the pandemic taught a lesson on the importance of preparedness, and the supply chains managers should not forget it.
Choi, T. M. (2020). Risk analysis in logistics systems: A research agenda during and after the COVID-19 pandemic. Transportation Research Part E: Logistics and Transportation Review, 145(102190), 1-23. Web.
de Sousa Jabbour, A. B. L., Jabbour, C. J. C., Hingley, M., Vilalta-Perdomo, E. L., Ramsden, G., & Twigg, D. (2020). Sustainability of supply chains in the wake of the coronavirus (COVID-19/SARS-CoV-2) pandemic: lessons and trends. Modern Supply Chain Research and Applications, 2(3), 117–122. Web.
Gunessee, S., & Subramanian, N. (2020). Ambiguity and its coping mechanisms in supply chains lessons from the Covid-19 pandemic and natural disasters. International Journal of Operations & Production Management. 40(7/8), 1201–1223. Web.