Pandemic revealed fragility of supply chain, and even now challenge of managing risk continues

Rutgers Business School supply chain management professor David Dreyfus contributed a chapter to the new book, "Reflections on the Pandemic: Covid and Social Crises in the Year Everything Changed." Edited by Teresa Politano, the book is a collection of essays, poems and artwork by some of Rutgers University's most distinguished and creative faculty.

Recently, we have all received a crash course in supply chain management. I like to think that supply chain management is having a moment. It feels like it is everywhere. I no longer have to ask on the first day of class, “Who has heard of supply chain management?” For decades, we have grown accustomed to ever quicker deliveries with increasing methods of tracking. Two-day deliveries, free returns, and omni channel retailing have become the norm.

Supply chain management is defined as a series of events that are required to source, make, and deliver goods and services. In other words, it entails managing the risk of a business. We usually take for granted the orchestra of activity that comprises the processes of how we receive, interact with, and consume our goods and services. However, supply chain management is where this orchestra is tuned.

So what happened during this pandemic that caused our supply chains to play out of tune? You may remember that we ran short of ventilators, personal protection equipment, toilet paper, and computer chips. As the world shut its factory doors and workers were asked, or chose, not to come in, goods and services were not manufactured or delivered. Instead of an isolated disruption, as is usually the case amid a natural disaster or war, this pandemic occurred almost simultaneously around the world. Issues that are normally invisible to the consumer, as they typically occur and are resolved behind the scenes, started holding our attention.

After the first early weeks of the pandemic, demands for goods escalated. This renewed demand ballooned to extreme levels in many industries. With greater demand and fewer workers, businesses and suppliers could not keep up. The complexity and structure of our supply chains were working against us. Suppliers could not obtain enough raw materials or make enough components. Drivers were in demand. Finding alternative suppliers is not simple in normal times, the process is far more difficult during disruptions.

The toilet paper shortage offers a good example. At the onset of the pandemic, consumers hoarded toilet paper as they prepared to stay indoors for an unknown length of time. And toilet paper businesses shut down. Demand had surged, but production had halted. Eventually, loggers returned to their forests and machines. Lumber mills reopened to process the trees. Paper mills started making the raw materials into paper, and finally, the toilet paper manufacturers ran their manufacturing lines again. At each step, logistic providers were needed to transport the goods from one entity to the next. Finally, once the toilet paper was made and packaged, it had to be transported to distribution centers and retailers. The shortage of workers and drivers at each step made this journey slow and expensive. Additionally, many protections were put into place to keep people further apart, thus slowing down existing processes and communications.

To support the goals of business, the supply chain management team must ensure that it has the internal capabilities to produce a good or service. This includes physical constraints, like the size of a building or the speed of a machine, but also the number of people needed to run the business. Looking up the supply chain and beyond the walls of the business, suppliers must be obtained and approved to provide raw materials or components, along with logisitic providers to move everything around. Looking down the supply chain, distributors and customers require additional logistics and services to ensure successful delivery. Each step requires a relationship and trust. During the pandemic, these relationships were put to the test.

The pandemic revealed the level of globalization and complexity of our modern supply chains. And the fragility. When any part of this chain breaks, disruptions are likely to follow. To limit risk, several options are available to businesses. Each contains tradeoffs. These may include having multilple suppliers, which limits economies of scale, or stockpiling inventory, which increases inventory costs. A business could vertically integrate—controlling more aspects of its supply chain. But that choice demands movement from a core capability; in this scenario, the business is no longer focused primarily on what it does best. Regardless, businesses should map processes to better understand the movement of products and information through their supply chain. Mapping allows a business to see and address problems more quickly, but mapping is time consuming and requires expertise.

At Rutgers Business School, we have a culture of resiliency, resourcefulness, responsibility, and reinvention. Many businesses are now adopting a similar culture due to needed changes exposed by the pandemic. The understanding that everything is a process that can be mapped and standardized has taken on a more important meaning as colleagues are regularly absent and the need for others to step in and fulfill duties persists. The connections and relationships built over years between businesses have been put to the test as solutions had to be found for the frequent supply, labor, and transportation shortages.

By the end of the first year of the pandemic, many businesses had adopted new practices and found new suppliers, if needed. Strategies were shifting within companies to bolster supply chains. Companies were building stronger relationships, formalizing processes, adopting new technologies, developing new suppliers. Yet we still faced regular shortages of goods, logistic challenges, and a backlog at our ports. Not everything was back on track. Similarly, consumer spending remained skewed toward durable goods, which left many service industries struggling.

Businesses will not revert to the strategies of the past, nor should they. Online shopping remains popular. Shortages continue for some goods and services. Service spending on hotels, airlines, and more is returning. Labor shortages continue to plague certain industries and businesses, many of which were begun before the pandemic, such as those in health care and trucking.

Looking ahead, what can we do? A business can hide many of its problems by carrying extra inventory. However, no amount of additional inventory is enough to last years. Furthermore, new challenges have emerged as we try to put the pandemic behind us. War and inflation offer new disruptions. Better and more robust supply chain management principles should be adopted. Ultimately, our quest to manage the risk within businesses continues.

Globalization has led to supply chains crisscrossing the world. To unravel these paths completely would be unwise. These paths have integrated nations on a scale never before seen. This has led to some of the most peaceful years in recorded human history. Businesses are run by people. When people work together, relationships are built. These networks create a powerful force, which should bring us all closer together. In the future, we will solve these challenges, so that our supply chains are not as fragile and ensure that the next disruption is not as painful. To do this, we must remain resilient, resourceful, responsible, and continue to reinvent.

David Dreyfus, is an assistant professor of Supply Chain Management at Rutgers Business School. He teaches Demand Planning and Fulfillment, Operations Analysis, and Business Statistics. His research focus is on healthcare operations, population health, teams, disruptions, and risk.