Special Q&A Session with Dr. Zach Zacharia of Lehigh University on COVID-19With the end of the coronavirus pandemic remaining unknown, it is critical for companies to initiate conversations with their essential trading partners in an effort to respond in the near term while planning for the future. Maintaining a truly resilient supply chain means having both short-term and long-term supply chain crisis management strategies in place.
To help direct your supply chain crisis management efforts, DiCentral spoke with Dr. Zach Zacharia, Director of the Center of Supply Chain Research at Lehigh University, for some insights.
The Effect of COVID-19 on Supply Chains
DiCentral: Thanks for joining us, Professor Zacharia.
Dr. Zach Zacharia: Thanks very much for having me. I appreciate it.
DiCentral: I have some headlines I’d like to discuss with you, Dr. Zacharia. So, 75% of companies are currently reporting supply chain disruptions, but is that number low?
Dr. Zacharia: When you look at the headlines, you can clearly see that there is a huge impact on our economy. Especially when you consider that 938 of Fortune 1,000 companies have had one or more tier-two suppliers impacted in China and that 90% of all global companies with tier-one suppliers in affected regions are headquartered in China.
Fashion retailers, for example, came out a couple days ago and said they've canceled nearly $1.5 billion worth of orders. Western retailers, as a whole, have been canceling so many orders, which means millions of factory jobs in Asia are being affected. And with over three million Americans applying for unemployment benefits in the final weeks of March, this pandemic has global repercussions and implications.
DiCentral: How does the COVID-19 pandemic compare to other supply chain disruptions?
Dr. Zacharia: COVID-19 is dramatically affecting both supply and demand. While supply chain disruptions like the SARS epidemic in the early 2000s, the Great Recession in 2008, and the environmental disasters Japan experienced in 2011 all had powerful impacts on the supply chain, most of the time, they affected either supply or demand, not both at the same time.
DiCentral: So how is it impacting the people in the United States?
Dr. Zacharia: People don’t know what’s actually going to happen, so we’re experiencing a lot more long lead times. This means it takes a while for products to go through the supply chain. It’s worth mentioning, though, that here in the U.S. we’re going to be okay; we are going to be able to recover. But we’re still going to experience a bullwhip effect in the supply chain which by definition means, there will be increased variability as you go further up the supply chain so that a small change at the retailer will be a huge change by the time it reaches final supplier.
But there is a solution, and there are things we can do to reduce the impact of this bullwhip effect which is where we start to talk about trading partner collaboration.
Building and Predicting Resilience Through Collaboration
Dr. Zacharia: Managing a supply chain disruption means you have to develop both a short and long- term supply chain crisis management strategy.
So, in the short term, you really need to look at ways to encourage or build confidence in your supply chain. You’ve got to figure out ways that you can be transparent to the members in your supply chain and let them know if you see a reduction in demand. We have to find out how to manage existing systems, which means we need to be sharing information, working collaboratively, and doing whatever we can to improve visibility in our supply chain.
DiCentral: What can companies do right now to build a better supply chain resilience model?
Dr. Zacharia: I’ve done a lot of research on supply chain disruption and how companies should respond to it, and in all of our analysis, we’ve found that companies should stop relying on a binder of rules and instead host a war room. This is when you get a group of your experts together—in this case, via video conferencing—and collaborate to come up with ideas on how to deal with the issues you're facing.
The second thing you need to do is reach out to your Tier 1 suppliers and ask them what they’re doing with their supply chain. You want as much visibility as you can get, and you can achieve that by collaborating with your suppliers and making sure that their success is your success and vice versa.
You’ll also want to look into your Tier 2 suppliers, as they’re the ones providing supplies to Tier 1 suppliers. What does their inventory position look like? What issues are they facing? This is a great time to start identifying alternative sources of supply, as being overly reliant on just a few suppliers can magnify the disruption of the supply chain crisis you’re dealing with.
Building a Long-Term Crisis Management Strategy
DiCentral: So, these are things that companies can (and should) be doing internally within their company in the short-term. But when dealing with Black Swan events—events that are unpredictable and far beyond what is expected and can have intense consequences, like COVID-19—what can we do in the long-term to keep going?
Dr. Zacharia: One of the first things people can do when planning out their long-term crisis management strategy is to break down the functional silos within their company. Almost every company has silos, and it’s natural to have siloed departments for things like purchasing, forecasting, and operation. But when you’re dealing with a supply chain disruption, you need to be collaborating, and that requires a degree of visibility that can’t always be achieved in a siloed structure.
Breaking those silos down within the firm, then, is a great way to get end-to-end visibility into your supply chain. This will help you get more clarity on where your Tier 1 and Teir 2 suppliers are, which will then help you be more prepared for any kind of disruption that may occur or continue to occur.
The biggest thing is always going to be about improving end-to-end visibility. And I know I sound like a broken record here, but the key to visibility is to develop collaborative relationships. If you’re collaborating with your suppliers, you’re going to be able to respond to supply chain crises in an agile, responsive, and quick way. You don’t want to wait for this crisis to happen and not have the capability of being able to change accordingly.
DiCentral: At this point, I think the million-dollar question on everyone’s mind is this: how long is this going to last?
Dr. Zacharia: You know, as much as I wish I knew, I don’t have a crystal ball. But I do want to emphasize that the U.S. has one of the best supply chains, a top-notch transportation infrastructure, and the processes and policies that will help us build a stable crisis management strategy that will enable us to recover more quickly.
We’re going to be able to get through this thing. Our economy’s going to start moving again, and the supply chain is going to be able to respond to the increase in demand that occurs once that starts.