The Bullwhip Effect of COVID-19 on Supply Chain

At the time of this article going to publication, we are starring at around 338,000 deaths, and 5.2 Million confirmed cases, and 188 countries were affected (source: Johns Hopkins University). The fellow-citizens are perishing at a rapid rate.  All of us are mere spectators watching the sad drama unfolding in the biggest possible screen called the globe.

The Economic Shock:

With the above in the background, no economist is daring to put out a model that predicts the impact of COVID -19 on the global economy. According to “Erin Duffin,” it is predicted that most major impacted economies will lose at least 2.4 per of their GDP in 2020.  A 0.4% drop in economic growth is estimated to be around 3.5 trillion U.S. dollars in lost economic output.

If we reflect our thoughts on how it could impact the global supply chain, it is good and bad news, and we are entering into a period of uncertainty and chaos. Maturity is all about discovering that everything to do with the acceptance of “not knowing.” We are gaging at unknown unknowns.  By accepting what we don’t know, we would demonstrate matured reactions to this global pandemic in managing supply chains globally.  Generally, supply chains work in proactive mode; we are in a reactive way to navigate new challenges; the supply chain professionals across the globe are looking to build resilience into their supply chains.

Resilient supply chains are skilled at preparing and responding to and recovering from unexpected disruptions by maintaining the continuity of operations. Generally, such a concept of resilience incorporates a variety of agile traits such as robustness and flexibility.  Business risk management and continuity, along with reactive planning, become priorities of the management team.

The Bull Whip Effect

As the pandemic crisis deepened and nations have begun instituting lockdowns, supply chains have been experiencing something completely new and unknown phenomena of systemic demand shocks. People are stocking up least expected products, and the most talked-about example, toilet paper, is ironically usually the go-to example of a perfectly forecastable product, since the end consumption is usually rather stable. There seemed to be a fear that food supply chains would be unable to respond to this unprecedented, massive spike in demand. In the case of toilet paper, it is not a product shortage; it all about the ability to replenish and meet the demand requirements.

Living with COVID

As the supply of vaccines’ availability for the virus is unknown, we are calling this period as the new normal. The economic impacts are posing challenges to the global supply chains, as mentioned above, and many economists are predicting a deep recession of unknown length. A good example is the automotive industry is contracting as the sales are dropping exponentially. The coronavirus outbreak has heavily impacted the manufacturing industry. OEMs and parts suppliers have yet to return to full production capacity. Consequent delays in delivery might affect the market at multiple levels from postponed new car model launches, shattered supply chains, financially drained SMEs, and dampened vehicle sales in Q1, 2020. The effects will spill over into Q2 as well, with unfulfilled order deliveries due to ongoing production slowdowns.

Figures recently released by the Australian Bureau of Statistics show that 31 percent of Australian citizens have experienced a decrease in income due to the pandemic.  Besides, 72 percent of Australian businesses reported that reduced cash flow.  These two negative economic factors will have a deep impact on business over the next two months.  In Australia alone, the new car sales/demand have seen almost a 50 percent drop due to COVID 19 (source: Darren Gray, Sydney morning herald). The extent of this plunge in sales is pretty unprecedented in modern times, and it’s going to have significant repercussions. According to James Voortman, chief executive of the Australian Automotive Dealer Association

The global automotive sector employs more than 9 million people alone in the manufacturing of automobiles globally, which includes over 5% of the worldwide manufacturing workforce. Many other industries, including steel, iron, glass, plastics, textile, rubber, software, among others, are dependent on the demand from the automotive sector.

Estimation reveals that global automobile sales will decline by about 23% in 2020. Initially, the disruption in supply and manufacturing hampered the industry significantly. And now with the multifold decline in demand has led to the uncertainty regarding the recovery (the unknown).

Good out of Bad

Something good is coming out of a bad situation.  The new-age manufacturing companies are innovating in challenging times. One company resolved a shortage of parts for life-saving ventilators in Italy by using 3D printing and making them available within a day source: (Independent, U.K.)  Perhaps this triggers the creation of a role for additive manufacturing in the spare parts supply chain.

LVMH Moët Hennessy – Louis Vuitton SE, L’Oréal S.A, and Coty Inc. and others have stepped up and repurposed production facilities intended for fragrances and hair gels to produce hand sanitizer. In addition to providing a valuable resource that may help save lives, this move helps keep workers on and facilities operating despite challenging economic conditions for luxury items.

Conclusion

The supply chains are in unfamiliar territory and unlearning to learn new methods of delivering outcomes.  We are yet to see the pinnacle or top of the learning curve.  There is a possibility of a change in shopping methods, and stores may disappear, and virtual shopping on online shopping could take a front seat.  Similarly working from home could be a new and big popular initiative, Twitter announced that their staff could work from home for life.  The possible good thing coming out of this initiative is commuting gets reduced and good for the environment.  It will hurt the automotive industry and the Petroleum products industry.  It has a negative impact also, according to Medical News Today, “Many people are required to stay at home in a bid to stop the novel coronavirus from spreading. Some people may feel isolated, which can lead to a range of feelings and emotions. Quarantine, self-isolation, and physical distancing (also called social distancing) can cause anxiety, depression, and loneliness, all of which are common ED triggers.“

See the below changes to the lifestyle according to “Statista.com.”

The Truth:

The world of “normality” no longer exists. Lives have altered in ways that no one could not have possibly imagined in their wildest dreams. Many considered 2019 was an irrational, unkind, and dysfunctional place. Now, we refer to the previous year – a mere six months ago, as a time of “normality.”  We have no clue when we return to normality from “BAU COVID 19.”

Fauci, (the famous American physician and immunologist who has served as the director of the National Institute of Allergy and Infectious Diseases since 1984)  repeated his call for a vaccine as essential to stopping the pandemic. He said he is optimistic they would find a workable candidate, but warned of potential pitfalls in developing any vaccine.

Source: IATA

My Belief

“The only way to make sense of change is to plunge into it flow with it . . . and join the

dance.” – Alan Watts