The COVID crisis has exposed some critical serious flaws in supply chains across all sectors of business, including critical ones for industries such as Pharma and medical supplies.
Shortages/ Low supplies of P.P.E for health workers and ventilators in hospitals are the most prominent ones and their scarce availability in many renowned countries and their hospitals has come to surface.
To prevent this problem from reoccurring in the wake of the next strike, Governments should consider establishing a litmus test for companies that provide critical goods and services that’s akin to the evaluation for banks that the U.S. government and European Union instituted after the 2008 financial crisis.
This test should focus on the Agility & Adaptation of companies’ supply chains.
In my view, the sole reason for the shortages that have occurred during the pandemic is the lean global supply chains that have been deployed widely to reduce costs through efficient allocation of production to low-cost regions.
Regular approaches or applied methodologies are –
1. JIT ( Just in Time )
2. Low Inventory levels in the entire Supply chain streams
3. Non-adaptation to Data analysis for a critical predictive & prescriptive strategy.
For a case study, if we see the automotive industry, in particular discovered that these operating plans might not always work when they were forced to deal with severe supplier problems.
This is especially after the 2011 earthquake and Tsunami devastated northeastern Japan.
This led to the application of a new methodology we developed that enables a sophisticated way to understand exposure to risk associated with unforeseen events, like natural disasters or calamities.
For the acid test it should two prime criteria –
1. Time to recover (TTR) – It’s the time it would take for a particular node in the supply chain viz: Supplier’s facility, a distribution center, or a transportation hub to be restored to full functionality after disruption of its
2. Time to survive (TTS) – the maximum duration that the supply chain can match supply with demand after a facility disruption.
By quantifying each measure under different scenarios, the supply chain can identify its ability to recover from its source cause of the disruption.
TTR > TTS – This points out that the supply chain will not be able to match supply with demand unless a backup plan exists.
TTR = TTS – Recovery is equal to survival, the SCM is prepared with its
TTR < TTS – There is no impact on the event or disruption. A well prepared, planned & well-executed service sector industry.
This approach provides companies with a way to financially quantify the cost of disruptions and prepare mitigation plans for the most critical parts of the supply chain that could be applied in different scenarios. Eg: after, the 2008 financial crisis to ensure that major institutions whose failure could cause the entire financial system, a Bank Stress Test was instituted to keep checks and balance on the institutional working so that in case of any future crises they can cope up well in time, however this time around we have health pandemic which I suppose should have been in the model.
In the United States, major banks are required to estimate the capital they would need to ride out the baseline, adverse, and severely adverse conditions. For example, banks might need to model an environment with high unemployment, a housing market crash, and a slowing economy.
The Federal Reserve provides the details for stress testing each year by telling banks which specific assumptions to use.
It is a simulation model that helps bank managers and regulators gauge a bank’s financial strength.
Governments across the globe should put in more such stress or situation tests for themselves and other private business players that provide essential products and services to report their ability to deal with disruptive events.
It would encourage them to design more resilient supply chains. In the case of health care, a government agency could take the lead and work with industries to establish standards and tests. Of course, when designing the standards and tests, economic nationalism like countries’ priorities that have prevented the movement of goods across the global supply chain during the pandemic should
be taken into account.
Creating and implementing a stress test for companies in critical industries is possible.
It would go a long way towards ensuring that the kind of shortages that have been occurring in the last few
months doesn’t happen again.
Article is contributed by By Sumit Wadhawan
A dynamic leader & result oriented professional with 24+ years of expertise in creating & managing supply Chain for leading international brands, retailers, and eCommerce players. Adept to contributing ingenious strategic initiatives, adopting innovative methodologies in Supply Chain, Operations, Logistics, Vendor Compliance, Sustainable Strategic Sourcing to Quality Assurance with a vision of Profit Center Management.
Maximizing talent capabilities towards enhancing organizational core values and visions.