The impact of COVID-19 on supply chains: Part 1

Julia Thompson

December 1, 2020

This first installment of a three-part series on supply chain resiliency and COVID-19 was written by Julia Thompson and published on LinkedIn. Read it here.

COVID-19 raises unique challenges to supply chain operations
Supply chain players continue to adapt to supply and demand variations caused by COVID-19

Did you have difficulties finding canned goods, cleaning supplies or personal protective equipment in the early weeks of the COVID-19 pandemic? If so, you’ve experienced first-hand the impact of supply chain disruptions. From replenishing food at grocery stores to distributing vaccines during global pandemics, supply chain operations impact our everyday lives.

As a freight-focused transportation analyst and consultant at CPCS, I wanted to better understand how and why the COVID-19 crisis has so severely affected the supply chain. I also sought to understand how supply chain, transportation and logistics industries were adapting to new and extreme disruptions. Which companies were able to adapt and why? How would companies evolve in the absence of a return to “normalcy”?

While exploring these questions, I came across the Asynchronous Virtual Roundtable (AVR) webinar series hosted by the Northwestern University Transportation Center (NUTC). Bringing together industry leaders, these events discussed the impact of COVID-19 on transportation, logistics and supply chain networks. Specific topics included trucking and intermodal freight operations, rail freight and supply chain operations, e-commerce and e-fulfillment and leveraging technology.

This article is the first of a three-part series that aims to explore the real-world, on-the-ground impacts of COVID-19 on transportation, logistics and supply chain operations. Most of them draw from these NUTC webinars and my own consulting experience working on freight and resiliency issues for transportation agencies.

In line with the CPCS problem-solving approach, each article is driven by a key question:

Why is the COVID-19 crisis unlike any other disruption for supply chains, transportation and logistics?

The COVID-19 pandemic has caused extreme supply chain disruptions. While the world has experienced disruptions of all kinds – natural disasters, economic recessions, World Wars – transportation, logistics and supply chain industry experts note that the effects of COVID-19 have been unique.

Individuals are affected by the crisis on both personal and economic levels.
The crisis is truly global in nature, with wide-ranging political implications.
The crisis has wrought a combination of supply (production), demand (consumption) and transportation issues.
This long-term disruption will eventually lead us into a “new normal.”

The entire supply chain is experiencing disruptions

Supply chain operations refer to the processes involved in the production and distribution of goods and linking people and businesses together – all the while interacting with physical, political and regulatory infrastructure. These components are intertwined with one another; the malfunctioning of one can destabilize the entire supply chain.

Due to its deleterious effect on public health, COVID-19 has severely bruised the human element of supply chains. Without people, supply chain operations are disrupted at every layer – from policies and regulations, to transactions and information flow, to the basic movement of goods.

The image below, adapted from NCHRP 732: Methodologies to Estimate the Economic Impacts of Disruptions to the Goods Movement System (2012),illustrates supply chain tiers.

The COVID-19 crisis has exposed supply chain weaknesses and is testing the ability of the supply chain to adapt to changes in supply and demand

Supply constraints:

Changes in operations necessitated by COVID-19 (such as sanitation and deep cleanings, social distancing and self-quarantining) affect people in the supply chain. Reduced labour availability and capacity creates added steps and delays to the supply chain.
Globalization and international cooperation paved the way for global supply chains (seamless operations across multiple countries sustaining a single supply chain). However, access to key international markets has been limited or even unavailable due to stalled production and commodity export limits. This particularly damaged supply chains that depended on singular affected markets.

Demand variations:

Surge markets: Some industries saw demand skyrocket and are now in dire need of immediate and short-term supply expansion. Commodities suddenly in demand include COVID-related medical supplies (e.g., PPE), household supplies (e.g., toilet paper, cleaner) and foods items (e.g., canned goods). The quarantine market has also continued to evolve over the past few months as adapt to a more sedentary lifestyle. Items such as kettlebells, work cameras and jigsaw puzzles have substantially increased in popularity.
Decline markets: Most other industries saw sharp decreases in demand as exterior activities have become more limited. Markets most affected include travel services, food services for restaurants and hotels, delivery to workplaces and retail.
Demand variations – whether a surge or decline – require supply chain adaptations. While supply chains have become adept in dealing with demand fluctuations, COVID-19 has rattled the ability of the supply chain to respond to demand variations and replenish inventory accordingly. This is especially true for supply chain operations servicing surge markets.

Main disruptions are at nodes

While the COVID-19 crisis has impacted the entire supply chain, nodes (e.g., manufacturing plants and warehouses) have been particularly affected relative to their connecting links (e.g., truck transportation and rail transportation). Nodes often require large groups of people to operate. This makes them particularly susceptible to the spread of COVID-19. Staffing limits at facilities, ports and other nodes result in supply chain delays.

Data use and applications face new challenges

Due to its unique nature and impact, COVID-19 presents new challenges to existing data use and applications in transportation, logistics and supply chains. It is an entirely unprecedented phenomenon. Companies can no longer rely on optimization and demand forecasting models developed based on pre-COVID-19 conditions.

Employee safety is and will remain the top priority

Companies across the transportation, logistics and supply chain industries have underscored the safety of employees as their first priority.

New safety practices implemented include remote work where possible, rotating shifts, using safety equipment, improving industrial hygiene, disinfecting and mandating temperature checks. While necessary for employee safety, these regulations limit labour capacity. In turn, the volume of new goods production and the speed of goods distribution have been severely reduced.
Public health and economic objectives are correlated. The safety and health of employees are critical to maintaining sustainable operations. This is evidenced by the numerous plants forced to close operations due to the spread of COVID-19 among workers.
Costs associated with COVID-19 preventative measures are now a cost of doing business. Particularly for industries seeing a rise in demand, the opportunity cost of limiting and/or shutting down operations is higher than the cost of implementing COVID-19 preventative measures.

CPCS: Solutions for growing economies