Research shows that climate change, COVID-19 are creating a need for new models with a view toward complexity
Every consumer who has seen empty grocery store shelves or waited extra weeks for an online purchase over the past 18 months is aware of how the COVID-19 pandemic disrupted the supply chain.
An Arizona State University professor has studied another disruptive disaster – the 2011 tsunami in Japan – to see how automotive supply chains coped, and he sees parallels to what’s happening now.
“You have to look at different aspects of the supply chain and understand what is most important during which stage of the disruption,” said Robert Wiedmer, an assistant professor of supply chain management in the W. P. Carey School of Business at ASU. His paper, “The Dark and Bright Sides of Complexity: A Dual Perspective on Supply Network Resilience,” was published in the Journal of Business Logistics.
Wiedmer and his co-authorsZachary S. Rogers of Colorado State University, Mikaella Polyviou of ASU, Carlos Mena of Portland State University and Sangho Chae of Tilburg University found that supply chain complexity is a paradox — sometimes helpful and sometimes a hindrance.
And climate change is only going to make things more complicated, he said.
It’s getting more and more difficult to run global supply chains efficiently.
— Robert Wiedmer, assistant professor of supply chain management
The researchers wanted to measure “complexity” in three areas: the number of parts in a product, the number of suppliers and the number of carriers, or logistics.
And they wanted to see how “resilient” the supply chains were, which means how quickly they were able to return to normal after a disruption.
So they compared shipments of vehicles and vehicle parts from Japan to the United States before, during and after the tsunami, and compared it with vehicle imports from Germany, which was not affected by the tsunami, during the same period.
The results show a complicated picture:
- Having a lot of suppliers makes the impact of a disruption worse at first, but it helps during the recovery.
- Having a lot of carriers has no effect on the impact of the disruption, but helps during the recovery.
- Having a complex product with a lot of parts makes the impact disruption worse but has no effect on recovery.
Wiedmer answered some questions from ASU News about his research and how the results parallel what is happening now.
Question: Are the results of your research good or bad for companies?
Answer: When you talk about complexity, it’s not just good or bad. It’s in between.
We find that different aspects of supply complexity can have different impacts depending on where we are in the disruption sequence.
Certain characteristics had very different effects on the companies’ ability to import products during the impact versus during the recovery. For example, having many, many suppliers during the disruption impact was detrimental. It made the situation worse, which is counterintuitive. It was probably because it was difficult to reach all of the suppliers and they couldn’t just focus on two or three.
During the recovery, it’s the opposite. Having many suppliers is good, and diversification is helpful.
So it’s not only good or bad.
Q: What is the message for managers?
A: Understand what can help you and what can potentially hurt you. One lesson would be to focus on core suppliers during a disruption and maybe expand and reach out to your full base when you’re trying to recover from a disruption.
It’s similar for logistics service suppliers. We didn’t find an impact during the disruption, but when you’re trying to recover, having a large pool of carriers is helpful.
Q: How does what happened during and after the tsunami compare with the supply chain disruptions we’re seeing during the COVID-19 pandemic?
A: It confirms what we found. Right now, the biggest issue is logistical capacity. We see that companies are not able to ship goods from China to the Port of LA. Having a bigger portfolio of logistical service providers can be helpful, especially if you’re trying to catch up in bringing a lot of stuff into the country.
COVID is unique in a way because it is prolonged and extended beyond the disruption, with an extended recovery phase. It’s even more complicated because so many more industries are affected and so many more markets.
We’re also seeing different phases. We had the phase (in spring 2020) with the huge disruption in global supply chains. We had a complete shutdown.
The discussion back then was, “How can we find the right supplier?” And, “How can we make sure we have enough toilet paper in the store?” On the other hand, certain industries had to stop because nobody needed stuff for restaurants. They had to shut down for zero demand.
Between industries you find many differences, so you need to be really aware and clear what you’re talking about because not all industries were positively or negatively affected.
Now the story has changed, and now it’s clearly a logistical crisis. There are no containers available. Carriers are having problems satisfying all their clients, and it’s a problem to find ports in the U.S. Everyone is completely overwhelmed.
Related to our findings, during recovery you need a broad portfolio of logistical service providers. That’s always easy to say post hoc.
Q: Is COVID-19 the main factor driving disruption right now?
A: It’s getting more and more difficult to run global supply chains efficiently. I think the times when everything went smoothly with this globalized network of companies is more difficult to make happen these days.
COVID is one thing, but then think about climate change, with more severe weather events.
Think about the trade wars, which are definitely not over yet. China is more strict in certain industries, and we’re observing more frequent disruptions. Certain industries are shut down or restricted.
There are so many moving parts globally that the times of certain supply chain management are over.
And that means we have to deal more often with disruptions, and that means we need a more resilient mindset than before. Just saying, “We are managing a lean and efficient supply chain” is not enough.
Having a lean inventory, or no inventory at all, was definitely not a good idea during COVID and was not a good idea during the tsunami.
Q: What does this mean for a researcher?
A: We need to find new concepts and new models of how to manage global supply chains in the next 30 or 40 or 50 years. We need to make this trade-off analysis between what is cost effective for a company and what is potentially more resilient for a company. We have to discuss having domestic suppliers who are closer by.
The demand for researchers is, “If I’m saving money, what is the risk of being hurt by a disruption?” Many companies realize that there were inherent risks they never considered.
Companies want more information and better models. The job of supply chain researchers is to provide those models to be easily implemented and to make managers make better decisions.
For so long, it was, “We can do it faster and more efficiently for less money.”
Now the mindset is changing.
That doesn’t mean we have all the answers yet, but it’s a call to supply chain researchers to work hard to provide those tools.
Q: What are you studying next?
A: We learned during COVID that it’s not enough to look at one industry. One example now is the automotive industry and semiconductors. Or the automotive industry and steel or plastic. We’re looking at interdependence between different types of supply chains that are seemingly unrelated.
Who would have thought that the automotive supply chain is competing with the computer entertainment industry?
We see that they need to understand the interdependence at the product level and the country level to better understand vulnerability.
Q: Is it strange that people outside of the supply chain world are talking about supply chains in their daily lives now?
A: I think it’s great.
I remember times when we had undergraduate students and you assumed they knew what supply chains were and they didn’t know. For the longest time, no one was really aware of it because we took things for granted. We know we sourced things from China, but consumers didn’t really know the implication of that.
I tell my students that it’s not only about managing suppliers and carriers. It’s managing customer expectations because now they care where things are coming from.
Top image courtesy of Pixabay