Why COVID-19 is Different from Other Supply Chain Disruptions

COVID-19 is a different form of supply chain disruption. Its impact on the supply chain is far more sweeping than anything ever experienced before.

Stock Financial Photo
Getty Images

The Coronavirus disease (COVID-19) has had a significant impact on supply chains around the world, causing disruptions of one kind or another and paralyzing many companies and countries. However, the world's supply chain is certainly not immune to disruptions. We have had many over the decades.

Hurricane Katrina in New Orleans and the wildfires in Australia are just two recent examples causing significant disruption.

According to a study by the World Economic Forum, the following are common triggers of supply chain disruptions:

· Natural disasters and extreme weather

· Labor shortages

· Import/export restrictions (sanctions)

· Extreme volatility in commodity pricing and currency fluctuations

· Information and communication disruptions

· Conflict, political unrest and terrorism

However, COVID-19 is different. Its impact on the supply chain is far more sweeping than anything ever experienced before.

Here are some reasons why:

Geographic scope. As devastating as Hurricane Katrina and the wildfires in Australia were, their impact was limited to one region of the United States or just one country. COVID-19 has had and continues to have an effect on countries and organizations around the world. When food, water and medical supplies were in short supply due to Katrina, they could be flown in from Houston and other cities. With COVID-19 on the other hand, those countries with necessary supplies have been reluctant to send them to other countries for fear they may need them at home.

Industrial scope. Typically, when there is a supply chain disruption, its impact is not only on a specific region, but on specific industries. In 2017, Hurricane Harvey had a devastating impact on the petroleum industry in the Gulf Coast. However, refineries in other parts of the country were not affected and were able to fill in for any shortages. 

COVID-19, in one way or another, has impacted most all manufacturers and service providers around the globe. Not only has it been harder to get raw materials, but basics such as cleaning solutions, sanitizers, toilet paper and food items have been in short supply. Service providers such as barbers, dentists, cleaning contractors, even doctors not involved with the virus were laid off. And, let’s not forget cruise ships, airlines and hotels, most of which are still essentially shut down. 

Demand shame. Before COVID-19, manufacturers of almost all consumer goods were anticipating a "healthy" if mildly slowing year. And, if things did slow down, it was not believed high-end buyers would be impacted much. As a result, they continued producing lots of costly goods, expecting them to still sell briskly. But, COVID-19 is having an impact on high-end buyers, and many suppliers are now stuck with costly merchandise that is just not selling. 

While the virus still plays out, many well to-do buyers do not believe this is the right time to purchase an expensive car or couture clothing. When the tsunami hit Japan in 2011, Louis Vuitton quietly closed all its stores in Japan. It just did not look right, they surmised, to be open and selling luxury handbags when thousands of Japanese had just lost their homes. 

Duration. Most disruptions tend to be short-term. All the situations mentioned earlier - fires, hurricanes, even the tsunami - were addressed and eventually people were able to move on within a few months. With COVID-19, we have had spikes and lolls around the world, but it is still with us. It took almost two years for the Spanish Flu to peter out.  This may be true with COVID-19, or it may last even longer. 

Moving forward

If nothing else, the industry has learned a lot from how COVID-19 has impacted the world's supply chain. Hopefully, this will be the last pandemic most of us experience in our lifetimes, but it certainly will not be the last disruption to supply chains somewhere around the world. So, what should companies do to protect from future disruptions?

·     Take care of your staff. Communicate with them. Let them know the status of a disruption and how it maybe impacting your firm.

·     Stay close to your customers. Keep them appraised as to what is happening, how it is impacting availability of supplies they normally purchase and when they can expect orders filled if in short supply.

·     Join membership organizations. Some of the distributors most impacted by COVID-19 are the independents. Many are grappling with cash flow problems because customers are slow paying, and manufacturers now ask to be paid before shipment. Distributors that belong to membership organizations are unlikely to be in this situation.

·     Update technology. In the cleaning industry, some distributors have access to online "dashboards." In times of supply chain disruption, they use these dashboards to work directly with their customers, determining which supplies are available and which are not – all in real time. Working together like this bond's distributor/customer relationships.

Finally, remain flexible. Supply chain issues can change very quickly. Further, what we are learning from COVID is that there is not just one "New Normal." There are likely to be several "New Normals."  Flexibility allows us to move quickly, helping to minimize impact on the bottom line.