Ounce of prevention may avoid pounds of COVID-19 pain in supply chains

What struck Philip J. Palin, a veteran supply chain resiliency author and researcher, was how the executive suites of some of his clients — mostly healthcare companies — seemed to pooh-pooh the outbreak of the novel coronavirus.

Their supply chain folks spotted trouble early on, Palin said. They were certain that the virus, now known as COVID-19, would be traveling west from China before too long. Yet they, and the issue, couldn’t get on the radar screens of their top executives, he said. As the virus began to spread, the C-suite belatedly started paying attention. That kicked off a mad and mostly futile scramble to avoid the inevitable supply chain disruptions.

The shoulder-shrugging attitude of top executives may not have been a total shock. Over the past decade, there have been tsunamis, floods and volcanic eruptions. Each time, global supply chains took nasty hits, and the response needle from the upper corporate echelons didn’t move much. But COVID-19 is different in that it has presented supply and demand challenges, the latter caused by quarantines, social distancing, and postponements or cancellations of public events.

Palin said it is wildly misplaced to label COVID-19 a “black swan” event that came entirely out of the blue. Pandemics and epidemics are thousands of years old, and they will occur for centuries to come, he said. COVID-19 “was a predictable surprise,” he told an overflow crowd during a Tuesday panel session at the MODEX material handling, logistics and supply chain conference in Atlanta.

Companies sharing that mindset found themselves better positioned than most when the virus hit U.S. shores. David Shillingford, chairman of DHL Resilience 360, a DHL unit that helps companies prepare and protect their supply chains against unexpected events, told the story of two Tier 1 suppliers to the U.S. automotive industry. One began building a resilience strategy following the 2011 tsunami that devastated parts of Japan, while the other didn’t make resiliency a priority. The former developed a “risk-adjusted” just-in-time model in which it could quickly shift suppliers and supply sources if trouble arose. It also built a robust visibility platform that could detect which supply partners needed attention. The latter, by contrast, behaved reactively and was unprepared for disruptions. Not surprisingly, the first company has gained competitive advantage in recent weeks, Shillingford said. He declined to identify either firm.

The takeaways from the two scenarios are threefold, according to Shillingford. First, supply chain resiliency doesn’t necessarily mean that firms are required to buy and store inventory. Second, companies should behave as if problems will occur at any time. “Don’t worry about predictions. Assume something bad is going to happen and plan for it,” he said. Third, resiliency is not a binary event but rather a long, multistep process, he said.

China, the factory floor of so much global commerce, is slowly returning to normal. President Xi Jinping on Tuesday toured Wuhan, the city at the center of the epidemic, for the first time since the outbreak. The surrounding province of Hubei announced plans to loosen mobility restrictions that have affected millions of people. Millions of workers who were away from their jobs for the Lunar New Year holiday and were stuck there due to travel restrictions have begun a cautious return to work.

But challenges remain. As supply chains get back on their feet, U.S. importers will need to brace for a near-avalanche of Chinese imports, which could create a whole new type of disruption. “What if a month’s worth of parts show up at the same time,” asked John Paxton, chief operating officer of MHI, the organization that holds MODEX. In Europe, only Italy has been subject to a complete lockdown; Shillingford said he was concerned about the impact should the virus spread to the industrial centers of Germany and France. The U.S., which has been testing fewer potential cases than other affected countries, is likely to see far more positive cases, which could result in quarantines, event cancellations and a ban on large gatherings. The supply disruptions here and abroad “will be significant for a period of time, Shillingford said.

The prospect of a ripple effect is all the more reason, Palin said, to prepare for what is tantamount to the viral equivalent of war. “Don’t wait until the gun is pointed at your head,” he said.