Coronavirus and Supply Chain Disruption: What Firms Can Learn
Long stretches of empty supermarket shelves and shortages of essential supplies are only the visible impacts to consumers of the global supply chain disruption caused by the COVID-19 pandemic. Unseen are the production stoppages in locations across China and other countries and the shortages of raw materials, sub-assemblies and finished goods that make up the backstory of the impact.
The coronavirus disease 2019 (COVID-19) outbreak is unprecedented in its scale and severity for humans and supply chains, not to mention medical professionals and governments scrambling to contain it.
Businesses dependent on global sourcing are facing hard choices in crisis management amid the supply chain disruptions. But in planning to mitigate the risks of similar disruptions in the future, they confront other questions that have no easy answers: Should they broaden their supplier choices, or do more local or near-shore sourcing? How much inventory of raw materials, sub-assemblies and finished products should they stock to tide over the crisis?
The impact of the coronavirus pandemic on global supply chains is “a major disruption, along the lines of having an earthquake or a tsunami,” said Morris Cohen, Wharton professor of operations, information and decisions. “This is an unprecedented type of disruption. I don’t think we’ve ever seen anything quite like this.” Cohen is also co-director of the Fishman-Davidson Center for Service and Operations Management at the school.
The uncertainties ahead swing between extremes. As the shortages worsen before they get resolved, prices of many products could go up for consumers even if laws exist against price-gouging, said Cohen. At the same time, constrained supplies could cause declines in demand, which in turn may end up weakening prices. “All those things will happen and have already happened. There’s no magic answer here.”