A supply chain covers the whole process of making and distributing a product to the end user, explains Nezih Altay, a professor of management and expert in humanitarian supply chains. (Image courtesy of iStock.com/Halfpoint)Supply chains affect many facets of our lives, from empty toilet paper aisles to a lack of facemasks for healthcare workers. Nezih Altay, a professor and director of the M.S. in Supply Chain Management in the Driehaus College of Business, researches humanitarian supply chains. In this Q and A, Altay explains how supply chains are disrupted and what makes pandemics a different sort of disaster.
How are issues with a pandemic different from other disasters?
The difference between disasters such as earthquakes, tornados, wildfires or floods and pandemics is that natural disasters are local. That is, when California is burning it does not affect our lives on the East Coast other than some supply chain disruptions. That strains life and life support systems in California but doesn't affect life in Iowa. However, pandemics and epidemics are not local events. They do not know borders. Therefore, the fight against pandemics requires teamwork and collaboration of every individual. There is no better time than a pandemic to come together and act as one nation. Because the alternative is catastrophic.
How do supply chains affect our daily lives, and how can a pandemic disrupt them?
Professor Nezih Altay in the Driehaus College of Business explains how supply chains are disrupted and what makes pandemics a different sort of disaster. (Image courtesy of Driehaus College of Business)
Supply chains are responsible for making anything and everything we use in our daily lives available to us. That said, supply chain is not simply transportation and warehousing. A supply chain covers the whole process of making and distributing a product to the end user.
So, for a car, you can think about starting with the mining company digging out iron ore, all the way to the dealership that sells you the car and the shop that helps you maintain it. A pandemic or an epidemic — just like any natural disaster — can disrupt a supply chain by doing two things. First, it creates a shortage in supply of materials. For example, a manufacturing plant can halt operations due to too many of its workers being sick. Second, it can create a temporary peak in demand of some items, such as a sudden demand peak for masks or toilet paper.
What are ways to mitigate that disruption?
We mitigate these two differently. For supply dips, we carry safety stock or excess inventory, but this only buys us time, during which we need to get the factory back up and running again. Another method is to build redundancy into the supply chain. What I mean is that if we have two factories in different countries producing the same product and one of them is down, we still have the second one. However, the key here is that the two factories would have more than enough capacity to supply demand.
Demand peaks are more difficult to mitigate because they are temporary. If regular demand of an item is 100 in a year and we have two factories producing 100 items each, we could handle all demand peaks up to 200 units. Suppose then that a factory can produce one item in three days (hence 100 items in 300 days). What happens when we get a demand of 10 units in one week? Unless there is enough inventory in the system there will be a shortage. Since these large disruptions are infrequent events, companies cannot carry a lot of inventory for a long time. That is very expensive. Hence they carry enough inventory to take care of common volatilities in customer demand. This is why demand peaks are harder to mitigate.
What are the issues you are seeing right now related to supply chains and logistics and the response to COVID-19?
The biggest issue we see is the demand peaks. There is tremendous demand for healthcare products like masks, protective gear and ventilators. But there are also huge demand peaks for consumer items like hand sanitizers and toilet paper. Demand peaks are difficult to mitigate because there is not enough capacity in the system to produce these items this fast. The only way of dealing with this is to reduce the peak (lower the tip of the curve or widen the demand curve). We should somehow spread out the demand in time. The demand peak in consumer items and some healthcare products, for example, masks, was caused by panic buying. People hoarded toilet paper for example. However, if everyone bought one bag of toilet paper, this would have resulted in a lower peak and production capacities would have been able to handle it. The same goes for masks. People normally do not need surgical masks. But once everyone started buying these masks, the healthcare workers who need them more than we do started seeing shortages.
Is this a humanitarian crisis? If so, what have we learned from previous humanitarian crises that could help us respond to this pandemic?
Yes, pandemics and epidemics are indeed humanitarian crises, and epidemiologists have a ton of experience with responding to these events. The World Health Organization is extremely experienced in responding to pandemics and epidemics. It is their charge to monitor and respond to these events. However, like any other humanitarian crises, there is a political component to these events. In our case, scientists were ignored in the U.S. at the very beginning of this crisis. The executive director of the WHO’s Health Emergencies Programs, Dr. Michael Ryan, explained in a WHO press conference what we learned from Ebola and other epidemics. He said immediacy in decision-making is paramount and is more important than making the correct decisions. In many countries, that initial step was not taken until it was too late. Separately, we also need to understand that there is no investment into the infrastructure of pandemic fighting compared to other public investments.