A transportation review written by a professor from the Berlin School of Economics and Law presents a way of analyzing the predicted impacts epidemic outbreaks have on global supply chains and describes the results of a simulation-based analysis of COVID-19 (SARS-CoV-2) as an example.
The main finding from the simulation analysis is that facilities’ opening and closing times may become more important in determining the impact on supply chain performance than more upstream elements such as the duration of the disruption and the speed of an epidemic’s spread.
About supply chain risks
Supply chain risks can be divided into operational and disruption risks. Operational risks are day-to-day disturbances such as changes in demand and disruption risks are more uncommon, but high-impact events such as natural disasters (earthquakes, tsunamis), man-made catastrophes, or strikes. Disruption risks have an immediate and devastating impact on supply chain design and structure when transportation networks suddenly become unavailable.
The disruption results in shortages of materials and delayed deliveries further down the supply chain, which, in turn, negatively affects revenue, service, and productivity.
Epidemic outbreaks and supply chain risk
Epidemic outbreaks such as SARS, MERS, and now COVID-19 represent a special type of supply chain disruption risk since they start on a small scale but quickly become large-scale, affecting many different regions.
Being globalized in their structures, the supply chains of many companies have been affected by the COVID-19 outbreak. Ninety-four percent of the Fortune 1,000 companies have experienced supply chain disruptions, and around 50,000 companies worldwide have at least one supplier in Wuhan, China, where the virus originated.
Furthermore, coronavirus outbreaks disrupt both supply and demand. One company in Berlin reported having suffered shortages in both supply and in demand from Italy, which was severely affected by COVID-19.
Companies facing the challenges of the outbreak have many questions about supply chain disruptions, including how long they will last, how long it takes to recover, and which operation policies are the most effective for coping with disruption and its different scales of severity.
New areas to research
Now, a paper by Professor Dmitry Ivanov, recently published in the journal Transportation Research, presents the results of a simulation analysis that introduces new problem areas for research into the effect of COVID-19 on supply chains.
First, the features that make epidemic outbreaks an unusual type of supply chain risk are described. Epidemic outbreaks represent a particular risk to supply chains, with the main problems being a long-term disruption and the unpredictability of its scale, the propagation of disruption in the supply chain, and the threat of a pandemic effect; and the associated disruption in supply, demand and logistical networks.
“Unlike other disruption risks, the epidemic outbreaks start small but scale fast and disperse over many geographic regions creating a lot of unknowns which makes it difficult to fully determine the impact of the epidemic outbreak on the SC [supply chain] and the right measures to react,” writes Ivanov. “Overall, the epidemic outbreaks create a lot of uncertainty, and companies need a guided framework in developing their pandemic plans for their SC.”
Second, the paper shows how a simulation-based methodology can be used to assess and predict impacts on supply chain performance, using COVI-19 as an example.
Predicting both short and long-term impacts
The methodology can be used to predict both the short-term and long-term impacts on supply chains and reveals the most important outbreak scenarios in terms of decreasing supply chain performance.
The main finding was that facilities’ opening and closing times might become a more important factor in determining the impact on supply chain performance than more upstream factors such as the duration of disruption and rate of epidemic propagation.
“In particular, our analysis revealed that in the case of an epidemic outbreak propagation, the SC performance reaction depends on the timing and scale of disruption propagation (i.e., the ripple effect) as well as the sequence of facility closing and opening at different SC echelons rather than on the disruption duration upstream the SC,” writes Ivanov.
He adds that it is, therefore, not only important to consider where the epidemic originated (the amount of supply in the region being less important), but it is particularly important to consider the scale of the ripple effect.
“Currently, we consider upstream disruptions as the trigger of epidemic-based disruption propagations,” writes Ivanov. “One interesting research topic could be to examine a disruption outbreak in the downstream SC echelons or even in the markets, and how these events would affect the forward and backward propagations of the ripple effect.”
Implications of the research outcomes
Ivanov says the analysis enables the identification of successful and unsuccessful ways to prepare for and mitigate supply chain risk and to implement recovery policies in cases of epidemic outbreaks.
Sensitivity analyses demonstrated the model’s behavior, its potential value in decision making, and its ability to provide managerial insights.
“More specifically, the outcomes of this research can be used by decision-makers to predict the operative and long-term impacts of epidemic outbreaks on the SCs and develop pandemic SC plans,” concludes Ivanov.
Dmitry Ivanov. Predicting the impacts of epidemic outbreaks on global supply chains: A simulation-based analysis on the coronavirus outbreak (COVID-19/SARS-CoV-2) case. Transportation Research 2020;136: https://doi.org/10.1016/j.tre.2020.101922