Photo by sarayut from Getty Images Pro
Recently, Yossi Sheffi, Director of the Center for Transportation and Logistics (CTL) at the Massachusetts Institute of Technology (MIT), appeared on Bloomberg TV to discuss his views on the impact of coronavirus on global supply chains. Mr. Sheffi primarily focused his analysis on three topics: the bullwhip effect, supplier and customer evaluations, and business contingency planning.
At the beginning of the segment, Mr. Sheffi is asked about how coronavirus will impact companies’ inventories. In response, he references a supply chain phenomenon known as the bullwhip effect. Bullwhip effect is the increasing variation in demand as a supply chain disruption makes its way up a supply chain.
According to this analysis, Mr. Sheffi views small and medium sized upstream suppliers as being the most vulnerable to supply chain disruption because they are unable to take the hit of declining orders for an extended period.
As suppliers and customers alike will be impacted by rapidly decreasing demand, Mr. Sheffi recommends business evaluate both upstream and downstream to discover points of vulnerability. He advocates larger business partner and potentially even take a financial interest in their critical suppliers that do not have the financial resiliency to survive a long-term disruption in demand.
Finally, Mr. Sheffi concludes by discussing what options organizations have with regards to business contingency planning. Although it may be too late for companies to find alternative suppliers or stockpile critical components, there is still time for boards to discuss how they will handle potential outbreaks in areas where they maintain operations. The health and safety of employees is paramount to the survival of a business and developing a plan of action before it is needed will promote level-headed and practical thinking rather than rashness and panicking.