From toilet paper to protective gear, the role of the supply chains

Robert Swinney doesn’t just know the ins and outs of supply chains, the way he explains them is so interesting he frequently wins teaching awards. Swinney explains the shortages we’ve seen in the pandemic and how companies can plan to be more agile in the future.

Dean Bill Boulding interviews Robert Swinney on Instagram

Robert Swinney, Associate Professor of Operations Management

“I think we're seeing different kinds of shortages and they have different causes. For some items, like toilet paper, there is one set of causes that are going on. So if you look specifically at the case of toilet paper, people probably are not using more toilet paper. In the popular consciousness, one thing that people think is going on is that there has been a lot of panic buying. People have been afraid and they have been stockpiling on all these things. Panic buying may have happened, but it didn’t need to in order to generate what we have seen out on store shelves.”

“What we have seen in the wake of stay-at-home orders there was a shift in consumption of products like toilet paper from a mixture of at-work and at-home to almost 100 percent at-home. And the supply chains, for things like toilet paper, are separate for business distribution and for retail, home use distribution. So when your demand shifts from 50/50 in two different channels to 100 percent in one channel that is going to lead to immediate stock outs in that one channel.”

 

“It is not easy for manufacturers to changeover production to the retail channel entirely or to reroute the supply chain because the supply chain for toilet paper is what we call an efficient supply chain. Broadly, operations researchers will bucket supply chains into two categories: efficient and responsive. Efficient supply chains, like the one for toilet paper, they are heavily optimized to minimize cost. Often, these supply chains that are very slow, and they have long lead times, because speed is sacrificed for operating at low cost and high-yield utilization. You want to use these types of supply chains when demand is very predictable for your product and the industry has low prices or margins. That’s what we normally see for things like toilet paper. On the other extreme, you have what we call responsive supply chains, and they are optimized to handle highly variable, unpredictable demand patterns. So these supply chains are often fast and they are built to handle surges in demand. And maybe can handle something like pandemic demand. But that speed comes at a cost. And these types of supply chains, they’re only really profitable when margins are high. So you see these kinds of supply chains with fast fashion apparel firms like Zara.”

 

“So toilet paper and a lot of other consumer products, they have efficient supply chains, and even though overall demand may not have increased very much, they had trouble adapting to the shift in consumption channel. That alone can cause the kind of serious shortages that we’ve seen, combined with maybe some panic buying. It leads to what we’ve seen with empty store shelves. Even though overall demand or consumption is not going up a lot. Fortunately for these kinds of products, even if there are some initial shortages, there is enough production capacity out there to fulfill demand. It may be kind of slow and costly. But the supply chains can be reconfigured to ultimately fulfill demand. It’s a different story with some other products where we have seen shortages, like masks and personal protective equipment. There are similar things going on but also very distinct. Overall, demand for these products have surged significantly. So kind of like toilet paper, these products are sold and produced using efficient supply chains that are optimized for the low margins that they have in the industry. Scaling up quickly is not going to be trivial. What you're going to do is increase overall production capacity, not reroute from one type of supply chain to another. It’s going to reveal bottlenecks in the production process pretty quickly.”

 

“Very often, the bottleneck in the production process, it’s not the physical factory building or the numbers of workers, which can be added relatively easily. It’s often a specific step or component in the manufacturing process. For instance, the manufacturing process for surgical masks is highly specialized. Scaling this up cheap or quickly is not easy given the types of very specific equipment that are required to do that. What we’ve seen with items that have experienced an overall increase in demand, is that most of the time this is happening also for products with sufficient supply chains. And the demand surge is exposing bottlenecks in the production and sourcing process. And fixing these bottlenecks is difficult and expensive and time consuming. So there is no overall alternative production capacity like with toilet paper that you can reroute and try and fill store shelves.”

 

“Did the U.S. stockpile too little equipment and supplies in advance of the pandemic? Think of something like ventilators. Ventilators obviously are incredibly important in the treatment of hospitalized COVID patients. Did we have too few ventilators in the U.S. pre-pandemic? I think it is useful to think about the operational challenges of planning for a pandemic before the pandemic happens. And one of the chief difficulties is this, so the affects that we are seeing right now for this pandemic are so large, and they are so extended in time, that the stockpile of products that you would need for PPE and ventilators to meet the demand surge over this extended period of time is just enormous. You would have to just have an incredibly enormous stockpile of stuff. Holding this huge stockpile would be very costly for lots of reasons. First of all, there is the direct financial cost for buying lots of ventilators, buying N95 respirators, buying these things and holding them. But there are also other kinds of costs that can be incurred. Like obsolescence and deterioration of the stockpile. Maybe the masks have to be replaced every 10 years. Maybe a ventilator would become obsolete as new ventilator technology comes out and supersedes the old technology. It’s costly for lots of reasons to hold this big stockpile. In such situations in may not be a good idea to hold a sufficient stockpile in advance for a pandemic this big and this long. But if you don't have a stockpile, this is the key part, then it is critical to have a plan in place for how you are going to ramp up production quickly when something happens. So what does the plan mean? It means that existing manufacturers of PPE and medical equipment, they need to have constantly updated plans for how they are going to scale rapidly if there is that need. And unrelated manufacturers like Ford and GM, as we see here in the U.S. who were eventually able to produce supplies and equipment. They also, before the pandemic even starts, need to have plans in place for how they're going to switch over production and scale it up quickly, if needed.”

 

“Having this plan in place, ahead of time, gives you two advantages. It saves time once the pandemic starts, so you don't waste precious weeks or months trying to figure out how you're going to make N95 respirators on an automotive assembly line. And then it tells you, also in advance, how long your ramp up is going to take. And if you know how long your ramp up is going to take, then you can hold a smaller stockpile of critical supplies, just to get you through that period of time until the ramp up occurs after the pandemic begins. Did we have too small of a stockpile? I don’t know. But I also don’t think that we had a plan in place that was effective enough to ramp up production quickly and get us where we needed to be, in a rapid way. I think for the next pandemic doing all of this stuff, ahead of time, is going to be absolutely critical.”

 

“We hear criticisms of lean production and global supply chains often in the wake of big, disruptive events, like the one we have seen with the pandemic. It’s easy to criticize lean or just in time. But it is important to realize that it saves an enormous amount of money by not having a lot of unproductive inventory just sitting around, being unsold. And it’s been a huge driver in the economy for the last 50 years. So is something like lean going to go away or global supply chains? No, I don't think so. I think what’s going to happen is that supply chains are probably going to become more resilient in the wake of this pandemic. There are different ways you can mitigate the risk of a big, disruptive event like this. People that research supply chain disruptions talk about four key ones. One of them is holding inventory of key components in advance of a disruption. But as I have kind of already discussed, holding enough inventory to get you through a big, disruptive event like this, it’s going to be really costly and it’s going to have a lot of drawbacks. There are other things you can do, and I think we will see the other things start to grow in popularity, post pandemic. Like pre-disruptive diversification. Sourcing from multiple suppliers in different geographic regions. Having 100 percent of your product sourced through China is just as risky as having 100 percent sourced through the United States, or any one country. But diversifying through multiple locations is going to give you that risk diversification that you need. You can also do post-disruptive diversification so you plan in advance for surge capacity from an emergency supplier after an event. And you can also redesign products to use more common components to give you more flexibility in the production process to reconfigure production where needed. So after disruptions like we’ve seen, people often focus on the inventory thing. You were running lean inventory. You did not have enough inventory for this big disruption. And that’s hurting you. But I think the other three things that you can do are really more likely in the long run to take hold in big, global supply chains. I think we will see supply chains become more diversified and rely less on products coming from any one country or any one part of the world.”

 

“Purely from an operations perspective, that’s what I do and that’s what I love. I think companies are going to have to rethink how they are managing big, global supply chains going into the future. I think big, global supply chains are here to stay but they are going to have to get smarter about making them robust and resilient to what is going on. Business school is one place to start learning about how to do exactly that.”

Quick Facts

Area: Operations Management

Elective Course: Operations Strategy

Researches: Strategic problems in operations management, including the impact of customer behavior on operational decisions

Street Cred:

Research addresses multi-player problems in supply chain management, with a focus on the impact of customer behavior on operational decisions, social responsibility and disruption risk in supply chains and the operations of start-up firms

Associate Editor at Management Science and Senior Editor at Production & Operations Management

Daytime MBA Core Teaching Award (2018, 2020)

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