Building responsive and resilient supply chains: Lessons from the COVID-19 disruption

Abstract

Since the first case was identified, COVID-19 has spread to more than 200 countries. As of October 25, 2022, it had resulted in over 6 million deaths and 600 million confirmed cases. The rapid widespread of COVID-19 led to large-scale disruptions with major supply and demand shocks in supply chains, causing significant negative impacts on the global economy. The World Bank reported that the world GDP growth rate for 2020 was −3.27%, indicating the worst recession since 1961.

First, the initial epidemic-control efforts blocked the flows of raw materials across the world, and limited labor movements by imposing temporary travel restrictions. As a result, many firms struggled with supply disruptions and labor shortages, setting off a chain reaction of disruption in global supply chains. Fortune (2020) reported that as of February 21, 2020, 94% of the Fortune 1000 companies had experienced supply-chain disruptions due to COVID-19.¹ According to the Institute for Supply Management, almost 75% of companies reported supply-chain disruptions in some capacity due to coronavirus-related transportation restrictions.² A survey conducted by the National Association of Manufacturers reported that 78.3% of manufacturers believed that COVID-19 had a significant negative influence on their financial performance, and 35.5% of them had experienced some type of supply chain disruptions.³

Second, the demand for essential personal-protective equipment increased dramatically because the virus was easily transmitted from person to person through air-borne droplets; accompanied by a drop in the need for other manufactured products (Nicola et al., 2020). For example, COVID-19 had caused a surge in the demand of face masks that were necessary to prevent infection among frontline workers (who were directly exposed to the virus when treating infected patients or conducting nucleic acid tests) and individuals in public places. China was the main producer of masks at the start of the crisis, accounting for approximately half of world production. In January 2020, China could produce 20 million masks per day, which was insufficient to equip even just healthcare workers in China. As a result of extensive efforts by the government and companies, Chinese production increased six-fold and reached 116 million masks per day by the end of February, 2020. But even this was insufficient to meet its own demand, and China imported a large quantity of masks. Similarly, Germany also experienced very limited availability of face masks in the spring of 2020. To increase the supply of face masks, the German government contracted with hundreds of companies and introduced a series of incentives to encourage local, non-medical manufacturers to temporarily transform to produce masks.

More generally, demand patterns for supplies of all types became less predictable from the beginning of pandemic. Significant changes on the demand side included quick shifts of buying patterns (from physical stores to online stores) and rapid shifts of product mix (e.g., decline in office equipment to be used on site, but increases in appliances for home-office use).

Compared with previous pandemics, COVID-19 has affected supply chains more durably and globally. As this special issue approaches publication, the COVID-19 pandemic has lasted for over 3 years. The extended duration of this external shock has been sufficient to permanently change the behavior of supply-chain partners (Poelman et al., 2021). These changes have encouraged firms to demonstrate an innovative bent, leading to structural process changes in a variety of industries. For example, demand for in-person restaurant dining decreased, whereas demand for take-away foods greatly increased, though by 2022, this pattern had begun to reverse. Under this change, firms needed to explore new ways of organizing their supply chains with respect to factors like product diversity and cooperation with more partners in the supply chains. This made it possible to define products and services to benefit quickly from pandemic-related opportunities (van der Vegt et al., 2015).

The COVID-19 pandemic has also affected global supply chains as economic integration interacted with travel restrictions and worldwide lockdowns (Nikolopoulos et al., 2021) to create unprecedented challenges for enterprises to respond to changes in demand and supply, employee shortages, and lack of access to financial capital.

These long lasting, structural, and global supply-chain impacts have led enterprises to increase responsiveness and resilience (2Rs) via management mechanisms and technological innovations. Based on the media reports and literature review, such innovative measures include cross-enterprise cooperation (e.g., Unilever and Terra Drone), government-enterprise cooperation (e.g., Hubei Provincial Government and JD Logistics), adjustments to manufacturing activities (e.g., BYD, Foxconn, Pernod Ricard, and Bauer shifted their production to face masks/shields), as well as the adoption of digital technologies (e.g., JD Logistics, New HAVI). This 2R emphasis represents a major departure from the usual emphasis on cost reduction (Caunhye et al., 2016).

Observing that some companies have performed well in responding quickly to changes in demand and supply, and flexibly to disruptions, we seek to learn from the innovative practices and experiences of that have yielded success in dealing with this large-scale disruption. What were the key lessons learned in terms of selecting suppliers and managing supplier/customer relationships, designing global supply networks, and adopting new digital technologies and big data analytics? What were the long-term impacts of COVID-19 on the structures of global supply chains and the strategic positioning of major supply chain players? This special issue focuses on uncovering the key success factors and lessons from these innovative practices. We aimed to gain deeper understanding of how the adoption of technological innovations, business model innovations, and innovations in collaboration mechanisms and methods of operations improvement/optimization have helped companies enhance 2Rs in supply chains.

To frame this special issue, we define some key concepts and briefly review some literature published in leading operations management journals focusing on supply chain responsiveness, supply chain resilience, supply chain integration, and big data analytics.

Following the call for papers, the submission of 114 manuscripts, and the review and revision process, seven articles were selected for this special issue that contribute to our understanding of the impact of COVID-19 on supply chains and its effect on addressing the 2Rs.

In “Strengthening supply chain resilience during COVID-19: A case study of JD.com” (Shen & Sun, 2023), the authors used quantitative operational data obtained from JD.com⁴ to analyze the impact of the pandemic on supply chain resilience. They described the challenging scenarios that retailing supply chains experienced in China and the practical response of JD.com over the course of the pandemic the pandemic. JD.com was observed to respond well to the exceptional demand and severe logistical disruptions caused by COVID-19 in China based on its highly integrated supply chain structure (including both process and activity integration and technology and system integration) and comprehensive digital technologies. In particular, the existing, intelligent platforms and delivery procedures were modified slightly but promptly to deal with specific disruptions. The joint efforts of multiple firms, the government, and the entire Chinese society contributed to surmounting the challenges. The experience of JD.com contributes to understanding of the value of investing in operational flexibility and beyond-supply-chain collaboration given the possibility of large-scale supply chain disruptions such as the COVID-19 outbreak.

In “Breaking out of the pandemic: How can firms match internal competence with external resources to shape operational resilience?” (Li et al., 2023), the authors explored how firms sought to effectively combine internal competence with external resources from the supply chain network to improve operational flexibility and stability during the COVID-19 pandemic. The internal flexibility refers to product diversity, the internal stability refers to operational efficiency, the external flexibility refers to structural holes, and the external stability refers to network centrality. Drawing upon matching theory, the authors provided an internal-external combinative perspective to explain operational mechanisms underlying different matchings. Based on the empirical results of 2994 unique firms and 5293 observations, they found that more heterogeneous combinations between internal (external) flexibility and external (internal) stability may result in a complementary effect that enhances operational resilience, whereas more homogeneous combinations between internal flexibility (or stability) and external flexibility (or stability) may have a substitutive effect that reduces operational resilience.

With the COVID-19 pandemic having had a significant impact on supply chains, government initiatives have played a central role in managing the crisis. In “The impact of governmental COVID-19 measures on manufacturers' stock market valuations: The role of labor intensity and operational slack” (Chen et al., 2023), the authors investigated the impact of the Chinese government's Level I emergency-response policy (Ge et al., 2020) on manufacturers' stock-market values, and the role of manufacturers' operational slack on adding resilience. Specifically, through an event study of 1357 Chinese manufacturing companies listed on the Shenzhen Stock Exchange, the authors found that the government's emergency-response policy triggered a statistically significant positive reaction from the stock market for manufacturers. However, the authors also found negative impacts on stock market values for manufacturers in labor-intensive industries because of the labor immobility triggered by the Level I measures. In addition, this article identified the positive role of operational slack in the form of financial slack and excess inventory in helping to maintain operations and business continuity, mitigate risks caused by the labor mobility restrictions, and improve supply chain resilience, which identifies operational slack as a supply chain resilience strategy to mitigate pandemic-related risks.

When the COVID-19 pandemic broke out, the medical-product industry faced unprecedented demand shocks for personal protective equipment, including face masks, face shields, disinfectants, and gowns. Companies from various industries responded to the urgent need for these potentially life-saving products by adopting ad hoc supply chains in an exceptionally short time. In “Realizing supply chain agility under time pressure: Ad hoc supply chains during the COVID-19 pandemic” (Müller et al., 2023), the authors explored the use by 34 German companies of ad hoc supply chains to produce personal protective equipment. From these cases, the authors developed an emergent theoretical model of ad hoc supply chains around enablers of supply chain agility such as dynamic capabilities (the ability to integrate, build, and reconfigure internal and external competences to address rapidly scenario changes), entrepreneurial orientation (proactiveness, risk-taking, innovativeness, autonomy, and competitive aggressiveness), and temporary orientation (speedy action in a limited time).

To cope with the COVID-19 crisis, many firms allowed their employees to work from home (WFH). In “Working from home and firm resilience to the COVID-19 pandemic” (Ge et al., 2023), the authors examined whether a firm's WFH capacity increased its resilience. The authors put forward and tested a unique data set that combines listed firms' financial data, epidemiological data, and online job postings data from China. They found that imposing COVID-19 anti-contagion policies on firms and their suppliers or customers significantly increased their operating revenue volatility, slowed their recovery, and had repercussions on their supply chains. WFH enhanced firms' resistance capacity by reducing the effect of COVID-19 on their operating revenue volatility and disruptions to their supply chain partners; however, it also decreased their recovery capacity by extending the time taken to return to normal. Firm attributes, along with workers' occupations, education, and experience, impacted the effect of WFH on firm resilience. This article enhances our understanding of shock transmission across supply chains and identifies WFH as a source of firm resilience.

In “Developing supply chain resilience through integration: An empirical study on an e-commerce platform” (Qi et al., 2023), the authors developed a framework that described the impact on supply chain resilience of process and activity integration between an e-commerce platform and suppliers. An analysis of data from a Chinese e-commerce platform found that integration between the e-commerce platform and suppliers in terms of information sharing, joint planning, and logistics cooperation had positive impact on supply chain resilience, while procurement automation had the opposite effect. Manufacturing flexibility positively moderated the impact of information sharing, joint planning, and logistics cooperation. The results contribute to understanding of the factors that encourage the development of supply chain resilience, suggesting that the relationship between integration and resilience is best examined within a contingency framework.

There is ongoing debate about whether a firm should develop a concentrated supply chain, with the literature reporting both benefits and drawbacks. In “Opportunities or constraints? A network embeddedness perspective on the role of supply chain concentration during the pandemic” (Jiang et al., 2023), the authors examined this puzzle. Drawing on the interdependence perspective, the authors investigated how customer and supplier concentration affected supply chain resilience during the disruption and recovery stages of the pandemic, where customer concentration refers to the extent to which a firm's sales are dependent on a few major customers, and supplier concentration refers to the extent to which a firm's purchases are from a few major suppliers. The analysis of 26,488 firm-quarter observations from 2366 Chinese-listed manufacturing firms revealed that concentration can be both detrimental and beneficial, contingent on the exchange role and the crisis stage. To be specific, customer concentration accentuated the downside of firm productivity in the disruption stage but facilitated productivity restoration in the recovery stage, while supplier concentration had no significant impact on productivity in the disruption stage but hindered firm productivity from bouncing back in the recovery stage.