How to Prepare Your Supply Chain for the Next Black Swan Event

Professor Chris Craighead

Meet Chris Craighead, Dove Professor in Supply Chain Management at the University of Tennessee, Knoxville’s Haslam College of Business. Craighead’s research has explored strategic supply chain management with a focus on supply chain disruptions, buyer-supplier exchanges and the supply chain-entrepreneurship interface. He has published in numerous periodicals, including The Journal of Operations Management, Production and Operations Management, Decision Sciences and The Journal of Business Logistics.

At the 2021 Supply Chain Forum, you aptly described COVID-19 as a “black swan event.” But no matter how unlikely a global pandemic may be, how will preparing for these types of events improve supply chain management as a discipline?

Thanks to the pandemic, I think we will see a level of innovation coming out of our supply chains that would not have been possible for decades. Essentially, COVID-19 acted as a crystal ball of sorts: it allowed us to see what supply chain practices could look like. As a result, I think we will see some improvements to supply chains that otherwise wouldn't have been. Now, should we invest lots and lots of money and resources to prepare for the next pandemic? No. It's an extremely low probability event. I don't advise companies to dedicate extensive resources on highly unusual events. Rather, I think it’s better to invest in capabilities that provide benefits during good times and bad. We can no longer think of supply chain risk management as an afterthought, which unfortunately it has been. Agility, flexibility, data visibility, system-wide technologies, better analytics: all of these help in good times but they also help when we get into a bind. I think that is where risk management needs to go.

At the time of this interview, more than 1 in 3 Americans are now fully vaccinated. Yet, the reality is that global supply chains remain exposed in countries struggling to receive the vaccine, and, as a result, we may be dealing with the fallout of COVID-19 well into 2022. Can you talk a little bit about how high the stakes are for this recovery, and how much higher the stakes are for preparing for the next one?

The recovery will be slow and there are a few primary reasons for this. First, what we have is a supply and demand mismatch. On the supply side, we have limited capacity throughout our entire supply chain. On top of that, the overall complexity of our supply chain makes it hard for supply chains to really ramp up. Sure, our supply chain can handle normal operating levels and standard ups and downs, but when a major shift like the pandemic occurs, it’s hard to deal with. On the demand side, you've got heightened demand across a variety of industries. So, what you have now is limited capacity, limited ability to provide the supply, and a heightened demand. So that mismatch is really hard to address in the short term. Ultimately, I think they will recover. And I think that certain industries and certain companies will recover faster.

Which company’s supply chains were most resilient during the last year, and what were some of the steps that these successful companies took to move goods materials to ensure the safety of their suppliers end to end? And, finally, will those methods become a best practice?

The companies that did the best, and this is going to sound like a ‘duh’ moment: they had good supply chains from the beginning. When I think of COVID-19, I don't think of resilience in the same way. Resilience typically has meant when something bad happens—a supplier goes down, a company goes bankrupt, there’s some type of plant fire—and now I've got to get my supply chain back to a normal operating level. That's generally what's referred to as ‘resilience.’ However, the pandemic did not operate like that. Instead, we had huge swings in supply and demand all over the place. So, it wasn't a traditional resilience capability that was needed. The companies that I've seen that were able to rise to the occasion had specific characteristics; they were top supply chain companies, who tend to have great talent, passion and pride and meeting customer demand, coupled with a can-to attitude, like ‘we're going to get this done.’

And, in terms of acute best, what did you witness in companies that fared relatively well during COVID-19?

This is probably a bit of an oversimplification: I think large companies that fared best started acting like small companies. And what I mean by that is this: you think of a startup, a small company, and then it gets more successful and builds, and all of a sudden, because of the complexity, there becomes more specialization, they become more efficiency-oriented. And then they become ultra successful and finally, they become maybe a little risk averse. And so, what I saw was large companies who deftly navigated the pandemic started to act smaller: they started making quicker pivots, they started making faster decisions. They tore down boundaries between functions and between facilities and they were able to work much more quickly.

“Supply chain risk can no longer be an afterthought. Rather, we need to build those capabilities that are beneficial, in good times and bad.”

The other thing that companies who were successful during the pandemic did, especially large companies, is they decided to limit some of their product offerings. Instead of having 10,000 SKUs, for example, maybe they took it down to 1,000, and said ‘let's concentrate on fewer offerings and do the best possible job we can.” Many companies have known for years that they were carrying too many SKUs. They know that there's too much proliferation; but all of a sudden now, as a necessity, they had to focus on the most important SKUs. And that seemed to really pay off for many companies.

What's one thing you'd want supply chain professionals to take away from your class and bring back to their companies about preparing for an event like the pandemic?

Supply chain risk can no longer be an afterthought. Rather, we need to build those capabilities that are beneficial, in good times and bad. I mean, I think about the ROI on dual capabilities: the ROI will always be there. Unfortunately, sometimes we focus on the capability to meet needs in normal conditions, but we don't really think about the added benefit that may allow things to prosper or at least function when we become disrupted. We need to rethink supply chain risk management and think more holistically about the decision from the onset.

Chris Craighead is part of an industry-leading faculty at the Haslam College of Business at the University of Tennessee, Knoxville. Providing global organizations real-time insights to bring more agility to your supply chain is one of many ways the GSCI can aid your dynamic operation and train your future supply chain leaders. Learn more about how you can partner with the GSCI on supply chain strategy development for your organization.