A global tsunami in supply chains: the lean logistics response to the Covid-19 crisis

Rare events that have a high impact on our lives have been called “black swan” events by scholars of decision-making under conditions of uncertainty. The researcher Nicholas Taleb (2008) popularized the metaphor when he compared the occurrence of improbable events in society with the less frequent and rarely observed occurrence of black swans in nature. Both are rare and rarely observed, but they exist; they are real. The problem is that we forget about them. The black swan is a symbolic allusion to unexpected events that are nonetheless lurking, ready to emerge and cause drastic changes.

A hasty analysis might lead us to classify the current Covid-19 pandemic as a “black swan” event, but the frequency with which epidemics have struck humanity in this century alone – with H1N1, Influenza, SARS, MERS, Ebola, among others – leads us more toward the metaphor of the tsunami, a natural event of seismic origin. 

Tsunamis occur at relatively long intervals and are perceived in everyday life as one-off events, but in reality they have a certain predictability, especially for those with knowledge of the subject who are familiar with theoretical models for understanding them. Taleb himself distinguishes these rare but expected events from “black swans”, calling them “gray swan events”. Such is the case with epidemics and tsunamis. 

Using the tsunami metaphor to think about the effects of the pandemic on supply chains also serves to draw attention to the fact that its effects are magnified in the short term, but continue and persist over a long period, due to structural changes in the chains. 

Despite the enormous size of the problem seen from the outside, from a perspective in which we see businesses at a standstill, falling demand, mobility restrictions and uncertainty about when this scenario will end, we need to establish an internal, managerial perspective, proposed here through the lean approach, through which we can understand the details of the phenomenon and propose alternatives.

Therefore, it is also necessary to adopt managerial measures, both for living with the new scenario of restrictions for a longer time and for creating new ways of operating businesses in the long term. Making supply chains more aligned with the principles of agility, leveling and adaptability are urgent factors to be retrieved from lean teachings for redesigning supply chains in view of the new scenario. Let us do an exercise in applying lean countermeasures to our Covid-19 scenario, paying special attention to Brazil.

1. Agility 

This factor deals with measures for rapid response to short-term changes in demand or supply and with the ability to cope with disruptions external to the chain that affect its internal flow. The ability to coordinate and carry out kaizens among agents in the chain is one of the fundamental lean tools for meeting the agile changes required by demand situations in the Covid-19 crisis.

On the supply side, we have seen difficulties in quickly obtaining supplies of masks, ventilators, reagents, PPE and medical equipment in general. Promised actions for a rapid increase in capacity have largely failed to materialize due to a lack of agile decision-making in actively seeking productive resources in the country's installed industrial base and redirecting them to the production of items in high demand in the health sector. Giving agility to the medical supply chain means promoting the flow of information between current suppliers of these inputs and Brazil's industrial base in order to find collaboration in resources. It also means developing collaborative relationships with international suppliers that provide technical support and access to equipment drawings and specifications, discussing technologically similar alternatives.

Recently, amid the effort to increase ventilator production in Brazil, domestic manufacturers detected a bottleneck in the production of an imported valve. Demand for the valve is global and requires, as an agile response, the search for collaborative solutions with global suppliers through a few kaizen themes:

• Engineering efforts to replace the specific component or material with a similar one.
• Jointly developing alternative processes to expand the production capacity of the component at other sites.
• Opening up current specifications and process methods so that technical communities can collaborate with the efforts.

Agility is linked to the ability to undertake rapid collaborative actions through kaizens across supply chains. Therefore, only a leadership with a lean posture, with open and transparent coordination, can effectively handle this, in addition to the second essential aspect for restructuring the chains: leveling.

2. Leveling

This second factor deals with leveling responsibilities, knowledge and production capacities to achieve the common and specific objectives of the supply chain agents.  

If interests conflict among the organizations in the supply chain, actions will not converge toward meeting needs and maximizing performance. In the case of the Covid-19 crisis, the scale of the problem requires leadership in this alignment, and governments must naturally take on this role, from the short-term decision on social isolation to the identification and redirection of productive resources to the new demands, which will allow a relative easing of social containment measures.

In the case of social isolation, applying the lean approach to realigning the opening hours of essential and non-essential services, leveling them with public transportation capacity, would help contain the spread of the virus. In each municipality and its urban zones, rotating the opening of businesses and staggering hours is a measure to be considered and coordinated among the agents as a way of minimizing economic impacts, while at the same time avoiding crowding on the main mobility arteries. Opening calendars for businesses (according to each specific activity) and store opening hours shifted to different times of the day (so as not to coincide with industrial and other activities in the locality) are measures that require negotiation and coordination to achieve a new alignment in the functioning of urban logistics chains. To this end, it is essential that means of transportation continue operating at their normal capacity to allow lower passenger density. 

A second aspect of aligning supply chains concerns encouraging chain agents to redirect efforts toward obtaining production capacity for the products and processes with increased demand.

The coordinating leadership of the chains must encourage the exchange of knowledge and establish a clear division of functions, tasks and responsibilities, so as not to waste resources or create redundant efforts. The mask supply chain, for example, will see its efforts to increase supply amplified insofar as they are coordinated and aligned among the agents. 

3. Adaptability

Adaptability is the ability to adjust the design of the supply chain to incorporate structural changes in the market and in society, the third characteristic that the lean approach makes it possible to give supply flows. It is about going beyond the emergency changes that agility seeks in confronting the pandemic and achieving modifications that sustain strategies and businesses in the recovery period after the crisis. 

Some of these modifications have already been made by the agents, insofar as the conditions were already in place thanks to the flexibility provided by certain available resources, especially digital means. This is the case of the rapid adaptation of activities to remote work, a change that should be deepened and refined, giving supply chains and businesses greater resilience against the effects of this and other tsunamis.

The ongoing adaptation of education chains is exemplary. Rapidly, millions of students and educational institutions around the world are adapting to distance learning, using digital tools. Academic and teaching output continues wherever digital means are available. Populations without Internet access, on the other hand, should be the target of efforts to expand supply by drawing on the other two factors, agility and alignment of the agents.

Other supply chains should follow the example of the education sector and readapt their processes by adopting digital mechanisms. If we cannot predict when and where the next tsunami will strike, at least we have learned that we can and must make chains more resilient to weather the storms.

This reasoning contributes to building new business strategies and operations around the world. Applying continuous flow concepts to digital solutions can lead to better use of resources and improved customer service (Womack & Jones, 2005). Digital lean logistics has sought to give businesses this characteristic. This is the case with purchases made through digital channels that, not having been designed with the concept of continuous flow in value creation, still require customers to cancel a purchase  if they decide not to receive it at a given address or by a given delivery method, and then place another order to replace it. In contrast, digital solutions that continuously create value for the customer already provide a simple way of readapting contents and delivery methods, a fundamental aspect in the current context, in which customers need flexibility in readapting their orders, making things much easier for both sides of the transaction. The lean perspective also considers the digital chain to be a supply chain and an important logistics resource. Adapting these chains to the new environment means giving the economy new arteries that allow society to re-equip itself.

On the other hand, another structural change in view of the pandemic tsunami is the reduced advantage of Asian countries, especially China, in concentrating the production of certain inputs and products, notably safety and health products. In order to facilitate agility and the alignment of future supplies with greater resilience to impacts, they need to be redirected to local production, reestablishing regional supply chains in an urgent strategy of rebuilding production. The production of reagents, masks, ventilators, medical equipment and supplies would have its supply chain restructured within the national territory, using lean manufacturing concepts with savings in resources and investment aimed at local viability.

Medical equipment needs to have its designs readapted to incorporate standardized processes and components that make it possible to adopt the same strategy already used by the automotive or computer industries, whose products, designed on standardized platforms, can be produced in a larger number of plants around the world, with much faster switching of production between factories. In this way, a set of original equipment manufacturers, the so-called OEMs, was developed, allowing greater flexibility and mobility of production. Flexible designs and standardized processes are guidelines that make it easier to switch, if necessary, the manufacture of products between agents or between supply chains, with the agility that surprises demand. Adapting the design of medical products so they can be produced in a standardized way in plants all over the world must become a strategic measure on a global scale and a factor of safety for the population.

Building a supply chain for safety and health equipment must be a task aligned among nations in such a way as to follow a few guidelines:

• The design of medical products must comply with international rules under which product development teams calculate and make transparent the implications of the design for the supply chain. 
• Seek designs in which products share components with greater manufacturing capacity.
• High degrees of standardization of manufacturing processes so that, with few engineering changes, production can quickly adapt to supply chains in different locations. 

Finally, the guidelines discussed here for redesigning supply chains in the face of the global tsunami cover a series of aspects to be explored in depth, debated and put into action by the lean community of professionals, but their success will only be achieved by appointing leaders who truly place above their particular interests the notion of responsibility for the entire chain, an attitude that will not be found in any technology or formula, but in the behavior of managers convinced of their role as protagonists and creators of a new world, in which science and humanity must triumph. 

References

Taleb, Nassim. A lógica do Cisne Negro: o impacto do altamente improvável. Rio de Janeiro: BestSeller, 2008 

Womack, J. & Jones, D.T. Lean Consumption. Boston: Harvard Business Review, 2005