Supply chain and covid-19, between risk management and new challenges

14 April 2020

On January 30th, the date on which the World Health Organization officially declared the global emergency, it marked a new era also as regards production on a global scale, that involved all types of companies without distinction.

Among the common denominators, the need, for each type of company, to rethink its business models and, above all, to define a risk management policy for its survival in a short time: “The pandemic raised a series of considerations related to the extent to which companies deem it appropriate to adopt risk control tools associated with their supply chains”, explains Paolo Barbieri, Researcher of Economic-Management Engineering at the University of Bologna to the Community and professor for the Executive Master in Supply Chain and Operations.

“The evolution of the supply chains that we have witnessed in the last two decades has generated very complex systems, geographically dispersed and subjected to severe stress in terms of delivery times. But there is no doubt that a situation like the one we are witnessing – continues the expert, co-author of the book ‘Supply China Management’ – however completely new in terms of scope and level of uncertainty, should stimulate a different and more aware approach to their ability to respond to critical issues, which can be implemented through various strategies, including a different management of the supply channels.

For example, companies will have to carefully evaluate the level of risk of single supply situations, which are still quite frequent, and consider the opportunity to invest in strengthening their network or in the internalization of some functions. These are complex and expensive processes, but fundamental to reduce the risk me in case of emergency”.

Among the recent virtuous examples, Lamborghini supported its providers after the earthquake that hit Emilia-Romagna in 2012: “Of course the level of complexity in which we are now is much higher, because it is not of a situation limited in time and space and because the latest Conte decree has blocked the production of many companies to safeguard the safety of employees and to contain the risk of contagion.

The Italian companies that have long undertaken virtuous strategies of close collaboration with their supply chains – I think of cases such as Barilla and IMA Group, which provide their providers with technical and operational assistance, guarantees or privileged credit conditions – certainly seem to be better equipped for face the turbulence of this moment. Forward-looking companies will enhance these strategies, focusing on the stability of both their factories and the supply chain as a whole “, explains Barbieri.

Closely connected to the sustainability of the supply chains, we find the phenomenon of reshoring, which consists in relocating decentralized productions, usually from Asia to the West: “it is difficult to predict what will happen, considering the lockdown that affects the entire national economic system: risk management can’t consider the return of production processes in Europe. The reshoring – continues Barbieri – is likely to increase, due to political and economic reasons that have shown risks and complexity of some Asian markets. Besides, the national production system has proved how vulnerable are some production segments, whose strategic position had been underestimated and has now reappeared dramatically”.

The most convenient way is not to take for granted that the risk is under control.

Author: Paolo Barbieri