Analysing the COVID-19
disruptive impact on Montevideo’s Supply Chains
Analizando el
impacto disruptivo del COVID-19 en las cadenas de suministro de Montevideo
Matías Aresti [1], Felipe Algorta [2], Ignacio Bertoncello [3], Manuel Aramis Flores [4], Matías Crosa [5], Martin Tanco [6]
Recibido: Febrero
2022 Aceptado: Mayo 2022
Summary. - Globally,
COVID-19 reached unprecedented levels of contagion, affecting the social
meetings, public spaces, and many everyday aspects. During the first days of the
pandemic, supply chains were severely impacted by a great uncertainty in
socio-economic terms, causing irrational variations and the inability to
forecast demand. In this paper, the effect of the COVID-19 pandemic on the
behaviour of different companies is analysed based on the variation in supply
and demand of consumer-packaged goods. The pandemic outbreak disruption, the
bullwhip effect caused by demand fluctuations, and the resilience of different
companies were studied. A multiple case study methodology is used to analyse
the decision-making process of fourteen different companies, from diverse
sectors in Uruguay, affronting the pandemic. The paper’s main findings include
the identification of disruption and operation risks along with coordination in
supply chain management during the first four months of the pandemic. Moreover,
due to the necessity of sanitation and comestibles, and the fear of stockout,
consumers’ demand was uncertain, and the bullwhip effect was observed in
critical channels of some products. Finally, the resiliency and robustness of
the affected companies were studied and good practices for a resilient and
robust response to the pandemic were identified and analysed.
Keywords: COVID-19,
Logistics Management, Supply chain resilience, Bullwhip effect.
Resumen. - Mundialmente, el COVID-19 generó niveles de contagio sin precedentes,
afectando reuniones sociales, espacios públicos, y muchos aspectos de la vida
diaria. Durante los primeros días de pandemia, cadenas de suministros fueron
afectadas debido a una gran incertidumbre de factores socioeconómicos, causando
una alta volatilidad en la demanda resultándola impredecible. Este artículo
analiza el efecto que tuvo la pandemia en el comportamiento de diferentes
empresas considerando las variaciones en la oferta y demanda de bienes de
consumo envasados. Las perturbaciones generadas por la pandemia, el efecto
látigo causado por fluctuaciones en la demanda, y la resiliencia de diferentes
empresas son estudiadas. Se utilizan múltiples estudios de caso para analizar
el proceso de toma de decisiones de catorce empresas uruguayas, de diversos
sectores, enfrentándose a la pandemia. Entre las observaciones realizadas se
destacan la identificación de riesgos operacionales y disrupciones, y una alta
coordinación en la administración de cadenas de suministro durante los primeros
meses de pandemia. Asimismo, necesidades sanitarias y alimenticias, y el miedo
al agote de stock, causaron demandas inciertas, ocasionando un efecto látigo en
ciertos canales de productos. Finalmente, la resiliencia y solidez de las
empresas es estudiada, y se identifican y analizan buenas prácticas para
afrontar la pandemia.
Palabras clave: COVID-19,
gestión logística, resiliencia de las cadenas de suministros, efecto látigo.
1. Introduction. - The
COVID-19 outbreak represents one of the major disruptions encountered during
the last decades and has drastically impacted most aspects of human activities
[1]. It has had a profound impact on supply chains [2], and its unexpected
nature has generated new trends in public behaviour, which made decision-making
processes challenging for supply chain managers. Moreover, the impact and the
duration of the pandemic were completely unpredictable [3].
Disruptive events such as the Coronavirus
pandemic can be classified using different criteria [4, 5]. In terms of the
disruption’s lead time, this crisis was rapid (little or moderate advance
notifications, present warning signs), severe considering the impact of loss
(causing a high level of economic loss and/or many deaths), and international.
Every disruption has a time component to its
effects, which is key for understanding its synergy and predicting its
consequences [4, 6]. Generally, in the very first stage, the preparation stage,
organizations can predict the event and plan operations to reduce its impact.
This is followed by the first response period, where the aim is to control the
situation, focusing on protecting lives and preventing further damage. After
this, companies start recovery preparations, notifying the rest of the supply
chain’s links and redirecting resources. Finally, when companies make up for
lost production, the recovery phase takes place, but generally, a long-term
effect will persist causing a possible improvement in performance or a negative
impact as customer relationships and trust may be damaged.
Pandemics and epidemics are a particular kind
of disruption, as they are characterized by the three following components of
threat: (1) the presence of long-term and unexpected scaling disruption, (2)
disruption propagation in the supply chain and epidemic outbreak propagation in
the population, and (3) disruptions in the development of logistics, demand,
and supply [7]. In contrast to most disruption threats and risks, epidemic
outbreaks are minor at the outset and infrastructural impact, but they develop
and spread over various geographic areas rapidly. The latest pertinent examples
include the MERS virus, SARS virus, Swine flu, Ebola, and the most recent one,
COVID-19.
In this research, the effect of the COVID-19
pandemic on the behaviour of different retail and logistics companies was
analysed based on the variation in supply and demand specifically in
consumer-packaged goods (CPGs). The occurrence of a supply and demand imbalance
caused by a major disruption is assessed using a multiple case study
methodology, aiming to also identify the potential materialization of the
bullwhip effect in the companies that participated in this study. Different
actors along the supply chain were interviewed at two different stages of the
pandemic to analyse behaviour while the pandemic effects were shifting. In
addition, this paper also aims to identify the different risk management
decisions taken to affront the pandemic to determine managerial tendencies in
terms of logistics and product distribution in such a scenario.
The opportunity to evaluate this phenomenon in the Uruguayan context is
key to this analysis, as contagion curves and public policies differed quite
notably compared to most countries in the region, mainly in the first months of
the pandemic. The government appealed to the social responsibility of citizens,
and the mandatory confinement measure was not taken. These decisions, added to
aggressive testing (1610 tests per new case in June 2020) and rigorous
identification and monitoring of sources of contagion, resulted in the correct
management and response to the pandemic [8].
The article is structured as follows. Section 2
presents a literature review in the fields of disruptive events that impact
supply chains, causes and consequences of the bullwhip effect, and resiliency
in supply chains. Section 3 outlines the research methodology used for this
study. The results and discussion are presented in Section 4, followed by the
main research conclusions in Section 5.
2. Literature
review. -
2.1. Supply chain visibility
and bullwhip effect. - Disruptions will, in all likelihood,
cause some sort of effect either in consumer behaviour or in the ability of
different parts of the supply chain to provide goods or both. A common issue
with supply chains is the poor visibility upstream and downstream from a
particular link in the chain [9]. Distorted information between ends of supply
chains causes inefficiencies such as excessive inventory investment, poor
customer service, lost revenues, misguided capacity plans, ineffective
transportation, and a loss of effectiveness to comply with predefined
production schedules [10].
This phenomenon is widely
known as the bullwhip effect. The term was coined by Lee [10], although prior
publications already established consequences of lack of visibility and poor
demand forecasting. Forrester indicated that it is empirically recurrent that
the variance of perceived demand to the manufacturer far exceeds the variance
of consumer demand, and the effects of not being able to accurately forecast
needs from intermediate players in the supply chain, as they relate to actual
customer demand, are observed to be larger for manufacturers than for retailers
[11]. In other words, the lack of visibility between participants in a supply
chain causes minor shifts in consumer demand to result in large variations in the
size of the orders that reach the manufacturers upstream in the supply chain
[10, 12].
The bullwhip effect can be
caused by several factors. One is demand forecast updating. Forecasting is a
decision-making process that is frequently used in every link of the supply
chain to predict what the demand for products will be. The combination of
inconsistent demand signals, due to different disruptions such as price
fluctuation or natural disasters, and forecast-driven organizations that make
isolated decisions along the supply chain, causes the real demand to be
amplified increasingly as it moves upwards [9].
The demand forecast updating
falls into another reason why the bullwhip effect occurs: the lack of
communication. Misinformation both inside or outside an organization is
reflected in large time lags between reception and transmission of information
and deliberates into excessive inventory [11, 13]. Ultimately, the effect
consists of a real fluctuation in demand which triggers a forecast-driven response
in the last link of the supply chain followed by a forecast-driven response of
the second link based on the former forecast and so on. The effect will be
aggravated by anything that decreases forecast precision, such as long lead
times, or lack of communication with the extreme case being decision-makers
relying only on adjacent links’ information.
Moreover, order batching is an
additional factor that magnifies the bullwhip effect. There are two ways of
order batching: periodic ordering, in which an order is placed after a specific
period (weekly, monthly, etc), or push ordering, in which the products are
ordered prematurely expecting to modify or affect the customers’ behaviour
[10]. The batching of orders induces demand variance up the supply chain that
is not present at lower levels of the chain. Furthermore, order batching can
delay orders and thus hinder information flow throughout the supply chain
making them less responsive [11].
Rationing and shortage gaming
is a managerial resource when demand exceeds supply. If there are not enough
products to satisfy customers’ requirements, fractioning the number of products
available is an existing alternative. In this case, the customers’ orders will
be excessive in reaction to this shortage and may not reflect the product’s
real demand to the manufacturer, leading to the bullwhip effect [10].
A system must be well prepared
to cope with these imbalances to ensure continued operation and to survive in a
world in which supply chains extend throughout the globe [14].
2.2 Supply chain risk management. - To mitigate the
disruptions´ effects, or avoid them altogether, supply chain risk management
(SCRM) comes into play. SCRM can be defined as ‘‘the management of supply chain
risks through coordination or collaboration among the supply chain partners to
ensure profitability and continuity’’ [15]. For industries that are moving
towards longer and more interconnected supply chains (e.g., outsourcing) and
facing an increasingly uncertain demand and supply, risk management is vital.
As supply chains go leaner and more integrated, it is more probable that
accidents in one link of the chain affect the others [16].
The SCRM consists of four key
stages: risk identification, assessment, treatment, and monitoring. These four
stages are developed by the internal implementation of tools, techniques, and
strategies. It also consists of external
coordination and collaboration with supply chain members to reduce
vulnerability and ensure continuity coupled with profitability, leading to a
competitive advantage in adverse situations [17].
2.3 Resilience in supply chains. - Disruptive events
and the materialization of the bullwhip effect can directly affect the ordinary
activity of companies. External shocks to supply chains that are not optimized
to mitigate these situations can cause disruptions that are several orders of
magnitude larger than the disruption itself. The resilience of a supply chain
can be considered as “its ability to reduce the probabilities of facing a disruption,
the consequences of those disruptions once they occur, and the time to recover
normal performance” [18]. An additional concept that refers to the adaptability
of a supply chain is robustness. Robustness is the ability to continue with
operations and to maintain the level of service while sailing through internal
or external disruptions [19].
Once a disruption has
occurred, the primary source of uncertainty for managers is the demand for
products. Hence, the ability to respond to the variability of the demand in
disruptive events is tightly associated with resilience [6]. Three kinds of
capabilities can lead organizations to be resilient: (1) flexibility, which
refers to a quick ability to evaluate and take needs into account responding to
end consumers; (2) integration capabilities, which refer to the degree to which
a manufacturer strategically collaborates with its supply chain partners and
collaboratively manages intra and inter-organizational processes and (3)
external capabilities that relate to the collaboration through systems such as
Vendor Managed Inventory (VMI) and Collaborative, Planning, Forecasting, and
Replenishment (CPFR) with retailers to enhance close cooperation among
autonomous organizations engaged in joint efforts to effectively meet
end-customer needs [20].
When talking about resilience
and robustness of supply chains, it is assumed that the ability to manage risk
and to take accurate decisions leads to a better positioning vis a vis
competitor to deal with disruptions and, also, to try to take advantage of the
adverse situation, to act as a potential source of competitive advantage [21]. In particular, having a vast range of suppliers and
preventing or avoiding risks were identified as vital factors to ensure
resilience [22].
The planning decisions taken
under the demand uncertainty of a supply chain caused by a specific disruption
are fundamentally taken to maximize its economic performance. Planning
decisions are related to the determination of production rates, inventory levels,
forward and reverse flow amounts, and transportation links. These decisions
involve actors such as consumers, supermarkets, stores, offices, distribution
centres, and factories. In that way, both resilient freight transportation and
an effective communication system are critical to standing against disruptions
[23, 24, 25].
Moreover, when facing a
pandemic situation, the daily monitoring of global suppliers plays an important
role due to the perceived fluctuations and the demand uncertainty. New
technologies, such as artificial intelligence and natural-language processing,
permit extensive supplier monitoring [26].
2.4 Research gap. - With the world facing the
COVID-19 pandemic, an opportunity is presented to analyse the effects of
disruption with a scale and reach that has not occurred in the era of
globalized global spanning supply chains. This setting is putting enormous
pressure on supply chain managers to cope with demand and supply for their
companies to be able to survive the disruption in the best way possible. The
deep implications of the decisions being made by governments and the
uncertainty of the duration of the disruption call for analysis of the effects
that supply chains are suffering and what they are doing and planning to do in
the future.
Even though there have been
worldwide pandemic disruptions in recent decades, none of them has had such a
high score both in transmutability and clinical severity as the COVID-19
pandemic when measured with the Pandemic Severity Assessment Framework. For a
similar event in severity, we need to reach as far back as 1918 for the Spanish
flu pandemic [27]. The world has changed immensely since then, and thus
research regarding the situation is valuable.
Moreover, studying the phenomenon
in Uruguay is a unique opportunity to study the influence of demand’s behaviour
and economic shock impact on the reactions of supply chains and their
resiliency in a developing country. Valuable information could be obtained to
identify strengths and weaknesses displayed by the supply chains as well as to
evaluate different measures and decisions made during the first months of the
COVID-19 disruption.
3 Methodology. - A multiple case study was
undertaken to analyse the impact caused by the COVID-19 on Montevideo´s supply
chains during the first four months of the pandemic. To understand the
decisions that relevant retail and logistics´ actors had taken, and to
understand the reasons for their attitudes and opinions, it was necessary to
carry out a qualitative analysis [28]. As the event of the global pandemic had
no previous precedent and the entire world was affected, new problems and
conflictive situations appeared daily. To face this phenomenon, managers had to
constantly make decisions to respond to the fluctuating demand of the market
and the unexpected changing in policies and lockdowns. In this case, it was
considered relevant to cover contextual conditions by the establishment of
personal contact as it was considered strongly pertinent to the phenomenon of
study [28, 29].
There are three different
methodological approaches to case research: theory generation, theory testing,
and theory elaboration [30]. This study was conducted through theory testing.
It was expected, for example, that the supply and demand of some specific
products responded to the bullwhip effect and, therefore, the different actors
within the supply chain would react in consequence. In theory-testing case
research, the general theory is contextualized before subjecting it to the
empirical test. Moreover, the case study propositions come situationally
grounded already in the theory phase of research [30].
For case studies, theory
development as part of the design phase is essential, whether the ensuing case
study’s purpose is to develop or test theory [29]. The case study of the
COVID-19 situation is classified as embedded (multiple units of analysis) and
multiple-case design because multiple periods (different contexts) and several
cases within each period (different companies) were considered to observe
several measures and reactions to the affronted crisis.
Regarding the construction of
the interviews, the scope of the interviews was defined first, and the theory
was developed to gather valid and reliable data relevant to the research [28].
The research aimed to study the effect of COVID-19 on the behaviour of
different production, distribution, and wholesale companies in Uruguay. In this
line, the objective of undertaking interviews was to observe and understand the
reactions and decisions taken by the operation and logistic managers due to the
pandemic situation.
In this way, it was decided to
complete two rounds of interviews to study the supply chain reactions to the
pandemic at different stages of the global disease in the country. The first
round of interviews was executed in March 2020, within the first four weeks of
the arrival of the pandemic in Uruguay, to observe and study the first supply
chain reactions. The second round was performed during the third and fourth months
after the first COVID-19 case in Uruguay was diagnosed. This round of
interviews allowed us to analyse the situation in a clearer and more stable
context regarding the pandemic.
The theory to prove considered
three points to analyse. In the first place, the influence of the pandemic
outbreaks leading to important disruptions in terms of the presence of
long-term and unexpected scaling disruption, propagation of the virus in the
population, and disruptions in the development of logistics, demand and supply
was studied. Secondly, these affectations were deepened to observe the
variations in the consumer’s behaviour due to the pandemic and how those
variations lead to diminishing the businesses’ visibility disemboguing in a
bullwhip effect situation. Thirdly, the capacity of businesses to be resilient
and the importance of coordination among the supply chain to succeed were
tested.
Furthermore, both interviews
were designed to test the theory. There are different kinds of qualitative
research strategies and they can be classified by the type of questions being
asked. Generally, what questions may either be exploratory or about prevalence,
in which surveys or the analysis of archival records would be favoured.
Moreover, how and why questions are likely to favour the use of case studies,
experiments, or histories [29]. In the case of the impact caused by COVID-19,
it is relevant to observe businesses’ reactions and behaviour. In this way, it
is relevant to ask what, how, and why questions. The framework and the
questions asked in the interviews are presented in Figure I.
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Figure I -
1st round Interview framework |
In terms of the execution, the
first round of interviews was completed in the first four weeks of the COVID-19
pandemic. Fourteen managers of fourteen different organizations from the CPGs
channels of foods, pharmaceuticals, personal hygiene products and fashion were
included in the study. The set of interviewed businesses ranges from
manufacturing to transportation service companies.
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Table I -
Number of managers interviewed by business area |
Once the interviews were fully
transcribed, the mass of qualitative data collected was structured into
meaningful and related patterns or categories to explore and analyse the data
systematically and rigorously. Interpreting qualitative information is, to a
great extent, a challenge in making sense of chaos. A useful technique to see
an order from chaos involves structuring the data in a variety of patterns [28,
31]. The generated coding structure is stated in Table II.
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Table II –
Coding structure |
The template analysis involved
categorizing and unitizing data. The information was coded and analysed to
identify and explore themes, patterns, and relationships. The template approach
allowed codes and categories to be shown hierarchically to help the analytical
process. The process of analysing interview transcripts or observation notes
led to some of the codes being revised and even changes to their place or level
in the template hierarchy. [28]. After the execution of the first round of
interviews, the pandemic situation began to stabilize in Montevideo and the
second round of interviews was designed.
The questions included in the
second round were adapted to observe the behaviour of the supply chain, making
the focus on those points identified after the first round of interviews. The
execution of the second round of interviews was completed in the third and
fourth months after the diagnosis of Uruguay’s patient zero. The same fourteen
actors from the specific CPGs channels of foods, pharmaceuticals, personal
hygiene products, and fashion were contacted. However, one of the actors was
impossible to contact and, finally, the second batch consisted of thirteen
interviews.
Once the second batch of
interviews was fully transcribed, the mass of qualitative data collected was
structured and analysed. The same framework utilized for the first round of
interviews was used to develop the coding structure and to analyse the results
of the second round.
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Figure II
– 2nd round Interview framework |
4 Results and Discussion. - On the demand end
of the supply chain, a shock in demand caused by fright buying was initially
observed. According to one of the interviewees, in the first days of the
pandemic “the reaction was panic, due to the situation of a possible
quarantine. This automatically led to a substantial increase in the demand for
CPGs”. This in turn put supply chains relying on “Just in Time” methodologies
under considerable pressure and the sight of empty shelves became normal.
4.1 Pandemic outbreak disruption. - In terms of
disruption risks caused by the COVID-19 outbreak, one of the main problems
observed was the difficulty in accurately forecasting the consumers’ behaviour
in the first weeks of the pandemic [1]. This forecasting problem turned into
uncertainty about the demand´s behaviour, which restricted management’s
capacity to make operational decisions to accurately balance supply and demand.
The principal difficulty to
forecast the consumers’ behaviour lay in the irrational consumer behaviour
during the initial moments of the pandemic. One of the interviewees mentioned
that during the first pandemic days: “We have very unstable demand parameters
and that makes planning substantially difficult since it is not possible to
determine what was going to be delivered the next day. The level of demand
observed these days is not normal and it is changing day by day, so we must
adapt daily to meet delivery orders”.
This was reflected in specific
peaks of consumption, especially in CPGs and personal care products, to avoid
potential shortages of items perceived to be of first need. Although in Uruguay
the COVID-19 outbreak was not so critical during the first months compared to
other countries, the first social reaction was panic, because of the
possibility of a national quarantine status, which automatically lead to a
substantial increase in the demand for CPGs and personal care products. In the
second round of interviews, it was perceived that the demand stabilized.
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Table III
- Pandemic outbreak disruptions interview coding |
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Faced with the unexpected and
constantly changing demand situation, companies engaged in manufacturing,
import, and distribution of goods commented to have experienced a
"survival" mode to meet the operational needs. One of the main
difficulties was the migration of consumers to residential areas and the
problem of the general decrease in economic activity. Even though there was not
a strict quarantine declaration in Uruguay, the government strongly encouraged
citizens to remain in their houses. This governmental recommendation had an
impact on the migration of the population’s activity to residential areas.
This measure impacted
negatively on the businesses located in centric and working areas, as fewer
customers frequented their stores, and some of them had to close entirely,
either temporally or definitively. One of the interviewees contributed: “The
activity varied according to the area of the city, given that in residential
neighbourhoods the activity increased. In downtown areas where there is a
concentration of offices and public spaces where social activity fell, a
consequent drop in merchandise distribution was observed, unlike in residential
neighbourhoods”.
Department stores and
supermarkets located in residential areas perceived an uprise in their demand,
as customers visited the stores more frequently, and bought higher volumes per
visit. The supermarket chain operations manager stated: “It was a sudden change
from one day to the next. Of course, some products were stocked out, not
because there were problems in the supply channel, but because the demand
doubled from one day to the next. The first weeks were chaotic, fights were
detected over certain products in stores”.
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Figure III
- Social behaviour in Montevideo (Source: Google LLC "Google COVID-19
Community Mobility Reports”) |
In terms of perception of a
general decrease in economic activity, except for some specific product
channels, a general decrease in demand was noticed. The main causes of this
decline were the migration of consumers toward essential and basic products and
the reduction of people's purchasing ability due to the crisis. As months went
by, the loss of income for the average consumer became clear. The interviewees
mentioned that a considerable drop was noted in the level of sales.
Moreover, distribution was
strongly affected by the drop in the activity of micro, small and medium
enterprises (MSMEs) which represented a significant percentage of the customers
of the logistics companies that participated in the study. MSMEs were the
businesses that were hit particularly hard by the pandemic, due to their
reduced scale and low capacity to adapt to abrupt changes. To some extent,
MSMEs experienced a reduction in the supply of labour, their ability to
function was constrained and they experienced severe liquidity shortages due to
a dramatic and sudden loss of demand and revenue [3]. Despite the sudden
increase in the volume ordered by supermarket chains during the first weeks,
the MSMEs’ situation impacted directly the reduction
of general supply activity.
Lastly, retailers tended to
ask for higher credits from wholesalers, caused by uncertainty of the
significant slump in the customers’ revenues caused by the pandemic, which
resulted in an important delay of the payments cycle. This condition augmented the difficulty to
manage the company and increased the risk of going bankrupt, causing a
considerable amount of businesses to close their
doors.
Overall, the principal
disruption risks observed were difficult to forecast demand during the first
weeks of the pandemic which turned into uncertainty about the demand´s
behaviour and restricted management’s capacity to make operational decisions.
The situation stabilized and in the second round of interviews, this disruption
risk was not mentioned.
The main cause of the
difficulty to forecast demand was the irrational consumer behaviour during the
initial moments of the pandemic. This irrational consumers’ attitude was
specifically spotted during the first weeks of the pandemic. In the second
round of interviews, the observed “new normality” caused changes in customers’
behaviour, yet explainable and manageable when making decisions within the
supply chain.
In addition, a decrease in the
general economic activity was attributed by the interviewees to the migration
of consumers towards essential and basic products, and the reduction of
people's purchasing ability due to the crisis. The contacted companies’ sales
levels, although they increased in some specific sectors such as essential
products that refer to personal care and hygiene according to the pandemic,
generally dropped.
Operational risks were mainly
related to the adoption of operational changes to adjust to the COVID-19
situation. Public health measures such as self-isolation and movement
restrictions in addition to actual COVID-19 cases among the workforce posed an
uncertain scenario not only for manufacturers but also for transportation and
distribution networks. Extra resources have been put in place to implement
contingency plans to mitigate risks. Furthermore, international trade has been
affected by “thicker borders” [32], impacting all products that have imported
components.
All running businesses had to
implement personal protection measures to make sure their workers and customers
were safe to continue operating. Specific actions such as adaptation of the
work shifts, spacious workplaces, providing workers with facemasks, gloves,
sanitiser, sanitation spots with soap to wash their hands, training sessions to
understand the seriousness of the matter, and contingency plans in case of
contagion were undertaken. Another action taken to reduce contact was to carry
out remote selling and avoid visiting customers.
This adoption of specific
measures taken to guarantee personal protection was highly mentioned in both
rounds of interviews. Moreover, in the second round of interviews, in which the
demand situation and production and logistics activities had stabilized, it can be seen that the sanitary and protection measures
embraced were, in some way, motivators of such stability.
Furthermore, personnel and
workload shortcuts were identified as operational risks. The decrease in
general demand, and the financial hit caused by the crisis, lead to an
important reduction in working activity. In this aspect, some companies decided
to reduce the personnel and the workload. For example, numerous companies were
affected directly by the decrease in the sales capacity, leading to a reduction
in the company’s structure in the commercial sector. At the operations level,
some had to reduce personnel to lessen the preparation and delivery capacity.
Finally, at the administrative level, the same happened. The general reduction
of the economic activity generated reductions in the companies’ structures in
terms of personnel and time.
Finally, to stand against the
suffered crisis, the coordination between the supply chain actors is considered
substantial. Even though uncertainty levels were high in the first weeks of the
outbreak, and no prediction of the near future could be made, many companies
made decisions without sufficient coordination among other impacted links of
the supply chain. For example, due to the excessive demand for sanitation
products, imported product flow was shortened as external companies
strategically decided to supply their country’s demand and reduce product
export. In one of the interviews, it was mentioned that during the first
moments it was difficult to coordinate within the supply chain not because
there was no communication, but because of the level of uncertainty at hand.
Moreover, the pandemic
situation caused a global impact and all the links in the supply chain were
aware of it. Some of the interviewees mentioned that there was more
coordination now than before the pandemic, as it favoured the growth of
communication. One of the managers from a food distributor commented that they
had the objective to not cut the food supply. To guarantee the delivery and
service with the suppliers that the communication presented a greater
complexity, a more intensive communication was used: “For the links that are
more resistant to communication, our team was in charge of frequently
contacting the different managers to generate that flow of information”.
One of the interviewees
catalogued the COVID-19 as a new problem that was summed to the habitual
problems in supply themes: “We have an effective communication system
regardless of this specific topic: COVID-19. This is one more issue that adds
to the usual ones, there will always be problems to solve”.
The pandemic was an
opportunity for some companies to work collaboratively. In general terms, in
the first round of interviews, it was observed that collaboration between the
different links of the supply chain was scarce. However, in the second round of
interviews, a higher level of coordination upstream and downstream in the
supply chain was mentioned.
4.2 Bullwhip effect. - Some specific sectors
experienced an exponential rise in demand that led to shortages and the
necessity to take important decisions to adapt their distribution plans. The
main sectors that perceived an increase in demand in the first weeks of the
pandemic were cleaning, personal hygiene, and food products. This increase was
attributed to the declared sanitary emergency by the government, to the
motivation to adopt personal care measures due to the ease of contagion
presented by the virus, and finally to the imminent threat of compulsory
lockdown.
A misperception of excessive
demand increase was perceived by suppliers, which was caused by this sharp and
sudden upgrowth in demand on the side of retailers (and a consequent placement
of excessive orders to suppliers), together with the buyer's tendency to
over-supply in anticipation of a possible total quarantine. This tendency, known
as panic buying [33], distorts suppliers´ demand perception, is frequently
observed in disruptions and natural disasters, and causes inventory struggles.
According to literature, this
phenomenon is called the bullwhip effect and it can lead to severe consequences
for the businesses’ development in terms of inventory, operations, and
logistics management [12]. One of the interviewees mentioned that a sudden peak
in demand was perceived, especially in the area of personal care and household
hygiene products. The first fifteen days were complex in aligning demand with
capabilities and the demand exceeded the capacity several times.
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Table IV -
Bullwhip effect interview coding |
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The factories, importers, and
wholesale companies that took part in the study mentioned that, during the
first fifteen days of the pandemic, they did not have real visibility of
end-customer demand, but an exaggerated version produced by their downstream
customers. The shortage of customers and the consequently reduced sales paired
with the erratic behaviour of participants in the supply chain led to highly
variable production schemes in factories and high inventory costs. In terms of
personal care, household hygiene, and some essential food products the bullwhip
effect was definitively observed, and the different companies had to adapt and
respond to a variable and unexpected demand.
An example of this phenomenon
could be seen in one of the interviews with a manager of a bathroom tissue
factory at the beginning of this pandemic. Toilet tissue, being a product with a
low price-to-volume ratio causes merchants generally not to hold large
inventories, and the supply chain tends to be tight and efficient. When the
first cases of COVID-19 appeared in Uruguay, the demand exceeded the production
found in the stocks of the selling companies, even though the physiological
needs of the people did not change due to the pandemic.
The increase in demand for
household products was almost instantaneous, and the shortage of stores caused
the public to over-supply. This peak in demand caused retailers and
distributors to demand a significantly larger stock of inventory than usual. In
response, the factory ceased to produce a wide range of products and focused
instead its production schemes towards the most demanded products.
However, the increase in
demand for these specific items did not continue indefinitely. These peaks were
clear in the second half of March and some localized peaks in April, causing
stock problems as the industry was not prepared to supply the present demand.
Another effect that allows
determining that the bullwhip effect occurred was the human feelings being
involved in decision-making processes [10]. The shocking situation caused fear
and desperation in society, mainly associated with the fact that there was no
historical record of such a global pandemic, and it was impossible to predict
the progress of contagion. These feelings, when present in decisions, distort
real demand numbers and snowball through the supply chain causing inventory
struggles and misuse of production capacities. In the first round of
interviews, it was said that this kind of crisis generates nervousness in all
areas, causing excessive decision-making or a lack of prudence in situations of
tension.
In terms of the consequences
of the bullwhip effect, the breach of orders and the portfolio reduction, which
are considered consequences of the bullwhip effect [10], were identified.
As retailers perceived an
extremely high demand in an exceedingly short time, they had to prioritize
clients and concentrate on certain channels to supply these regularly.
Companies that delivered healthcare products and basic foods experienced an
extremely high demand in a short time, for which they had to prioritize clients
and channels, to define whom to deliver to supply all channels as far as
possible.
Regarding portfolio reduction,
some companies generated a list of a few dozen critical articles that strictly
have to do with the needs related to the COVID-19. Other companies reduced
their products catalogue and adopted a push selling strategy with the remaining
products. For instance, one of the interviewees mentioned that they “went from
forty-four to less than half of the product codes, and sales are being
concentrated on those products, guiding customers to buy those specific
products”.
To sum up, the bullwhip effect
was identified during the first four weeks after the first COVID-19 case in
Uruguay, and consequences were perceived. Low visibility of demand, changes in
consumption, and the influence of human feelings in critical situations were
observed. The product brunches that suffered the bullwhip effect were personal
care and household hygiene and basic foods. According to the interviewees,
these kinds of products were considered indispensable by customers to overcome
the pandemic and, consequently, people overstocked, leading companies to
struggle against shortages and excessive orders.
4.3 Resilience. - Finally, in terms of
resilience and robustness in the situation of the COVID-19 pandemic, three
important aspects were assessed: the importance of a resilient supply chain to
respond to the crisis, actions to adapt and take advantage of the crisis, and
the benefits of having a resilient freight transportation link [19, 22].
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Table V –
Resilience interview coding |
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Resilience and robustness were
critical characteristics that organizations had to show to survive and even
take advantage of this crisis. Particularly, having a vast range of suppliers
and preventing or avoiding risks were identified by interviewees in both rounds
of interviews as vital factors to ensure resilience. One of the interviewees
mentioned in both rounds of interviews that the benefit of having a variety of
strong suppliers in different product channels resides in the fact that, in
case of disruptions, some of them may fall, but others will stand or grow and
stabilize the economic activity of the business.
Furthermore, developing risk
mitigation plans such as considering local suppliers (higher costs but lower
lead times) and investing in online channels were remarked prevention
strategies to affront the crisis between the interviewed companies.
To evaluate resilience, the
actions taken to adapt and take advantage of the crisis were analysed. The most
frequent action was the decision to diversify sales channels. Due to the
reduction in commercial activity, companies were forced to adopt new
distribution and commercial practices. For instance, a vast number of
businesses started or accelerated their development on delivery or non-personal
channels, to avoid contact and possible contagion or to gain access to clients
that migrated to residential areas [34].
One of the interviewees
noticed that: “We migrate to the use of the website, the generation of product
baskets, to that type of variants that allow us to reach the final consumer
which we cannot reach by other means”. The interviewed companies migrated to familiar
formats and product baskets and the e-commerce channel. According to one of the
interviewees “the e-commerce channel was substantially enhanced. What had grown
in 3 or 4 years, doubled in 2 months”.
Furthermore, another
observation from the interviews was the influence of governmental
recommendations on business decision-making. In the case of Uruguay, the
government proposed a new format of partial unemployment insurance and some
companies decided to follow this proposal so as not to fire people or send full
unemployment insurance. Being COVID-19 a national emergency, the government’s
proposals to return, step by step, to normality turned into a considerable
point to take decisions and design plans to face the pandemic.
Another noted action was the
improvement of the existing service due to the demand decrease. One of the
interviewees commented that “to the extent that we have fewer delivery points
we have improved the service as much as possible in some way given that there
is a competition to win. Also, there is a service to provide the essential
products at the right time and place, it is not only a business issue but a
critical social issue”.
In terms of the import of
goods, the complexity of this activity increased due to the border restrictions
with neighbouring countries. Uruguay is highly dependent on activity in Brazil
and Argentina since many products are manufactured there, so border closure and
reduction of working hours in neighbouring countries directly affected local
supply chains.
The fact that the Uruguayan
market is smaller than other countries in the region also has an influence, so
importers cannot be as demanding in terms of the volume of orders. In this
scenery, to reduce the risk of shortages, many companies, mainly manufacturers
and distributors, turned to local suppliers as a strategic measure, even when
the prices offered were not as competitive as international ones. This change
of suppliers towards locals, although it normally increases the manufacturing
cost, allows to shorten production and delivery times, and therefore become
more sensitive to respond to the changes in demand.
It was observed that in the
first round of interviews, during the first fifteen days of the pandemic in
Uruguay, the low visibility and the impossibility to
foretell the demand enforced the resiliency of the different companies to
endure the pandemic crisis and uncertainty. This enforcement motivated
resilient and robust decisions that permitted the different companies to put up
with the controversial situation and to develop new business channels.
Finally, regarding the
benefits of having a resilient urban distribution, two phenomena were observed.
In the first place, some companies commented on the actions taken to optimize
the distribution fleet frequencies. A reduction in the truck frequencies was
observed, to adjust cargo and take full advantage of the available capacity per
truck in the transportation of products. During the first round of interviews,
it was noted that the way to respond to the decrease of the goods and lumps to
deliver was to unify deliveries, reducing the frequency of vehicles. Throughout
those first days, part of the transport staff did not go out on the street.
Moreover, the issue of all
precautions both in the delivery and in the handling of goods was identified in
the interviews. This protocolary delivery activity meant that at many points
the delivery has been slowed down. One of the interviewees mentioned: “in some
sectors, if you did 10-12 deliveries on the day, today you do 8. The trucks are
forced to stop further away because businesses do not receive the invoice and
do not allow the unloading of merchandise until the previous supplier has
finished their unloading work”.
On the other hand, measures to
adapt the logistic activity to new sales channels were identified, particularly
in the remote or online channel. One of the interviewees highlighted the
necessity to have a much more efficient web order logistics, constantly
adapting to customers’ behaviour and evaluating the level of service that is
expected. “We first looked for transportation to be effective to respond to our
perceived need, and transportation was effective but very inefficient. Next, an
attempt was made to improve efficiency by controlling the number of carriers,
working hours, and task management, thus adjusting the transport price ratios
about sales”.
5. Conclusions. - The Coronavirus outbreak
impacted deeply supply chains, and its disruptive nature made managerial
decision-making challenging. During the first four months since the first
COVID-19 case was identified in Uruguay, it is possible to conclude, in the
first place, that the outbreak seriously affected the structure dimension and
the operations of supply chains during the first stages of chaos and
uncertainty. The high level of uncertainty generated in the first period of the
pandemic, causing struggle to predict consumers’ behaviour, made it essential
for supply chains to enhance coordination between links, work on improving
resilience and manage risks to reduce their impact and, in some cases, even
take advantage of this crisis.
Particularly, the difficulty
to forecast demand during the first weeks of the pandemic was perceived, which
turned into uncertainty about the demand´s behaviour and restricted
management’s capacity to make operational decisions during those first two
weeks. Moreover, the irrational consumer behaviour during the initial moments
of the pandemic and the migration of consumers to residential areas were
observed. In this controversial situation, businesses had to adapt and respond
to overpass the pandemic situation.
In the period time studied, a
decrease in the general economic activity was observed. According to the
interviewees, it was attributed to the migration of consumers towards essential
and basic products and the reduction of people's purchasing ability due to the
crisis. The contacted companies’ sales levels, although they increased in some
specific sectors such as essential products that refer to personal care and
hygiene according to the pandemic, generally dropped.
Several procedures to manage
the identified risks due to the pandemic were implemented in the different
interviewed companies. For instance, the adoption of personal protection
measures and the reduction of staff and working hours were identified as a
response to operational risks and were implemented to maintain production and
transportation services active.
Moreover, the bullwhip effect
was present in some critical channels of products, such as personal care and
hygiene, and essential foods. Such a sudden peak of demand caused by both an
objective necessity of sanitation or food provision, and a subjective feeling
of panic or fear of stockout delivered important shortcut situations and came
along with modifications at the placed orders to respond in a certain way to an
unknown and variable demand. Furthermore, impacted supply chains had to enhance
communication and visibility and, in some cases, reduce the product portfolio
to avoid stockouts.
This disruptive event also
showed supply chains how important resiliency is to adapt to the crisis and get
through it in the best possible way. A survival attitude, understood as taking
important day-by-day decisions during the first weeks of the pandemic, was a
must. Also, some of the companies modified their sales channels to adapt to the
new normality. In particular, the online channel experienced an interesting
increase during the crisis, and some of the companies started to develop this
commercial method or improved their past experiences with online sales. In a
way, this can lay the foundations for the establishment of e-commerce as a
strong sales channel.
All in all, it is essential to
highlight the importance of incorporating the concepts of risk management,
resilience, and robustness into day-to-day operations to face the different
problems occurring daily in supply chain management. This research provides
deep insights observed in the first months of this disruption and offers
companies considerations to bear in mind when making decisions within this kind
of event. In that way, it would be possible to face adverse situations in a
coordinated and effective way, along the supply chain to respond to demand
fluctuations.
This study is limited
principally by the time-lapse in which the interviews were developed and by the
constrained number of interviewed businesses. It may not be fully
representative of the global situation of the COVID-19, but it may apply to
developing countries in which the pandemic was successfully controlled and in
which the mandatory quarantine was not established.
Further research about risk
management, resilience, and robustness of the supply chain should be carried out
on understanding good practices and effective strategies to respond to the
pandemic. The concept of success in terms of businesses overcoming this
disruption is directly linked to sustainability and resilience, so time has to
pass to see clearer successful measures. As it is a unique pandemic situation,
which had no registered precedents, it is fundamental to generate scientific
knowledge on how to respond to future similar scenarios in case they exist.