Data science, operations research and analytics play a central role in strengthening our supply chains

As hospitalizations decrease and vaccinations increase, some see the end of the COVID-19 pandemic somewhere on the horizon. With that, many of us in the data science community are analyzing “lessons learned” from the pandemic to better prepare and more efficiently and effectively respond to the next disaster. At the center of this discussion must be how to fix our supply chains to prevent disruptions where possible and to identify – before a disaster occurs – where vulnerabilities exist. 

Government Role in Securing Supply Chains

The Biden administration has taken some important early steps to help begin the process of securing our supply chains. On his second day in office, President Biden issued an executive order on a sustainable public health supply chain [1] seeking to assess and protect the supply chains needed throughout the ongoing COVID-19 pandemic, which included a strategy to “design, build and sustain a long-term capability in the United States to manufacture supplies for future pandemics and biological threats.” This strategy is expected to be finalized in summer 2021 and will help lay the groundwork for preventing disruptions of key medical supplies and assets for first responders.

More recently, President Biden issued another executive order on America’s supply chains [2] that reaches beyond COVID-19 and seeks to assess supply chains more broadly and develop recommendations to create resiliency and security within those supply chains. This executive order empowers the president’s national security advisor and director of the National Economic Council to coordinate the review effort, which is divided into two separate, but parallel, processes. The first is a 100-day evaluation of four industries: semiconductor manufacturing and advanced packaging, high-capacity batteries (including electric vehicle batteries), critical material and other strategic materials, pharmaceuticals and pharmaceutical ingredients. The second is a one-year review of the industrial bases critical to the Department of Defense, Department of Health and Human Services, Department of Transportation and Department of Agriculture.

The Biden administration should be applauded for acknowledging that the “United States needs resilient, diverse and secure supply chains to ensure our economic prosperity and national security” and for taking initial steps to study risks associated with supply chains. While these initial actions are limited in scope, an increased focus on supply chains in any sector will help to better protect supply chains in every sector.

The U.S. government’s prioritization of supply chain resiliency is a necessary step in mitigating vulnerabilities at scale going forward. The government should depend on innovative and data-driven solutions that can help balance efficiency with resiliency as well as putting the safeguards in place that prioritize disruption prevention, not just disruption response. The government, in partnership with industry and academia, can accomplish this by leveraging data scientists and relying on operations research. It will be important to first understand what the vulnerabilities are and why they exist, which the government is beginning to do in some sectors, and then develop solutions to correct or mitigate those vulnerabilities. 

Supply Chain Vulnerability & Predictions

Identifying why supply chain vulnerabilities exist is straightforward. Supply chains are generally not structured for crisis. They have mostly been developed by focusing on efficiency by emphasizing offshoring, outsourcing and just-in-time methodologies in manufacturing. These same strategies, which allow companies to significantly cut costs and create efficiencies, are the main reason why supply chain exposure to risk has increased over the last 10-15 years. For example, just-in-time methodologies motivate low inventories, which imply that the supply chain will not be able to match supply with demand when there is a disruption.

Fortunately, we do not need to wait until there is a disruption to find a solution, as is described in a Harvard Business Review article [3], where we developed and implemented a new method, using operations research techniques, to measure the level of resiliency in the supply chain and identify hidden risks. This method is applied in a paper submitted to Harvard Business Review on Feb. 23, 2020, with a high-tech executive, Pierre Haren, entitled, “How Coronavirus Could Impact the Global Supply Chain by Mid-March” [4]. The paper appeared online on Feb. 28, 2020, where we predicted that “the impact of COVID-19 on global supply chains will occur in mid-March of 2020, forcing thousands of companies to throttle down or temporarily shut assembly and manufacturing plants in the U.S. and Europe.” In making that prediction, we applied the method described in the 2014 HBR article to estimate when typical companies will run out of inventory and will have to shut down production.

The most impressive thing about this prediction is that newspapers all over the world reported during the week of March 16, 2020, on supply chain shutdown in the United States and Europe [5]. This is also the reason why the U.S. government’s proactive efforts should be applauded. As part of a broader solution, the government should implement a supply chain stress test [6] – similar to what the federal government required of the financial sector after the financial crisis in 2008.

This type of stress test would essentially identify both how long it would take to fully restore a part of the supply chain after a disruption, and how long a supply chain can meet demand after a disruption. This analysis would identify vulnerabilities in a manner that allows for enough time to develop solutions prior to a disaster, enabling needed resiliency when these stress tests are implemented at scale across all supply chains. Data-driven modeling, including stress tests, can lay the foundation for long-term supply chain security and minimize the impact of supply chain disruptions, including those we have experienced throughout the COVID-19 pandemic.

Supply chain vulnerabilities did not emerge because of the pandemic – they existed well before then – but the pandemic turned those vulnerabilities into a large public-facing crisis. Whether it was consumers not finding household products on store shelves or hospitals not being able to quickly purchase life-saving personal protective equipment and ventilators, the fragility of supply chains took center stage, increasing consumer and policymaker concerns in ways not experienced in our lifetime.  

The Future of Supply Chains

We should all welcome the renewed focus on supply chains by the U.S. federal government and others. At the same time, INFORMS members are uniquely positioned to help ensure that data science, operations research and analytics play a central role in strengthening our supply chains and reducing the potential impact of future disruptions. It is the very essence of how our profession and the INFORMS community can save lives, save money and solve problems.

References

1. https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/21/executive-order-a-sustainable-public-health-supply-chain/
2. https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/executive-order-on-americas-supply-chains/
3. David Simchi-Levi, William Schmidt and Yehua Wei, 2014, “From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions,” Harvard Business Review, January-February, https://hbr.org/2014/01/from-superstorms-to-factory-fires-managing-unpredictable-supply-chain-disruptions.
4. Pierre Haren and David Simchi-Levi, 2020, “How Coronavirus Could Impact the Global Supply Chain by Mid-March,” Harvard Business Review, Feb. 28, https://hbr.org/2020/02/how-coronavirus-could-impact-the-global-supply-chain-by-mid-march.
5. David Meyer and Katherine Dunn, 2020, “Europe’s Auto Factories are Closing. Experts Fear a Lost Decade is Coming,” Fortune, March 17, https://fortune.com/2020/03/17/coronavirus-impact-shutdown-european-auto-sector-volkswagen/.
6. David Simchi-Levi and Edith Simchi-Levi, 2020, “We Need a Stress Test for Critical Supply Chains,” Harvard Business Review, April 28, https://hbr.org/2020/04/we-need-a-stress-test-for-critical-supply-chains.