Responding to COVID-19 Supply Chain Risks—Insights from Supply Chain Change Management, Total Cost of Ownership and Supplier Segmentation Theory

Remko Van Hoek

doi:10.3390/logistics4040023

Abstract

The COVID-19 pandemic is causing risks and disruptions in most supply chains. As supply chain managers are responding to these risks, several theories may inform those efforts. In this paper, we explore across seven companies in different industries, supply chain positions and countries, how lessons from total costs of ownership, supplier segmentation and supply chain change management theory may apply to efforts to respond to COVID-19 supply chain risks and disruptions. The findings indicate that the pandemic forces companies to consider total costs more holistically, beyond the purchase price, and that collaboration with suppliers and developing new sources of supply is of growing importance to reduce risk in the supply chain. However, the change involved in responding to risks will take time, and for many companies, the hardest work is still ahead. Our findings also paint a more nuanced and complex picture than offered in the popular press; the focus on nearshoring does not necessarily mean leaving China and the switch in total costs of ownership may only be partial and temporal. Limitations of the theories considered are identified and resulting suggestions for managers and further research are developed.

Highlights

The COVID-19 pandemic has challenged logistics and supply chain management substantially.In the words of Rick Blasgen, president and CEO of CSCMP:“To say that everything changed is an understatement
We aim to respond to the call for more empirical research on supply chain risk management and add to the initial empirical efforts by interviewing supply chain managers and executives about how they are responding to the risk consequences of the COVID-19 pandemic
Our research makes a contribution by offering actionable and measurable findings on the pandemic as called for [6] we offer consideration of changes in supply chains widely discussed in the popular press, providing theoretical foundation and consideration, leading to a much more nuanced picture of supply chain risks management during the pandemic

Summary

Introduction

The COVID-19 pandemic has challenged logistics and supply chain management substantially.In the words of Rick Blasgen, president and CEO of CSCMP:“To say that everything changed is an understatement. The COVID-19 pandemic has challenged logistics and supply chain management substantially. The logistics field will need to construct entirely new levels of supply chain resilience.”. In exploring how companies are targeting resilience improvements, van Hoek [1] shows that companies are looking beyond factor costs benefits of a few highly rationalized global sources and considering costs more holistically. This is very much in line with the total cost of ownership theory which suggests factoring in indirect costs and cost drivers beyond the purchase price [2]. Handfield et al [3] suggest a segmented contingency approach with suppliers, pointing at the Kraljic [4]

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