The Effect of COVID-19 Pandemic on the Global Supply Chain Operations: A System Dynamics Approach

 Foreign Trade Review

Epidemic outbreaks are one of the important sources of the risk in the global supply chains. Before the COVID-19 pandemic, global industries that were unprepared for disruptions experienced a decline due to the pandemic. A global supply chain is a complex system set of dynamics that could be analyzed by the system dynamics approach. In this article, the impact of the recent pandemic on the global supply chain is simulated in different scenarios. A system dynamic model is developed to carry out the simulations. In order to consider the impact of the pandemic on the exogenous and endogenous variables, a force majeure factor is defined in the model. Global features considered in this article are the export and import operations, the exchange rate and the rate of tariff. In this article, a scenario analysis is performed to analyze two important factors of the global supply chain: force majeure factor and delivery delay. Results showed that improving the flexibility of production capacity is one of the important strategies that global supply chain managers should pursue.

The COVID-19 pandemic has caused unprecedented disruption to normal operations of supply chains. Many industries have been negatively affected by restrictions due to COVID-19, especially those working globally. Based on the World Trade Organization (WTO), the volume of global merchandise trade fall more than 20%, by year-end 2020. In the first six months of 2020, many industrial countries experienced a significant slowdown in their regular trades. In the last half of 2020, because of the continued disruptions in the transportation sector, import and export activities faced many uncertainties. 

The negative annual growth is obvious in recent years, but in the last year, the declines became much more pronounced. Almost 95per cent of Fortune 1,000 companies were encountering direct inventory flow interruptions during the pandemic. The outbreak also has caused disruptions in the automobile industry. For example, Volkswagen, Hyundai and Nissan have been forced to shut down their global factories due to travel restrictions and lack of parts. Also, freight transportation has been affected deeply by the outbreak. The Institute of Shipping Economics and Logistics (ISL) reported that the container throughput index declined almost 10% in comparison with the past year (Institute for Shipping Economics and Logistics, n.d.). In addition, the International Air Travel Association (IATA) announced that cargo tonne-kilometres (CTKs) in the first half of 2020 decreased 15% (IATA, n.d.).

Epidemic outbreaks are one of the major risks in the supply chain management (SCM) operation. Simulation as a powerful tool in uncertain conditions could be used to analyze and predict the supply chain behaviour over time. Three main simulation techniques could be considered: agent based simulation, discrete event simulation and system dynamics. Agent based simulation is a bottom-up approach that focuses on the individual autonomous components of a system, invoking the actions, reactions and intercommunication protocols among them. Discrete event simulation is a stochastic modeling approach that considers process time and times between arrivals into the system and is mainly used to simulate the operation of queuing systems over time. System dynamics (SD) is a computer aided approach, typically used for strategic decisions and policy design. 

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