The Effect of COVID-19 Pandemic on the Global Supply Chain Operations: A System Dynamics Approach
| Author | Mojtaba Hajian Heidary |
| DOI | 10.1177/00157325211060932 |
| Published date | 01 May 2022 |
| Date | 01 May 2022 |
| Subject Matter | Original Articles |
The Effect of COVID-19
Pandemic on the
Global Supply Chain
Operations: A System
Dynamics Approach
Mojtaba Hajian Heidary1
Abstract
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 unpre-
pared 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 sup-
ply 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.
JEL Codes: F23, P45, C15, C63, E37, F17
Keywords
Global supply chain, COVID-19 pandemic, system dynamics, simulation
Original Article
1 Department of Industrial Management, Faculty of Management and Accountancy, Allameh Tabataba’i
University, West End Hemmat Highway, Dehkadeh-ye-Olympic, Tehran, Iran.
Corresponding author:
Mojtaba Hajian Heidary, Department of Industrial Management, Faculty of Management and
Accountancy, Allameh Tabataba’i University, West End Hemmat Highway, Dehkadeh-ye-Olympic,
Tehran, 1489684511, Iran.
E-mail: hajianheidary@atu.ac.ir
Foreign Trade Review
57(2) 198–220, 2022
© 2022 Indian Institute of
Foreign Trade
Reprints and permissions:
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DOI: 10.1177/00157325211060932
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Hajian Heidary 199
Introduction
The COVID-19 pandemic has caused unprecedented disruption to normal opera-
tions of supply chains. Many industries have been negatively affected by restric-
tions 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 uncertainties1. Figure 1 shows the world
merchandise export and import between 2016 and 2020.
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 pan-
demic (Esper, 2020). 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 (Xu et al.,
2020). 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 (Ivanov, 2020).
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 (Abar et al., 2017). 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 (Law,
2014). System dynamics (SD) is a computer aided approach, typically used for
strategic decisions and policy design. Jay W. Forrester, the pioneer of system
Figure 1. Year-on-year Growth in World Merchandise Exports and Imports.
Source: www.stats.wto.org (2020, November 30).
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