Supply Chain Resilience

Last week grocery, pharmacy, and other retail shelves were sporadically sparse. Many workers needed to make, move, and sell products were infected with coronavirus and/or seasonal flu. Many were sick. Some stayed home to protect others.

Flows slowed in several places.

There are plenty of anecdotes of workers — some vaccinated and some not — who continue to work despite mild symptoms of something flu-like. Many have purposefully decided not to be tested. For better and worse, they have been needed to maintain flows.

This week’s product flows are likely to be even more constrained than last week — in more places. In some places, such as the mid-Atlantic and New England, winter weather will further complicate delivery of goods and services.

This week or next will probably see the worst friction for US retail supply chains since, perhaps, April 2020 (potentially as nail-biting as March 2020). Most US urban centers are likely to hit peak omicron in the next ten days. Good news: It looks like NYC and New England may already be moving off their peak.

For several months this conversation has followed case-counts and hospitalizations for the US, UK, Denmark, and Israel. Below are these “demand curves” through Saturday, January 15. The UK’s dip in case counts is encouraging. Israel’s case count is a concern (but Israel’s transmission rate has started to decline). Hospitalizations (a more confident indicator for disease penetration of supply chains) will increase following peak case-counts. Omicron’s hospitalization rate and typical clinical outcomes have, however, been much lower than prior variants.

When and where Hours-of-Service waivers, suspension of delivery curfews, and lifting of other discretionary constraints are undertaken for weather-related or other causes, it would be helpful to extend longer than normal to mitigate supply chain constraints unfolding for the remainder of January.

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Since early December this conversation has encouraged proactive attention to reasonably obvious implications of omicron’s contagious reach and speed. I have been pleased with many measures undertaken. In this regard, I seem to be a distinct minority. Withering criticism has been the more common response (more). Lack of clarity has been an especially prominent complaint. When possible, clarity is a distinct virtue. But pretend clarity can too often be a self-interested manipulation of reality. For me, this is a meaningful working definition of evil. Reality can be — in my experience, usually is — complex. High volume, high velocity supply chains operating in a pandemic (or on most days) are complex. Embracing this complexity is a more honest and helpful stance than willful denial. Engaging complexity favors context-aware, time-sensitive, situational, provisional, frequently contingent choices. Ambiguity can be innate. Empirically demonstrated principles can be very helpful. Actively testing principled hypotheses will often move us forward. Engaging complexity favors courage. Effectively engaging complexity favors self-critical acceptance and rapid correction of error. These are the best tools for extricating meaningful clarity from emergent complexity. Since early December opportunities to extract meaningful clarity have been sacrificed at altars of pretend clarity. I regret this outcome. It is, however, an aspect of complexity that must also be embraced.

Global and US covid case counts continue to surge (see first chart below). According to Reuters, yesterday (Monday, January 10) the United States reported 1.35 million new infections. Monday counts are usually higher. The seven-day average is closer to 700,000 per day, still plenty high. Given the US testing context, even these record-high numbers are material undercounts.

US hospitalizations (a much harder number) have also hit a new high and will continue higher, exceeding the worst numbers from January 2021. Yesterday there were at least 136,604 residents of the United States hospitalized with covid (more). Some of these are not hospitalized for covid. But covid hospitalizations outside the United States (see second chart below) — and clinical challenges inside many hospitals (more) — confirm that omicron can be a serious health threat, especially for the unvaccinated. Accumulating evidence indicates that on-average omicron causes a milder version of covid. But omicron is so contagious that the numbers falling outside this average are flooding the healthcare system.

Related workplace absenteeism is increasing (more and more and more). As cases and symptoms escalate, more nurses and teachers and truckers and grocery and many other workers will become sick. The percent of cases with significant symptoms is likely to be much lower than before, but overall numbers will be as high or higher. So, flows of services and goods will slow. Shelves will not be refilled as quickly or as fully. Some nervous buying is predictable. Supply will more frequently not fulfill demand.

For how long? Please consider UK case counts on the first chart below. Counts are still high, but now declining from a peak. This mostly reflects a significant decline in metro-London’s case counts since New Year’s Eve. Some are suggesting NYC may now be approaching its peak. In much of the United States over the next two or perhaps three weeks, store shelves are likely to show symptoms of omicron.

This will be a treacherous time. Well-established, high-volume, high-velocity flows are predisposed to persist. Per evidence of the last two years, I will not bet against the creative adaptability of US supply chains. But the margin for error is as tight — probably tighter — than any period since March 2020. Local conditions, say a blizzard, week-long atmospheric river, earthquake, significant cyber-complication (you know the all-hazards drill), could suddenly transform bad into much worse.

Covid cases are climbing faster than ever before (see first chart below). These are undercounts.

While omicron-related disease is on-average less severe, its rapid simultaneous spread is finding plenty of vulnerable victims, including unvaccinated children (more). Many hospitals are packed again. Already or very soon, the January 2021 peak for covid-related US hospitalizations will be superseded (see second chart and more). Credible projections anticipate US hospitalizations will continue to increase until mid-February.

Daily deaths are also expected to increase through mid-February. As a percentage of confirmed cases or hospitalizations, deaths are likely to be well below prior peaks. But given the exponential growth in case counts, the absolute number of dead per day could close-in on the worst days of 2020.

Hospital staff, EMS professionals, food processors, flight crews, TSA screeners, and many others are calling in sick. Many more would test positive for covid, if they could find a test and were inclined to test. On January 6 Bloomberg reported, “The highly contagious omicron virus variant is disrupting already stressed food supply chains, sickening so many workers that more shortages at grocery stores are all but certain.”

Many supply chains are already constrained by a wide range of workforce dynamics (not always directly related to covid). January and February weather often complicates supply velocity in much of North America. Add a highly contagious variant into this wintry mix (and any related consumer stockpiling) and the “feels like” function for supply chains can quickly slip toward freezing. As is more widely understood today than before, high volume, high velocity demand and supply networks can be as efficient at distributing problems as products. Once bottlenecks, chokepoints, and gridlocks form, decongesting can be complicated and delayed.

On Thursday, Louisiana’s State Health Officer and Medical Director was quoted as saying, “When you’re in a surge like we are right now and Covid is everywhere — and it is everywhere right now — if you have trouble getting a test, a take-home test particularly, and you do have symptoms, the prudent thing to do is just assume you have Covid and isolate away from other people. That’s the safest thing to do right now.” This is the personal care worldview that I would want my own physician to reflect. From a supply chain perspective, I appreciate the Medical Director’s focus on people with symptoms. This is consistent with recent CDC recommendations.

But if the current exponential growth in cases continues for another 10 days or more, we will need tens-of-thousands of workers with mild symptoms to stay on the job to maintain flows of water, food, fuel, pharmaceuticals, and other critical freight on which millions depend (related). Which symptoms, how mild, with what mitigation measures? It is not too soon, actually its getting very late, to consider this treacherous possibility. Probability? The demand slopes below are not encouraging.

Late Tuesday afternoon, the CDC clarified its recommendations released on December 27. The document (available here) provides more context and condition-specific detail. Accurate public health guidance — especially for a fast-moving, highly-contagious, mutating virus — will not always provide practical workplace guidance.

For most supply chain professionals, here are my reductionist interpretations for the workplace.

Vaccinated, boosted, and asymptomatic workers who come into close contact with someone with covid do not need to quarantine. For ten days after close contact, vaccinated, boosted, asymptomatic workers should wear a well-fitting mask around others.

Non-vaccinated, non-boosted workers — without symptoms — should quarantine for at least five days after close contact with covid… and then follow the specific steps set out in the recommendation before returning to work.

When anyone has symptoms of covid and/or tests positive, s/he should isolate… and then follow the specific steps set out in the recommendation before returning to work.

Vaccinated, boosted workers do not need to test-out of isolation. (The reasons outlined in the clarified recommendation are consistent with what Dr. Walensky told Colbert on Monday night.) Some states still have public health orders in place that require testing-out of quarantine and isolation. Current demand for testing far exceeds supply.

In my personal judgment, many previous good practices to reduce transmission have been overcome by events, overcome by omicron’s extremely contagious character.

If sick, stay home. If vaccinated, boosted and feeling fine, please come to work, you are needed. You will be needed even more over the next two or three weeks as the number of new infections skyrocket and many of your co-workers should not or cannot work. Given omicron’s rush and reach, you should wear a mask when working with others.

On December 27 OSHA announced changes in its stance. The Supreme Court is scheduled to hear related oral arguments this Friday. I do not expect OSHA standards to be significantly clarified prior to peak-omicron.

As stated previously (before any of the recent CDC recommendations), I am not a lawyer or epidemiologist. I am someone who wants to safely facilitate continued flow of water, food, pharmaceuticals, fuel, and other critical freight. This is never risk-free work. I recognize the profound risks involved if flows are seriously disrupted. How do I behave as a prudent person with a fundamental duty to fulfill… during a pandemic? How do I do my best to serve others with what is available? How do I square necessity with possibility?

“This is not the same disease as we were seeing a year ago,” according to Sir John Bell, professor of medicine at the University of Oxford, discussing the omicron variant’s impact on covid. Infections are skyrocketing (see first chart below), but symptoms are often milder and hospitalizations — while rising — are increasing at a much lower rate than with prior dominant variants (see second chart below).

The data subtext for these case counts can be treacherous. Israel and Denmark have sophisticated real-time data-streams on new cases. UK data sources are almost as good. US case counts are much less accurate, especially after a long holiday. But Denmark’s sudden surge last week reflects social behavior and easy access to testing as much as infection rates. Especially in the context of omicron, hospitalizations are a more confident comparative measure.

Risks to the healthcare system — and other crucial networks — continue to be significant. While hospitalization rates are much lower, infections are much higher. The lower rate can still generate significant new admissions. Many US hospitals are already short-staffed. Several key supply chains have been struggling to keep and recruit sufficient workforce levels before omicron emerged (more). Strict adherence to isolation and quarantine guidance could decimate flow capacity.

Widespread omicron contagion can now be assumed. Spread and depth of disease is still to be seen. Cascading impacts on supply chain capacity should roughly track disease penetration across the population. Watching how, when, and where constraints on flow emerge may provide helpful hints on potential mitigation measures. This is what I will watch and update here over the next three or so weeks.