KNOW Rethinking supply chains after COVID-19
Rethinking Supply Chains after COVID-19
W
hile the true, lasting im-
pact of COVID-19 on the
world isn’t yet fully known,
the ramifications for how
we conduct our lives and
businesses are already plain enough to see. The
pharmaceutical supply chain is a prime example.
COVID-19 has exposed serious weaknesses in our
global interactions and interdependencies, with
feedback loops exacerbating and reinforcing del-
eterious tendencies. To correct these, we must first
diagnose the problems at their design – to step
back and take a holistic, systemic approach, so we
are able to see the big picture and, where possible,
minimize the long-term consequences of our ac-
tions as we work to make the overall system more
robust and sustainable while keeping it efficient.
To aid us in this exercise, we turn to the famous
paper by the late environmental scholar Donella
H. Meadows titled “Leverage Points: Places to In-
tervene in a System,” which remains as relevant, if
not more so, today as when she first published it
in 1997. Using her paper as our guide, we frame our
discussion around three concepts that we believe,
taken together, will help us build a better future,
operationally speaking.
Although for the purposes of this article we will
focus on the pharmaceutical industry, the lessons
should be applicable to other key industries and
We must step back
and take a holistic,
systemic approach,
so we are able to
see the big picture
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multinational companies reliant on global supply
chains in a post-pandemic world.
Indeed, the challenges are universal: how to make a
global operation more robust and efficient, able to
cope with disruption like a pandemic, while at the
same time operating within a specific society, with
responsibilities to attend to the needs and interests
of that society in which you are an embedded actor.
Making a private multinational business sustain-
able requires resolving multiple conflicts at the
level of the nation-state, a regional block and the
world; it means having to work in close collabora-
tion with indispensable stakeholders like govern-
ments, while also having to maintain a requisite de-
gree of independence from them, to avoid political
interference. All this in a context that is fast-mov-
ing, constantly changing and wildly unpredictable.
How does Meadows’ paper – conceived to address
natural ecosystems, environmental conservation
and the sustainability of our planet – speak to
these challenges?
1. Think in terms of systems
In her paper, Meadows identified the fact that “a
system just can’t respond (in a controlled and ef-
ficient manner) to short-term changes when it has
long-term delays.”
Delays include long production and transporta-
tion lead times as well as a lack of timely infor-
mation. Or perhaps your information is timely but
your responses aren’t.
In the case of COVID-19, the delays between in-
formation-gathering, communication to the rel-
evant stakeholders, availability of resources, de-
cision-making and action led to very different
outcomes between countries; however, those
whose delays in these areas were shorter generally
find themselves in better situations today.
Sometimes delays are unavoidable: “Things take
as long as they take,” Meadows acknowledged.
 Feedback loops,
explained
To understand feedback loops, we first need to
understand cause and effect. When the effect
increases (or decreases) as the cause increases (or
decreases), we call that a straight or positive cause-
effect (S in the exhibit). When the effect decreases
(or increases) as the cause increases (or decreases),
we call that an opposite or a negative cause-effect
(O in the exhibit).
But it’s not quite so simple. In real life, there are
multiple and complex cause-effect relationships,
resulting in various cause-and-effect sequences
– some of them reinforcing and some of them
balancing – all within the same system.
Now transpose that example to the loops in your
own business supply chain. Chances are you will
have several such loops that work in combination
with those of your partners, all within a larger
system.
In our educational programs at IESE, we
illustrate this concept in a Beer Game Simulation.
Participants are challenged to come up with
effective ways of managing the loops – adding
more information links or connecting the
inventories along the chain with purchasing and
manufacturing decisions. It’s a fun game with a
serious point.

A classic example is your everyday shower. The And none is more serious than real-life
water gets hotter the more the faucet is turned pharmaceutical supply chains. That is why the
hotter (S). But then the water gets too hot, so system view is so important, to avoid damaging
you turn it down (O). But there is a delay until the pendulum swings between panic and neglect in
temperature adjusts, and now you find it is too cold. management behavior.
So, you turn it up again until you get the desired
temperature. That entire sequence of activities –
oscillating between too hot and too cold, delayed
effects, making constant adjustments – can
comprise one big, balancing feedback loop.

Exhibit

Straight or positive Opposite or negative

cause-effect cause-effect

+ S + +/- O - /+
The hotter you turn The hotter the As the water gets You turn the
the faucet water gets too hot (or cold) temperature down
(or up)

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KNOW Rethinking supply chains after COVID-19
“You can’t do a lot about the maturation time of a
child, or the growth rate of a forest.”
What’s critical is the length of delay in a feed-
back loop. “Delays in feedback loops are com-
mon causes of oscillations. If you’re trying to
adjust a system state to your goal, but you only
receive delayed information about what the sys-
tem state is, you will overshoot and undershoot.
Delays that are too short cause overreaction, os-
cillations amplified by the jumpiness of the re-
sponse. Delays that are too long cause damped,
sustained or exploding oscillations, depending
on how much too long. At the extreme, they
cause chaos. Overlong delays in a system with
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a threshold, a danger point, a range past which
irreversible damage can occur, cause overshoot
and collapse.”
One way of stabilizing such volatilities is through
the use of buffers, as Meadows explained: “The
stabilizing power of buffers is why stores hold
inventory instead of calling for new stock just
as customers carry the old stock out the door.
Businesses invented just-in-time inventories
because they figured that vulnerability to occa-
sional fluctuations or screw-ups is cheaper than
certain, constant inventory costs – and because
small-to-vanishing inventories allow more flexi-
ble response to shifting demand.”

These two system variables – delay and buffer –
are essential for reacting to sudden change. Un-
derstanding this will help you achieve lean and
agile operations (by managing delays) and in-
crease your resilience at low cost (by effectively
building in adequate buffers). These are two key
areas where companies should be paying close at-
tention, especially as the global health crisis and
new geopolitical realities are converging to com-
pel them to do so.
Case in point: An estimated 40% of the gener-
ic drugs in the United States comes from India,
while 70% of the raw materials that India relies
on to manufacture generic drugs comes from
China. To “assure an uninterrupt-
ed supply of medicines” and avoid
“dependency on a foreign medical
supply chain,” the U.S. House of
Representatives introduced the
Pharmaceutical Independence
Long-Term Readiness Reform Act
in 2019, before the pandemic. It
recommended that a report be
submitted to Congress detailing
“vulnerabilities to the medicine
supply chain during a time of na-
tional emergency.” We can expect
this bill to take on renewed ur-
gency, and many nations will be
likewise reevaluating their supply
chains along similar lines: “to di-
versify supply away from com-
plete dependency on sources of
supply in competitor countries
and politically unstable countries
that may cut off supply, and ad-
dress critical bottlenecks and mit-
igate single points of failure and
limited resilience.”
When such bills become law, the
weight of their compliance will fall
heavily on businesses in the form of
higher minimum safety stocks for
selected products, heavier penalties
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Many nations will
be reevaluating
their supply
chains to mitigate
single points of
failure and limited
resilience
for stockouts, and a gravitational shift toward more
localized operations. This may well mean that com-
panies will have to duplicate manufacturing sites in
different geographies. Companies will need to re-
assess their make-or-buy decisions and how much
spare capacity they should keep on hand. They will
also have to cultivate a wider range of sourcing alter-
natives to call upon in a pinch.
2. Unite and collaborate
Meadows explained: “A complex system usu-
ally has numerous negative (balancing) feed-
back loops that it can bring into play, so it can
self-correct under different conditions and im-
pacts. Some of those loops may be inactive much
of the time‚ like the emergency cooling system in
a nuclear power plant.” The mistake is in thinking,
“because they aren’t used often and they appear
to be costly,” we strip them away, which may be
okay in the short term but in the long term, “we
drastically narrow the range of conditions over
which the system can survive.”
Controlling for balancing feedback loops need
not presume overinvestment nor operational in-
efficiencies. COVID-19 presents the world with
an opportunity to lower the cost of preparedness
if we can unite and collaborate on an agreed set
of rules and principles governing global supply
chains, both vertically and horizontally, so we
can orchestrate a better coordinated response in
times of crisis.
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KNOW Rethinking supply chains after COVID-19
The more
unpredictable
future outbreaks,
the more diversity
will be needed in
our approaches
This vision of greater supply-chain collaboration,
complemented with flexible, modular approach-
es to production, has long been an aspiration of
the pharmaceutical industry. Now, not only do
we have the will, but digital technologies have
reached the stage of providing the way. Being able
to keep idle capacity low, forecast demand more
accurately and manage oscillations more cost-
effectively is conceivable with today’s digital tech-
nologies and AI tools that can generate pictures
and predictions of the entire system, so supply
chains can be redesigned to be more efficient,
with faster response times, in accordance with
national interests.
However, this does require nations and compa-
nies to increase their level of participation, co-
ordination and collaboration beyond what they
currently do. If they don’t, Meadows used this
analogy: “A thermostat system may work fine on a
cold winter day‚ but open all the windows and its
corrective power will fail.”
Companies and governments, she said, were “fa-
tally attracted” to a leverage point that was “all but
worshipped by economists” – that of price. Yet
that would be to fixate “in the wrong direction,
with subsidies, taxes and other forms of confu-
sion. The real leverage is to keep (companies and
governments) from doing it – hence, antitrust
laws, truth-in-advertising laws, attempts to in-
ternalize costs, the removal of perverse subsidies,
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and other ways to level market playing fields.” In
her estimation, a global economy requires global
forms of governance.
Such a paradigm shift would require company
managers and national authorities to relinquish
some control, which is a significant ask in the cur-
rent geopolitical climate. At the very least, individ-
ual and collective goals will have to be redefined.
Until we are able to coalesce around shared agen-
das and goals for the common good, our ability
to improve our supply-chain deficiencies will re-
main constrained.
3. Foster diversity
Meadows emphasized a key difference between
reinforcing and balancing feedback loops. The
coronavirus is an example of the former: the
more people catch it, the more they infect other
people. Reinforcing loops drive “growth, explo-
sion, erosion and collapse in systems. A system
with an unchecked positive (reinforcing) loop ulti-
mately will destroy itself.”
An intervention is necessary to slow it down. For
Meadows, “Reducing the gain around a positive
(reinforcing) loop – slowing the growth – is usual-
ly a more powerful leverage point in systems than
strengthening negative (balancing) loops.”
In the case of pandemics like COVID-19, pre-
vention is much preferable to letting it snowball
out of control. This will require that we increase
our capabilities for virus transmission preven-
tion, developing a clearer understanding of how
a pandemic originates and then having a trusted,
globally coordinated information system of alarm
and action. Here is where the need for diversity
kicks in.
“Any system – biological, economic or social – that
scorns experimentation and wipes out the raw ma-
terial of innovation is doomed over the long term.
The most stunning thing living systems can do is to
change themselves utterly by creating whole new
structures and behaviors. In biological systems,

that power is called evolution. In human society,
it’s called technical advance or social revolution. In
systems lingo, it’s called self-organization. Self-or-
ganization means changing any aspect of a system:
adding new (balancing or reinforcing) loops, mak-
ing new rules. The ability to self-organize is the
strongest form of system resilience – the ability to
survive change by changing.”
We couldn’t agree more. We need to allow, if not
create, more room for diversity in every aspect –
from virology to biodiversity in how we coexist
with nature – adding more tools to our reper-
toire to tackle challenges like another pandem-
ic. The more unpredictable and uncertain future
outbreaks, the more diversity will be needed in
our approaches.
To this, Meadows added a moral imperative: “Al-
lowing species to go extinct is a systems crime,
just as randomly eliminating all copies of partic-
ular science journals, or particular kinds of scien-
tists, would be.”
“The intervention point here is obvious but un-
popular: Encouraging diversity means losing
control. Whether that means rigorously analyz-
ing a system or rigorously casting off paradigms,
in the end it seems that leverage has less to do
with pushing levers than it does with disciplined
thinking, combined with strategically, profoundly,
madly letting go.”
For pharmaceutical supply chains, if companies
and authorities can work this out together, it
might herald a golden age for innovation in effi-
cient, small-scale but highly vertically-integrated
production processes. A peer-to-peer business
model of resource-and-capacity collaboration
could balance low-cost supply with multiple geo-
graphic manufacturing points, which might serve
local interests in securing national or regional re-
sponses to sudden crises.
Certainly, just continuing to do things the same old
way is not going to work anymore. The pandemic is
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The authors
Weiming Zhu is Assistant Profes-
sor of Production, Technology and
Operations Management at IESE.
Weiyin Yang (MBA ’09) is a
director at Biogénesis Bagó and
Garruchos in Shanghai, both arms
of the Argentine pharmaceutical
Grupo INSUD.
a wakeup call to think holistically, to work together
as one human society, and to build unity by foster-
ing diversity of thought and action. This isn’t ex-
clusive to pharmaceutical supply chains and may
apply to other types of businesses and industries
in a post-COVID-19 world.
With these three concepts as our foundation, we
believe we will stand a much better chance of
shaping a future that not only builds upon prior
achievements but also develops our capacities
further, for the sake of preventing future pan-
demics, reducing global inequalities, maintaining
peaceful relations, and mitigating the impacts of
other catastrophic exogenous shocks to the sys-
tem, including climate change.
READ MORE: “Leverage Points: Places to Intervene in a System” by Donella
(Dana) H. Meadows was first published in the Whole Earth Review (Winter
1997). It was later expanded and published by the Sustainability Institute,
now called the Academy for Systems Change, which Meadows founded.
Her 1972 book, The Limits to Growth, which warned of environmental
and economic collapse within a century if “business as usual” continued,
established her reputation as a thought leader ahead of her time. Her
collected writings and other resources can be found at
http://donellameadows.org.
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