The Contracting Education Academy

Contracting Academy Logo
  • Home
  • Training & Education
  • Services
  • Contact Us
You are here: Home / Archives for Technology and Logistics

May 14, 2020 By cs

Why restarting the global economy won’t be easy

As the world contemplates ending a massive lockdown implemented in response to COVID-19, Vinod Singhal is considering what will happen when we hit the play button and the engines that drive industry and trade squeal back to life again. 
The U.S. gets close to a trillion dollars of products annually from Asian countries, and most are shipped by sea, which requires a four-to-six-week lead time. Here, containers are stacked at a Georgia Ports Authority facility in Savannah. (GPA Photo: Stephen B. Morton)

Singhal, who studies operations strategy and supply chain management at the Georgia Institute of Technology, has a few ideas on how to ease the transition to the new reality. But this pandemic makes it hard to predict what that reality will be.

“We know pandemics can disrupt supply chains, because we’ve had the SARS experience, but this is something very different,” said Singhal, the Charles W. Brady Chair Professor of Operations Management at the Scheller College of Business, recalling the SARS viral pandemic of 2002 to 2003. But that event did not have nearly the deadly, worldwide reach of COVID-19.

“There is really nothing to compare this pandemic to,” he said. “And predicting or estimating stock prices is simply impossible, unlike supply chain disruptions caused by a company’s own fault, or a natural disaster, like the earthquake in Japan.”

The earthquake that shook northeastern Japan in March 2011 unleashed a devastating and deadly tsunami that caused a meltdown at a nuclear power plant, and also rocked the world economy. It was called the most significant disruption ever of global supply chains. Singhal co-authored a study on the aftereffects, “Stock Market Reaction to Supply Chain Disruptions from the 2011 Great East Japan Earthquake,” published online in August 2019 in the journal Manufacturing & Service Operations Management.

But COVID-19 represents a new kind of mystery when it comes to something as complex and critical to the world’s economy as the global supply chain, for a number of reasons that Singhal highlighted:

  • The global spread of the virus and duration of the pandemic. “We have no idea when it will be under control and whether it will resurface,” Singhal said. “With a natural disaster you can kind of predict that if we put in some effort, within a few months we can get back to normal. But here there is a lot of uncertainty.”
  • Both the demand and supply side of the global supply chain are disrupted. “We’re not only seeing a lot of factories shutting down, which affects the supply side, but there are restrictions on demand, too, because you can’t just go out and shop like you used to, at least for the time being,” he said. “And all this is taking place in an environment where supply chains are fairly complex – intricate, interconnected, interdependent, and global.”
  • Longer lead times. “We get close to a trillion dollars of products annually from Asian countries, about $500 billion from China,” Singhal said. “Most are shipped by sea which requires a four-to-six-week lead time. The fact that logistics and distribution has been disrupted and needs to ramp up again will increase lead time. So, it will take time to fill up the pipeline, and that is going to be an issue.”
  • Supply chains have little slack, and little spare inventory. While manufacturing giants such as Apple, Boeing, and General Motors have more financial slack to carry them through a massive economic belt tightening, their suppliers, spread out across the globe, come in different sizes, different tiers, “and these smaller companies don’t have much financial slack,” said Singhal, pointing to a report of small and medium sized companies in China, “which have less than three months of cash. They’ve already been shut down for two months, and cash tends to go away quickly.

“Many of these companies may go bankrupt,” he added. “So we need to figure out how to reduce the number of bankruptcies. Government is going to play an important role in this, and the stimulus package the U.S. has approved will be helpful.”

Trying to get a handle on how stock markets are responding to all that has happened is like trying to take aim at a moving target during a stiff wind. Volatility has increased significantly since February 13, when the Dow Jones index reached an all-time high of about 29,500.

“That’s because we did not expect the pandemic to spread and disruptions initially were low because of pipeline inventory,” Singhal said, noting that since then the Index dropped sharply, to 18,500 on March 23 (a decline of nearly 38 percent), it picked up and was back to 22,000 by March 30. “The same is true of other stock markets. The Chinese stock market was down 13 percent, but they seem to have the pandemic under control.”

While COVID-19 is making it difficult to predict what the market will look like, Singhal has some ideas of which industries will be most affected.

“Travel, tourism, entertainment, restaurants – businesses that rely on people going out—will take a long time to recover, in terms of profitability and stock price, even once the pandemic is contained,” he said. “People are going to be hesitant to travel after all this. Tourism will take a hit.”

Essentials like groceries are surging as people stock up in reaction to being shut in, but this isn’t a long-term trend. Singhal doesn’t expect this trend to continue as shopping habits and store shelves eventually normalize.

Companies that sell basics, with a strong online presence, will do well, “but industries like automobiles and electronics, which have global supply chains and have a hard time replacing specialized, high-tech components will be affected,” said Singhal, who also has suggestions on the most important issues to address and how to help speed up the recovery and bring supply chains back to normal (or whatever normal looks like after this):

  • The ability to bring capacity online, especially for small and medium-sized companies. “Facilities and equipment may need some time to restart,” he said. “Staffing is a big issue. How quickly can you get people back to work? Also, can you get the raw materials and build up the inventory to support production? That may be tough when pent up demand is being released and everybody is competing for limited supplies.”
  • Distribution. Lead times already are long, he notes, and a sudden increase in demand for logistics and distribution services as everybody ramps up again could extend lead times.
  • Prevent bankruptcies. Government programs need to be established (like the U.S. stimulus package) to keep small- and medium-sized firms in business. This concern extends to second- and third-tier suppliers, and large firms like Apple or Boeing or GM, should do the same for their most critical suppliers.
  • Build slack. “Preserve cash, get new lines of credit or draw down lines of credit, maybe cut dividends or stock repurchases,” Singhal said. “And build inventories of critical components.”

Singhal also stresses the need for transparency, up and down the supply chain: “What that means is, companies need to have a good understanding of what is happening to their customers and suppliers, but not just their immediate, first tier customers and suppliers, but also their customers and suppliers, and so on up and down the line.”

It will be very important going forward for the next several months to monitor the health of the supply chain from both the customer perspective and a supplier perspective, because this is a new world, says Singhal, who adds an optimistic postscript, “It’s a crisis situation now, but I think we can put it back together.”


Source: http://www.news.gatech.edu/2020/05/10/why-restarting-global-economy-wont-be-easy

For more coverage of Georgia Tech’s response to the coronavirus pandemic, please visit our Responding to COVID-19 page.

The Contracting Education Academy at Georgia Tech has established a webpage where all contract-related developments related to the coronavirus (COVID-19) are summarized.  Find the page at: https://contractingacademy.gatech.edu/coronavirus-information-for-contracting-officers-and-contractors/

Filed Under: Georgia Tech News Tagged With: coronavirus, COVID-19, delivery time, disruptive, economic recovery, Georgia Tech, lead time, operations, pandemic, small business, strategic sourcing, supply chain, supply chain management, Technology and Logistics

May 5, 2020 By cs

Navy hoping to keep some acquisition momentum during COVID-19

The Navy says the way it is procuring goods and services during the COVID-19 outbreak may help quicken acquisitions later on during the crisis and keep programs on target for whenever it ends.

Speaking at the recent virtual Sea Air Space Conference, Navy acquisition chief James Geurts said the service is injecting money into the acquisition system to keep companies liquid with cash so they can stay afloat. The Navy is also speeding up contract awards.

“We are going to apply all the things we’ve learned during this to accelerate during the recovery phase because ships still need to come out on time,” Geurts said. “We’ve got to do the maintenance, we’ve got to continue to supply lethal capabilities to our sailors and marines and we can’t afford to lag the recovery.”

Geurts said he does not foresee the crisis affecting the Navy’s priorities after things return to normal. The Navy still wants at least 350 ships and it wants to field its Columbia-class submarine. The trick is keeping everything on schedule or close to it through the coronavirus outbreak.

“What’s important is that we don’t let the delay and disruption carry any further than it has to into the execution of our programs,” Geurts said. “There will be delay and disruption. The program teams have looked hard into where we were prior to this crisis so we can separate issues we had going in from issues caused by the crisis.”

Keep reading this article at: https://federalnewsnetwork.com/navy/2020/04/navy-hoping-to-keep-some-acquisition-momentum-during-covid-19/

The Contracting Education Academy at Georgia Tech has established a webpage where all contract-related developments related to the coronavirus (COVID-19) are summarized.  Find the page at: https://contractingacademy.gatech.edu/coronavirus-information-for-contracting-officers-and-contractors/

Filed Under: Government Contracting News Tagged With: billing rates, CARES Act, contract delays, coronavirus, cost reimbursement, COVID-19, disaster relief, DoD, emergency response, FAR, industrial base, innovation, Navy, nontraditional, OFPP, OMB, pandemic, readiness, research and development, small business, Technology and Logistics

May 1, 2020 By cs

DoD expects three month acquisition delays, billions in payouts to contractors

The Defense Department will suffer serious setbacks on developing weapons and pay companies billions of dollars in relief funds as a result of COVID-19.

The Pentagon expects a three-month delay across the board for major acquisition programs, putting a kink in systems like the Ford Class Aircraft Carrier, the Columbia Class Ballistics Missile Submarine and the Next Generation Operational Control System.

“Particularly, we see a slowdown in the shipyards,” Ellen Lord, defense undersecretary for acquisition and sustainment, told reporters Monday at the Pentagon. “Aviation is the most highly impacted sector that we have. Right now there isn’t any specific COVID penalty that we see for a specific program; however, we do anticipate a three-month slowdown in terms of execution.”

Lord said DoD is now starting to look at key procurement milestones that may be impacted by the delays.

Meanwhile, DoD is just beginning to take into account the amount of money in relief funds it will have to pay out to companies unable to do government work because of the coronavirus.

Keep reading this article at: https://federalnewsnetwork.com/defense-main/2020/04/dod-expects-three-month-acquisition-delays-billions-in-payouts-to-contractors/

The Contracting Education Academy at Georgia Tech has established a webpage where all contract-related developments related to the coronavirus (COVID-19) are summarized.  Find the page at: https://contractingacademy.gatech.edu/coronavirus-information-for-contracting-officers-and-contractors/

Filed Under: Government Contracting News Tagged With: billing rates, CARES Act, contract delays, coronavirus, cost reimbursement, COVID-19, disaster relief, DoD, emergency response, FAR, industrial base, innovation, nontraditional, OFPP, OMB, pandemic, readiness, research and development, small business, Technology and Logistics

April 21, 2020 By cs

OMB releases guidance to clarify coronavirus relief act’s contracting provisions

On Friday, April 17 the Trump administration released guidance to clarify how and when agencies can reimburse contractors as outlined in the recently enacted novel coronavirus economic relief legislation.
Click on image above to download OMB Memorandum M-20-22.

The Office of Management and Budget published a memo to supplement Section 3610 of the $2.2 trillion CARES Act, which allows federal agencies to use their funds to give contractors sick or paid leave during the pandemic if they are not able to access their worksites or telework. Although the administration advised agencies to “maximize telework” for contractors, that is not possible for many contractor jobs, including some involving sensitive or classified work. Trade associations that represent federal contractors previously welcomed this provision, but then asked for more clarification.

For applicable contractors, agencies can “modify the terms and conditions of a contract, or other agreement” to “reimburse at the minimum applicable contract billing rates” up to an “average of 40 hours per week [for] any paid leave (including sick leave) a contractor provides to keep its employees or subcontractors in a ready state,” according to the legislation. The new guidance says agencies can use their funds to reimburse contractors from the period of March 27 (when the CARE Act was signed) to September 30, 2020. Initially, the bill did not give a start date.

Additionally,  the Office of Federal Procurement Policy within OMB “has developed [the] guidance to help agencies make rational business decisions that balance the need for contractor resiliency with the need for good stewardship,” Michael Wooten, OFPP administrator, told Government Executive on Friday.  This includes being mindful of the challenges small businesses face and helping contractors secure the correct documentation they need for reimbursement.

Keep reading this article at: https://www.nextgov.com/cio-briefing/2020/04/trump-administration-releases-guidance-clarify-coronavirus-relief-acts-contracting-provisions/164729/

The Contracting Education Academy at Georgia Tech has established a webpage where all contract-related developments related to the coronavirus (COVID-19) are summarized.  Find the page at: https://contractingacademy.gatech.edu/coronavirus-information-for-contracting-officers-and-contractors/

Filed Under: Government Contracting News Tagged With: billing rates, CARES Act, coronavirus, cost reimbursement, COVID-19, emergency response, FAR, industrial base, innovation, nontraditional, OFPP, OMB, pandemic, readiness, research and development, small business, Technology and Logistics

April 20, 2020 By cs

Newest DoD industry guidance clarifies repayments, makes prototyping easier

As part of its ongoing effort to bolster the defense industrial base, the Pentagon has issued two new pieces of guidance — one focused on workers, and one focused on prototype contracts.

Overall, the department has now issued 17 different actions, ranging from basic guidance for industry to memos changing how the department pays contractors, since March 5.

In an April 6 memo, acquisition head Ellen Lord changed the rules for issuing prototype contracts through other transaction authorities.

OTAs are small contracts awarded to companies of any size, in theory targeted at nontraditional defense contractors, with the purpose of conducting research or prototype efforts on a specific project; they are not subject to Federal Acquisition Regulation rules. By comparison, SBIR contracts are targeted at small businesses in order to act as seed money for them to conduct research and development efforts; they are subject to the FAR rules.

Keep reading this article at: https://www.defensenews.com/coronavirus/2020/04/09/newest-dod-industry-guidance-clarifies-repayments-makes-prototyping-easier/

The Contracting Education Academy at Georgia Tech has established a webpage where all contract-related developments related to the coronavirus (COVID-19) are summarized.  Find the page at: https://contractingacademy.gatech.edu/coronavirus-information-for-contracting-officers-and-contractors/

Filed Under: Government Contracting News Tagged With: coronavirus, COVID-19, DoD, emergency response, FAR, industrial base, innovation, medical support, nontraditional, OTA, other transaction agreements, pandemic, Pentagon, prototype, prototyping, readiness, research and development, SBIR, small business, Technology and Logistics

  • 1
  • 2
  • Next Page »

Popular Topics

abuse acquisition reform acquisition strategy acquisition training acquisition workforce Air Force Army AT&L bid protest budget budget cuts competition cybersecurity DAU DFARS DHS DoD DOJ FAR fraud GAO Georgia Tech GSA GSA Schedule GSA Schedules IG industrial base information technology innovation IT Justice Dept. Navy NDAA OFPP OMB OTA Pentagon procurement reform protest SBA sequestration small business spending technology VA
Contracting Academy Logo
75 Fifth Street, NW, Suite 300
Atlanta, GA 30308
info@ContractingAcademy.gatech.edu
Phone: 404-894-6109
Fax: 404-410-6885

RSS Twitter

Search this Website

Copyright © 2021 · Georgia Tech - Enterprise Innovation Institute