Covid-19 Vaccine Availability: Supply Chain Bullwhip Effect

Originally posted on December 12, 2020 9:11 pm
Updated on December 12, 2020 11:23 pm

Will there be enough Covid-19 vaccine doses available in time for our 2021 travel plans? Now that the coronavirus vaccine is approved and ready for release, we know that FedEx and UPS are cooperating to facilitate a rapid distribution to all 50 states (the cooperation is quite simple, they split the country in half). The question on everyone’s mind…

When will I be able to get a Covid-19 vaccine shot? Late Spring 2021 seems to be the best estimate for most Americans. There are certain high risk groups that are first in line to receive the early shipments, for example medical workers and the elderly. For the rest of us, the initial wave of doses will probably be very hard obtain (similar to getting testing kits during the early April / May months).

The Bullwhip Effect

Have no fear, though. We are confident that the classic supply chain Bullwhip Effect will kick in here.

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The Supply Chain Bullwhip Effect, S. Kuttappa

Every first year MBA student learns a few basic concepts and frameworks in operations research. One is the infamous network effect, which explains why sites such as Craigslist, NYC rental site RentHop, condo and co-op site RealtyHop, and recently IPO’ed Airbnb build a moat that protects their business. In these two-sided marketplaces, the value of the service is minimal when there are very few users, but continues to expand as more users join the service.

The Bullwhip Effect is another classic. Even a small shock to customer demand can rapidly lead to over-production, as each player along the complex supply chain attempts to adapt to the new demand. Even with all of today’s technology, supply chain communication has natural lag between the various players, and everyone’s individual incentives amplify the problem.

Producers, distributors, and retailers face a problem meeting demand and have a tendency to over-order in order to prevent future stock-outs. However, the latency between getting production or shipments from each upstream provider means the new supply will come late. Therefore, each player compensates by securing even more of a buffer to ensure they have enough supply. When the supply finally comes, everyone will find they ordered too much!

It is nearly inevitable and has repeated itself throughout history. In the early months, you will find it almost impossible to receive a vaccine dose. However, with some patience, we can trust the bullwhip effect to saturate the market with an oversupply. By mid-2021, the coronavirus vaccine should be extremely easy to obtain, for those who want. The great challenge will be convincing everyone to take it, so we can all finally return to the new normal. Until then, stay safe!

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