The not-so-hidden silver lining of the Covid-era supply chain crisis

You knew it was bad when a single container ship blocked almost $10 billion of trade every day for almost a week.

In 2021, as people hunkered down and got weirdly passionate about sourdough starter, supply chain teams had a problem: American consumers were spending, contrary to fears that discretionary spending would halt as a result of the pandemic, and US ports were buckling under the pressure. Shipping container costs ballooned as a result, worker shortages became common, and component scarcities grew all the more regular. Oh, and as if we need to say it: Everything took longer to arrive.

In fact, the supply chain crisis of the Covid era, in which seemingly every possible domino fell down in perfect, worst-case succession, could probably turn even the most optimistic among us into Murphy’s Law converts. “Anything that can go wrong…”

Yet for all the perfect storm-iness of that time, the lessons for CFOs and finance professionals from the crisis still apply.

Lean machines. Rather than attributing all the disruption to just the pandemic, Lance Saunders, a professor of supply chain management at the University of Tennessee Knoxville’s Haslam College of Business, told CFO Brew, “you can even go back a little further,” pointing to the proliferation of a lean, just-in-time manufacturing mentality within many supply chain teams as the primary culprit behind the supply chain crisis of the early 2020s.

That type of production model, in which companies stockpile as little raw material as possible, only buying materials and parts as needed, was pioneered by Toyota in the wake of World War II. When it works, the system keeps inventory costs low, since manufacturers don’t have to pay for storage costs or deal with extra inventory on unfulfilled orders.

The issue, however, was that “companies called themselves ‘lean’ but they weren’t really lean in the way that, for instance, the Toyota system is lean,” according to Dan Pellathy, an assistant professor of practice at UTK’s Haslam College. “Real lean is thinking all the way from the end-to-end supply chain and making sure that the end-to-end supply chain is balanced. US companies were not thinking in that way. They saw ‘lean’ as an opportunity to squeeze inventory savings and to squeeze their suppliers.”

When the pandemic came around, it became clear just how minimal inventory was in a lot of companies’ supply chains, Saunders said.

“That strategy works great until it doesn’t," he said. “It works great when times aren’t really volatile, but as soon as you start introducing volatility—much less all across the supply chain—that’s when stuff starts to break down and you see the cracks in trying to get too lean, to be too efficient.”

Silver lining. If the pandemic quickly revealed gaping cracks with certain supply chain models, it also shored up key relationships. The relationship between supply chain and finance teams was decidedly strengthened.

Before the pandemic, often when supply chain teams tried to make a business case for new investments, the finance side wanted “a nine inning, complete game of how we’re going to get these benefits,” Saunders noted. “And that’s not how it works, right? Because there’s a lot of hidden costs and things like that that could happen that we have to take into account.”

The lack of communication was largely a matter of opposing perspectives, Pellathy said. While finance teams were getting lost in spreadsheets, those on the supply chain side were “totally in the weeds” in operations.

“From an operational point of view [on the supply chain side], we know things could get better, but we’re not communicating that back up to leadership in a way that’s effective,” he explained. “And from a finance point of view, they’re saying, ‘Okay, it looks, on paper, great to have this cost saving, but what does that mean from an operational perspective?’”

The Covid-era supply chain crisis helped finance chiefs realize “that we have to invest in the supply chain long term for what could happen, to protect against ourselves,” Saunders said.

Meanwhile, supply chain leaders increasingly came to the understanding that “we can’t invest in our supply chain without the support of the finance side,” he continued. “It brought an appreciation from both sides about the other [side] and how they need them versus, ‘I can do this on my own.’’

Don’t be doomed to repeat it. For the teams that took the lessons of the pandemic to heart, it didn’t take long to reap the benefits. 

Saunders cites the example of a Fortune 100 company he worked with that built a new production facility in Mexico after Covid in order to have more agility for the more volatile aspects of its supply chain, simultaneously moving some of its production away from Asia.

“That would have never happened pre-Covid,” he said, explaining that the finance team, which was receptive to the proposal, likely would’ve been more interested in getting the lowest cost while punting supply chain concerns to operations people.

But after the crisis, it was a lot easier to convince (or more likely, remind) finance folks “there’s a lot that can happen between Asia and here, including longer lead times, so we know forecasting is worse,” he continued. Or, “Hey, guess what? 130 ships can get stuck outside the Port of Long Beach.”

Get flexible. And to that end, some of the most important lessons CFOs can take away from the crisis are around increased flexibility, Saunders and Pellathy noted.

“My number one key takeaway is to take net present value calculations, crumple them up, burn them. Then take the ashes, burn the ashes,” Pellathy said. “Never use a net present value calculation again, ever. It is crazy.”

Pellathy’s only slightly hyperbolic concern with net present value is that the metric assumes all the cash flows are equal, equally spaced, and have no variability.

“And yet, so much of the decision-making [for supply chains] is based on these kinds of financial analysis,” he continued. “I would say: Update your financial analysis toolkit. There are other ways to measure and understand the risks and rewards of investments.”

Saunders doesn’t want anyone to burn anything, but he encourages CFOs to be resilient, making more room for variability and uncertainty, and staying in close communication with supply chain teams about which hypothetical outcomes need the most investment for prevention.

“Supply chains would be really simple if the actual outcome was the same as the expected outcome,” he noted. In reality, though, you’re not managing the expected outcome, but rather “ranges of outcomes,” and that’s what makes everything so tricky.

That was true in 2021, and it holds true in 2025 as well.

“The tension you have right now is we want to incorporate everything that’s happening into our decision-making,” Saunders said of today’s supply chain landscape. “But if we do, we’re just going to be constantly going from one side…to another.”

Saunders says he asked a chief supply chain officer he works with how he’s thinking about tariffs right now, knowing the landscape is such that “if I try to reevaluate every time something changes, then I’m constantly just going to be changing direction, and that’s expensive too.”

His strategy? “He said: ‘I make a decision and we go with it.’”

This is one of the stories of our Quarter Century Project, which highlights the various ways industry has changed over the last 25 years. Check back each month for new pieces in this series and explore our timeline featuring the ongoing series.

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