Impact of COVID-19 on Manufacturing and Supply Networks — The Case for

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AI-Inspired Digital Transformation

Manufacturing and Supply Networks need to embrace AI to combat uncertainty and become more resilient
to disasters

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Thorsten Wuest1, Andrew Kusiak2, Tinglong Dai3, and Sridhar Tayur4
1
Benjamin M. Statler College of Engineering and Mineral Resources, West Virginia University, Morgantown, WV
26506, USA, thwuest@mail.wvu.edu
2
College of Engineering, The University of Iowa, Iowa City, IA 52242, USA, andrew-kusiak@uiowa.edu

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3
Carey Business School, The Johns Hopkins University, Baltimore, MD 21202, USA, dai@jhu.edu
4
Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA 15213, USA, stayur@cmu.edu

Abstract

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Manufacturing and supply networks worldwide are undergoing digital transformation under the
umbrella of Smart Manufacturing and Industry 4.0. Just as companies embrace digital technologies

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and leverage the opportunities presented by Artificial Intelligence (AI) forming digital supply
networks, the world has been hammered by one of the biggest interruptions in the modern history—
the COVID-19 pandemic. Many businesses are facing existential threats and scrambling to survive in
the short term. Conceivably, some are inclined to scrap AI initiatives and projects as non-essential in
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these horrific times, as evidenced by canceled and delayed consulting contracts with the projected loss
of US$30 billion in 2020 alone. In this article, we make the case that digital technology and AI can
mitigate the adversities and strengthen the resiliency and preparedness of manufacturing and supply
networks in the future.
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Keywords: COVID-19, Manufacturing, Supply Chain, AI, Digital Transformation

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Manufacturing and supply networks worldwide are undergoing digital transformation under the
umbrella of Smart Manufacturing and Industry 4.0. Just as companies embrace digital technologies
and leverage the opportunities presented by Artificial Intelligence (AI) forming digital supply networks
(Sinha et al., 2020), the world has been hammered by one of the biggest interruptions in the modern
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history—the COVID-19 pandemic. Many businesses are facing existential threats and scrambling to
survive in the short term. Conceivably, some are inclined to scrap AI initiatives and projects as non-
essential in these horrific times, as evidenced by canceled and delayed consulting contracts with the
projected loss of US$30 billion in 2020 alone (Consultancy.org). In this article, we make the case that
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digital technology and AI can mitigate the adversities and strengthen the resiliency and preparedness
of manufacturing and supply networks in the future.

Indeed, the COVID-19 pandemic challenges a commonly raised argument against wider adoption of
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AI, concerning its implication for a “jobless future” (Peha, 2019). The job losses in the US exceeded
33.5 million by May 7th, 2020, cutting all the jobs created in the past decade (Morath & Guilford,

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=3593540
 2020). Some 52% of Americans under the age of 45 have experienced job losses, reduced working

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hours, or furloughs (Swasey et al., 2020). Given most of the job losses have been concentrated in
sectors with low AI and digital penetrations, one may argue that AI-inspired digital transformation
could have helped to avert or at least mitigate such steep losses.

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Why Is This Time Different?

Before taking a closer look at the impact of the COVID-19 pandemic on manufacturing and supply
networks, the impact of recent major pandemics and significant outbreaks is highlighted. It has to be
noted that limited research exists on the specific impact of pandemics on manufacturing and industrial
supply chains (Ivanov, 2020). To start with, the often-cited “Spanish Flu” H1N1 pandemic (1918-

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1920) raged during the tumultuous final days of and following World War I, with some 500 million
people infected (Karlsson et al., 2014). While some argue that the world was globalized in years leading
to the war, sentiments towards global trade rose during and after the conflict (Lindert & Williamson,
2003). Reports indicate that the Spanish Flu pandemic has led to increased wages in manufacturing

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(Garret, 2009). One possible explanation for such limited reporting is the transition from wartime
production back to regular operations during this pandemic. The SARS-CoV (2002-2003) outbreak

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was the first in the twenty-first century and led to a rapid, collaborative global response to develop a
vaccine (Viret et al., 2003). A key difference between the 2002 SARS-CoV outbreak and the current
COVID-19 pandemic stems from the evolution of the global supply chain: In 2002, shortly after
joining the World Trade Organization (WTO), China was manufacturing predominantly low value-
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added products, e.g., textiles and plastics products; by 2020, however, China has emerged as a
manufacturing powerhouse supplying crucial industrial components and high value-added products
from medical equipment to smartphones to unmanned aerial vehicles. The economic impact of SARS-
CoV on the global economy in 2003 was estimated to reach US$ 40 billion (Lee & McKibbin, 2004).
However, (Keogh-Brown & Smith, 2008) argued that the economic impact was less severe than what
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early models predicted. The “Swine Flu” H1N1/09 (2009), the last recorded pandemic, had a
significant impact on global trade and manufacturing. Measures similar to, albeit not as severe as, the
ones seen today were considered, including a two-week quarantine of potentially infected workers.
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The MERS-CoV (2012-2013) outbreak, despite its higher mortality rate, was much less widespread.
Hence, its impact on global manufacturing and supply networks was not severe, partly due to the
relatively low connectivity of the affected areas with the major world economies.

The COVID-19 pandemic has emerged in a world that is now more entangled than ever, with global
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trade, business travel, and tourism booming prior to the pandemic. The virus is novel with no vaccine
or remedy available, and the nature of spread and mortality is being researched (Gates, 2020). Decades
of globalization and lean process optimization in manufacturing have led to complex, multi-tier, and
fragmented supply networks and reduced (optimized) inventory levels. Smoothly functioning supply
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chains and operations took precedence over the possibility of deep disruptions. Disruptive events such
as terrorist attacks and natural disasters differ from pandemics as they are localized in space and
contained in time; such local disruptions can be mitigated with assistance from undisrupted
communities. A pandemic, however, impacts the entire world such that even the wealthiest countries
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find themselves scrambling for limited resources, often against less-developed countries (Bradley,
2020).

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=3593540
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Efforts aimed at containing the COVID-19 pandemic have given rise to new measures such as stay-
at-home orders and travel bans around the globe. Their direct impact on manufacturing and supply
networks is dramatic and unprecedented. Millions of employees deemed non-essential by their local
governments have been mandated to telework with little to no advance notice. Relative to other sectors,

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the higher education sector has adjusted their operations resiliently. For example, in the US, hours
after the pandemic was announced, universities swiftly shifted to online learning. Digital platforms—
which had been in place for decades and fast evolving—enabled this rapid transformation involving
asynchronous and synchronous instruction. New knowledge has been created, stored, and
disseminated in the form of digital lectures and videos, all scaled up and distributed across academia.

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Major manufacturing companies, including Airbus, BMW, Boeing, Ford, GM, and Volkswagen are
shutting down factories and lowering manufacturing capacities. Should they be able to produce
remotely with a network of human operators, many of such shutdowns could have been averted. The
US has involved the war-time Defense Production Act to ensure essential medical supplies and

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equipment will be produced. Manufacturing companies, research laboratories, and universities are
sharing resources and retooling their systems to support the effort. Manufacturing and supply

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networks across most industries are impacted by COVID-19 and/or the mitigation measures enacted
by governments, companies, or health systems (see Figure 1).
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Defense manufacturing

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Figure 1. Manufacturing and supply networks are impacted by COVID-19 at various stages.
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A common digital platform would allow for seamless sharing of resources. For example, GM and Tesla
are ramping up their production of ventilators. Essential businesses are faced with challenges, including
complying with the directive for workers to remain 6-ft apart. In most cases, this is incompatible with
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a conventional manufacturing environment as they have been optimized for space and flow blissfully
ignoring how these can in fact be the very opposite of optimal in a different scenario such as what we

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=3593540
 are experiencing today during the pandemic. Sick or quarantined workers, as well as supply

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interruptions of critical components and materials pose even greater challenges. Unforeseen rapid
changes in demand for home supplies (e.g., paper towels, hand sanitizers, toilet paper) and more
importantly healthcare supplies (e.g., face shields, masks, protective gowns) and complex medical
equipment (e.g., ventilators) have affected all regions, resulting in surges of locally produced supplies.

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Yet, it would be absurd to run operations regularly as “designed for pandemics”; what we are saying,
therefore, is that these challenges could be addressed with the AI-enabled digital transformation (see
Figure 1), as evidenced in the redesigned factories in post-pandemic China, with remotely supervised
human-robot networks that meet the social-distancing guidelines (Economist, 2020).

Opportunities for AI to Mitigate Impact on Manufacturing and Supply Networks

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The AI-enabled digital transformation provides an opportunity to address product lifecycle issues,
including design, manufacturing, sustainability, and resilience. The adoption of AI-enabled
technologies results in increased connectivity, transparency, and visibility across digital supply networks.

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This, in turn, increases the reactivity and resilience of complex global digital supply networks.

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Smart factories, with their digital twins, process automation, and robotics are by their nature designed to
function with a skeleton crew. Even if the cost of operating smart factories in an unmanned mode for
an extended period could increase, the measures such as stay-at-home orders could be implemented
with minimal impact on the factory output and efficiency. In addition, the manufacturing resiliency
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practices would allow for retooling the factory to produce repurposed, high-demand products such as
ventilators in automotive factories (Kusiak, 2019).

Automated material and transportation systems, including driverless trucks, cars, AGVs, and robotics in
factories, warehouses, and highways are another component mitigating the challenges posed by
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COVID-19 to manufacturing and supply chains. They make the factories and streets less crowded and
thus naturally support measures such as social distancing while ensuring operations of the integrated
digital supply networks.
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AI is suited for automated design of new products and processes, e.g., design of new drugs and vaccines.
In the manufacturing industry, design adaptations have become a necessity in the absence of key
components, manufacturing resources, and rare materials. For example, some components of medical
systems, originally manufactured in elaborate injection molding processes and sourced from overseas
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suppliers, are currently not available. To address the shortage these critical components might need to
be redesigned for local additive manufacturing.

AI-based predictive tools forecast demand, identify shortages, and bottlenecks before they realize, and
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thus provide opportunity to react to avoid major disruptions. Such tools, when deployed alongside
pandemic dashboards and epidemiological models, can help firms with factories, distribution centers,
and consumer markets organized around the globe to predict pressure points and shift their human
resources, inventory levels, and supplier bases proactively.
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This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=3593540
 Predictive maintenance offers insights into probability, timeframe, and nature of issues affecting

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manufacturing. AI-supported remote condition monitoring solutions are emerging in the
manufacturing industry. The status of equipment is remotely evaluated, and actions such as scheduled
replacement of parts and maintenance operations are generated. This also reduces the travel needs of
maintenance experts to assess manufacturing assets—a mode of operations that prevails in practice.

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Such solutions are needed amidst travel bans, supply shortages, and stay-at-home orders.

Virtual and augmented reality solutions enhance remote support, training, and interactions immersed
in a realistic environment. Critical issues in manufacturing call for human expertise for inspection of
the status of assets and processes. Furthermore, training of operators requires direct interactions with
equipment which are often infeasible during pandemics. Virtual and augmented reality enables the

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trainee to obtain direct interactive experience remotely and allows the local expert to troubleshoot
complex problems in collaboration with a remotely connected expert.

Wearable devices and AI-powered vision systems provide the capability to monitor workers safety,

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including the adherence of hygiene and social-distancing guidelines (Naughton, 2020). Wearables,
including the augmented reality solutions and smart watches offer personalized tracking of health

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status of employees. The surveillance data collected in such a crowdsourcing fashion may provide early
warnings for potential threats and spread of infections. The latter implies that personal data and
information protocols are observed.
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AI-based Digital Technologies
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Supply interruptions

Figure 2. Mitigating the impact of COVID-19 with AI-based digital technologies.

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Figure 2 summarizes the extent to which AI-based digital technologies address the impact of COVID-
19 on manufacturing and supply networks.
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This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=3593540
 ed
Challenges for AI to Mitigate Impact on Manufacturing and Supply Networks

The opportunities offered by AI are promising. However, there are challenges to be considered. First,
many AI models require historical data. Given the unprecedented nature of the current crisis, such

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data might not be readily available, especially if the events are not directly disease-related, e.g., changes
in demand for medical supplies. However, most of the AI-enabled technologies are not pandemic-
data-dependent, e.g., vision systems for co-bots.

Second, the shortage of a skilled workforce needed to spearhead and implement AI-related projects in
a manufacturing and supply network, as well as manufacturing experts familiar with the detailed

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process and operations to guide the model development. This challenge might be naturally mitigated
with retooled workforce and fast-growing unemployment.

Third, data quality is a challenge as some data sources might be corrupted and biased, thus making

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reliable predictions difficult. Besides random factors, the data quality could be low due to lack of
testing, delays in reporting, different reporting standards, and data-privacy regulations. A data-driven

control data quality.

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model based on low-quality data is not accurate and robust. Measures need to be taken to assess and

Finally, many businesses are in the process of implementing lean process solutions. Operating with low
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or no safety stock, lack of cash reserves, and knowledge gaps in the manufacturing integration are
common across industries, often at the cost of supply chain resiliency. Though the lean and AI-inspired
digital transformation may complement each other, some of the traditional drivers of lean production
may need fine tuning. Long-term losses should be carefully evaluated, while planning short-term gains.
The benefits of lean systems should not limit the ability of a corporation to respond in crisis.
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Most Impacted Industries

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The COVID-19 pandemic has impacted a myriad of industries (see Figure 2). Among the hardest hit
have been service industries, including tourism (e.g., airlines, cruises, and hotels), entertainment (e.g.,
movie theatres and theme parks), and hospitality (e.g., restaurants and coffee shops). Next, the most
impacted industries in the manufacturing and supply chain space are considered.
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The manufacturing domain is broad with varied impact on different stakeholders. The pharmaceuticals
manufacturing industry is tasked to identify, design, manufacture, test, and distribute drugs and
vaccines in response to the new virus. As a highly regulated industry that depends on global suppliers,
it has been severely impacted. International, national, and regional regulations on testing and
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compliance have been adapted. Entrepreneurs have stepped in to accelerate progress, e.g., the Bill &
Melinda Gates Foundation has provided support for seven new manufacturing facilities involved in
new vaccines, knowing that at most one or two of the vaccines will be useful. The labor-intensive
agriculture and food processing industry faces a shortage of seasonal workers while at the same time
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experiencing a surge in demand due to people stocking-up food items amidst the stay-at-home orders.
The shortage of workers for food picking is impacted by the travel bans, quarantines, social-distance

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=3593540
 guidelines, and increasingly, infections among workers – as we recently saw in various meat processing

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plants. The automotive industry has been hit particularly hard (Dressler, 2020). Whole plants are
shutting down due to safety concerns as well as diminishing demand. Some factories are retooling their
operations and transition to manufacture of medical components, parts, and systems. The medical
equipment industry is experiencing an unforeseen surge in demand and is struggling to ramp-up

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production amidst disruptions of critical components from the domestic and international suppliers.
The same is true for paper product manufacturers, especially toilet paper manufacturers, which
experienced a transition from a steady demand for consumer and business products to predominantly
consumer variants. Both differ in quality, packaging, and raw materials. Manufacturers are struggling
to keep up with the demand for these essential products. The aircraft industry is suffering from a steep
drop in demand. Aircraft manufacturers have ceased operations at several facilities. The defense

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manufacturing industry stands out to some degree as it is largely deemed essential and thus is required
to keep operations running. Many defense contractors are small- and medium-size manufacturers and
the industry is not as dependent on the global supplies and thus less prone to sudden drops in demand.
However, the challenges of social distancing and sick workforce remain. For small companies without

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the digital infrastructure and resources in place, paired with increased cybersecurity requirements for
defense contracts, remote working is often not a viable option.

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Essential for the global supply networks, logistics providers are impacted by rapidly changing
regulations, such as trade restrictions and demand shocks. Trucking operations are faced with
unavailable services along the highways, such as showers and bathrooms. Aircraft crews are having
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issues with immigration. Workers in the logistics industry are exposed to the increased risk of
contracting the virus while providing essential services to the society. The digital service industry is
experiencing an unpreceded and rapid demand growth for their services. Digital video-conferencing
tools are rolled out broadly, used by universities to deliver lectures, and companies to virtually conduct
business. Distance learning and collaboration platforms are scaling up to accommodate the increase in
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the volume of traffic and users. Software-as-a-service (SaaS) and Industrial Internet (II) platform
providers offer easy sign-up, minimal barriers for new users, and scalable infrastructures. The system
integrators are installing gateways and hardware to facilitate remote access and data exchange at
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factories.

Conclusion and Outlook

It is too early to account for the full impact of the COVID-19 pandemic on manufacturing and supply
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networks, yet it is safe to say they have been and will continue to be disrupted. Many companies are
facing existential threats and scrambling to survive in the months to come. Scrapping non-essential
projects and initiatives without short-term impact is often the first reaction for many. This might not
be the best way of moving forward, as the AI-inspired digital transformation and the transition towards
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digital supply networks (Sinha et al. 2020) can mitigate many of the current challenges. In the short
term, basic AI technologies can keep the lights on in the factories, enable remote control of the shop-
floor activities despite potentially large numbers of sick or quarantined employees and required social
distancing measured. Collaboration between companies in need and providers experiencing a rapid
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increase in demand can build relationships versed in trust, serving as a foundation for long-term
collaborations beyond the unfolding crisis. However, small- and medium-size manufacturers often

This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=3593540
 have fewer options given their resource constraints. Here, policymakers and governmental stimulus

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packages are tasked to support the investment needed to keep companies in business and facilitate
their transformation towards digitization.

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References

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York Times, April 9th, 2020.

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This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=3593540
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This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=3593540