Global supply chains form the backbone of modern economies. For years, these networks have helped us get products from across the world to our doorsteps. While this has definitely allowed us to live a quality life, the dark side of these interwoven networks has come to light in recent times. The limitations are such that if one link of the supply chain network happens to weaken, a domino effect is triggered that can lead to the complete collapse of economies. This is exactly what we are seeing in the wake of COVID-19. The destruction caused by the pandemic is rumbling through our world, disrupting supply chains and shutting down businesses.
Here’s a breakdown of the impact COVID-19 has had on every stage of the supply chain.
The Chinese effect on procurement and production
Considered to be the ‘de facto’ factory of the world and now the epicenter of the coronavirus, it’s no wonder that businesses that source or produce in China are the ones hit the hardest. China contributes around 17-20% to the world GDP — a statistic that showcases the damaging effect that this crisis has had on businesses that are reliant on China for their everyday operations. The hunt for lower-cost, efficient production has resulted in the consolidation of risk, which has caused industries to come to a standstill.
Global shortages
Modern logistics have made it easy for economies to engage in import manufacturing and exporting. However, since transporting raw materials and finished goods has become a herculean task in the COVID environment, there is a real possibility of global shortages of essentials. For instance, India is the leading global supplier of generic medicines. But, around 70% of raw materials for these pharmaceuticals are imported. With restrictions on transportation, the world may be on the edge of a global shortage of this life-saving commodity.
Distribution disruption
Lockdowns and curfews across nations have already led to labor shortages in warehouses. Additionally, fear and uncertainty have pushed customers to stockpile essentials, pressurizing supply chains that are not prepared for such spikes in demand.
The way forward: How supply chains can cope with COVID-19
The pandemic has brought the weaknesses of global supply chains to the forefront and made companies realize that a change was long overdue. Some of the ways companies can make their supply chains more resilient are:
Digitizing supply chains: Technologies such as IoT, blockchain, artificial intelligence/machine learning-enabled demand forecasting, AGVs, and drones, among others can help to reduce dependency on labor across the supply chain.
Enhancing risk management capabilities: Organizations must be prepared for all future contingencies that might lead to supply disruptions. Modeling cost structures, monitoring performance data, and providing visibility into value chains are some ways to minimize the risk.
Performing simulations: Simulating supply chain networks before implementation can help businesses identify the most efficient strategy. Companies must ensure that this strategy is adaptable to current and future constraints. Additionally, stress tests must be undertaken to make supply chains more flexible and resilient.
Diversifying operations: Companies must reduce their dependence on one country for sourcing or delivery, and explore other avenues so as to reduce the risk of failure.
Although a pandemic is a grim situation for us all, it has shown us that there’s always room for improvement. During this time, businesses must reflect on the weaknesses of their supply chains and devise their future strategies accordingly. Yes, these situations are nearly impossible to predict but we can still learn lessons from our present and make the best of technology to ensure the robustness of supply chains even in the face of adversity.
Sources:
● https://www.entrepreneur.com/article/349229
● https://www.imd.org/research-knowledge/articles/supply-chains-adapting-to-covid-19/