The impact of COVID-19 has been swift and devastating to those directly affected. Not just from a health perspective but also for businesses who had to promptly close their doors as the country went into lockdown, particularly those in hospitality and retail. And as we now slowly emerge from these more stringent controls the indirect consequences of the pandemic on global systems and networks, specifically global supply chains are also being felt.
The spread of COVID-19 has affected operations globally in ways that are difficult to model and assess. Many of the affected countries are at the heart of global supply chains and as a result have witnessed depleting (or idling) stock; the net result is that many organisations have simply not been able to meet their contractual obligations on time.
This is because multiple areas have been disrupted. For example, suppliers have been unable to fulfil orders due to labour shortages, including shortages of drivers. There have been transportation restrictions, and restrictions moving from one country to another. This has resulted in stalled production, unfulfilled orders, slower shipments, stock shortages, incomplete deliveries, inflated costs, and less products on the shelf at the retailer.
Manufacturing issues in China
Additionally, it would be remiss to talk about issues affecting global supply chains, without talking about China. Earlier in the year, analysts warned that manufacturing activity in China would face significant disruption due to COVID-19. For example, Apple has 10,000 direct employees in China with almost all the company’s flagship iPhone products being made in the country. Likewise, US car manufacturer, Ford relies on nine auto manufacturer facilities in China. Indeed, auto manufacturers are one of the industries that have been hard hit, due to parts shortages.
Over the years, China’s share of global exports has more than doubled from just under 6% in 2003 to nearly 13% in 2018 according to OECD and World Bank data. However, in the past where China has been viewed as only producing low-end, low-value products, but today China is in the supply chains of many of the high-end products meaning the impact on the supply chains has been and will continue to be significant.
Similarly, a slowdown in China affects the global economy. The country accounted for just over 4% of global GDP in 2003. By 2018, it accounted for nearly 16%. The global supply chain is not just vulnerable to China’s position as the world’s largest producer of goods and parts, but also as the world’s second largest consumer. Weaker demand from China further complicates the impact on global supply chains.
Diversification and resilience will be the watchword going forward
Containment of the virus is important for disrupted supply chains as they can only return to normal once it stops spreading. This will only really happen once a vaccine has been developed. While COVID-19 is not the first public health emergency to impact global networks, its severity highlights a need for greater supply chain diversification and resilience. Natural disasters similarly prove this point: the 2011 Tōhoku earthquake in Japan exposed the dependence of global motor vehicle companies on auto parts manufacturing in the country.
The need to diversify supply chains and build in greater resilience will be critical for long-term survival. Greater visibility into complex supply chain activity will equip organisations with the knowledge to reduce supplier exposure and risk, which will help them vary their supply chains. New technologies are emerging that allow conglomerates to manage partnerships with a wider range of suppliers, from global corporations to smaller start-ups. Data shows that supplier diversity not only helps to reduce costs but also enables organisations to innovate and deliver more value to end users.
A growing number of organisations are now incorporating diversity and visibility into their wider supplier collaboration and innovation programmes. There is a greater focus on regional suppliers to mitigate risk. COVID has exposed the fragility of long distance, international supply chains. In addition, governments are starting to demand local sourcing, for example drugs and PPE.
So, what tips would we give to organisations both now and in the future. In the short-term as we start to emerge from COVID-19 organisations should look to:
- Create cross-functional and/or cross border SWAT teams to deal with supply chain shortages
- Build additional buffers of inventory and raw materials
- Develop expected-case and worst-case scenarios
- Explore additional delivery routes and how they can source locally
- Explore technologies and partners who can help them to diversify and innovate throughout their supply chain.
Digitally transforming your supply chain
Understandably, most companies are currently focused on the near-term, with their strategies addressing the COVID-19 situation as a temporary problem. But, if businesses look at the current situation strategically and align smartly, it will certainly help to propel future growth and competitive advantage for many years to come. For example, this could help organisations to digitise and enhance faster decision making and execution.
As a result, organisations will gain better end-to-end supply chain visibility. By collaborating more with their suppliers, they could build new products, services and innovations to deliver more value to their customers. Companies can develop better digital capabilities that enable better sourcing, collaboration, and supplier management. Finally, this could enable more eCommerce and a better balance with more traditional operations combined with online channels to deliver an omni-channel approach.
Written by Nick Pike, chief revenue officer, Vizibl