How the COVID-19 Pandemic Wreaked Supply Chain Networks?

The pandemic wave of COVID-19 has exposed how volatile is our supply chain networks. It has also raised several questions that have been avoided for decades. Therefore the world needs to analyze the situation and review it for better solutions. While free and open channels of goods and services is a simpler idea, it is not without risk vulnerabilities. Soon after COVID-19 started in China and spread to other major cities around the world, businesses took a major blow. Major shutdowns, roadblocks, and industry closures led to the disruption of shipping trade routes and export from China. While alternate routes were proposed at the time, yet one cannot accurately assume how risky it could be. And acting as a single, dominant and busy hub for manufacturing plants and supplies, finding an alternative at short notice is even harder.

One may wonder why we have dispersed trade units and a vast supply chain. Well, the answer is simple: as nations gained independence from their colonial overlords, they demanded free trade to reduce the power of the colonial unions. Plus, as the market and industries expanded, companies believed that adding raw materials at each stage of production can reap more profits for companies than making the whole thing in one place. For example, cotton is grown at a particular location, thread at a different factory, and then the thread acts as raw material for the fabric and dying companies and finally sent to major fashion houses to make clothes. Or consider aluminum cookware. Mining of bauxite, manufacturing aluminum sheets, and molding them into required objects all happen at different zones. The bauxite may be from Australia, while a pressure cooker may be made in India. So if a single sector stops, it affects other industries too. Because of this interconnection and impact on the supply chain, we may face inventory shortages and delays, stock deficiency shipping disruption, and increasing costs and uncertainty about future volumes. As a result, it also affects the economy of a nation.

From the above illustration, it must be evident that in a standard supply chain, raw materials are sent to factories where goods are manufactured. The end products are then either send for further production or shipped to warehouses for storage and then to retailers or customers. Though the local manufacturer manages to survive in the wake of a pandemic, on a national level, this did not help much as they were not prepared for pronounced lockdown periods. Not only that, but different countries also face different magnitudes of shocks for various reasons due to the disruption. The U.S. suppliers that started experiencing production delays in March. While other countries are having acute shortages of PPEs and testing kits, Germany teamed up with Swiss global diagnostics giant Roche to make test kits for mass testing of its citizens. While other industries suffered, countries like Vietnam and South Korea’s healthcare industries boomed. Several developed nations, inturn, had to knock doors of Asian countries for medicine and mask supplies. Other than those, there were other dramatic shifts due to shortages due to manufacturing constraints, priority on the basis of need, artificial market deficiency due to stockpiling and hoarding. Farmers are burning agricultural produce, and whole sellers are destroying their stocks due to lack of demand and storage facilities.

The future of supply chain distribution lies in on the decision-makers. There will be an emphasis on the decentralization of manufacturing capacity and a rise in home production. Recently Japan passed a stimulus bill allocating US$2.2 billion to help Japanese manufacturers shift production out of China. Apple is also considering establishing nearly half of its units outside China. Global firms will diversify their supply chains both at a local and international scale, to prevent any shortages and supply monopoly at a higher cost in the future. Companies, firms, and startups will now invest in having a contingency plan with crisis management metrics and protocol. They shall familiarize the CXOs and other board heads with all levels and tiers of the supply chain and the critical products of their respective companies. Precautionary and proactive measures will have to be taken to ensure that the company has both the inventory and the budget to survive a severe supply chain disruption. And markets will opt for preserving emergency stock at multiple strategic locations. Thorough auditing needs to be done and address the vulnerable zones.  Management teams need to identify and understand the activities and processes necessary for effective business operations. The must investigate how risk-rating suppliers are planning to monitor and respond to a future crisis, and how long will it take for them to push production and supplies back to normalcy and figure out if they have adequate financial resources.

While the time post-pandemic recovery will not be lenient of China, the supply chain will go through a transformation. Leaders and the government now need to comprehend the situation and come up with solutions that empower organizations to counteract when faced with an emergency, effectively. Organizations and companies across all verticals need to take notes and utilize them to explore alternate options.