The global supply chain, especially the end-to-end one has faced an enormous disorderliness due to the Coronavirus. When we talk about supply chain disruption, we have to consider the daily basic products we use. Every product requires different components until it takes the final shape: the raw material, the manufacturing, packaging, transportation and distribution. Each one has to travel through the ocean, rail, and air before reaching the customers’ hands. Consider each step having its own manifold, globally-connected supply chain network. Any interruption in either one node will affect the whole value chain. In the case of COVID-19, it has affected all of the nodes connected through the China-centric network.
If we consider the case of tissue paper, its demand increased tremendously but couldn’t meet them due to limitations in production capacity and time. The raw material for making the tissue paper we buy at the store is linked by a complex network. The factories may not have enough workers like drivers to acquire the raw materials to the factory, final product to the warehouses or to the stores. This is what is meant by saying that the end-to-end global supply chain has been affected.
The impact is already on. When the disruption was still centered in China, the Center for Global Supply Chain Management has already analyzed it. They could see a supply chain disruption beyond the planned Lunar New Year shutdown. This unplanned shutdown caused a rapid chain reaction throughout the world.
It is now a global pandemic and has become an increasing threat to the financial markets. There are various situations — some average to worst. It is apparent that there will be a significant effect in the short term to the global economy.
The likely thing to happen with COVID-19 is that there will be a disassociation from some long-term supply chain dependencies from the China-centric supply chain network. The trade war had already set the stage to begin the process, and COVID-19 might be the last reason that will force the supply chain redesign. As part of the redesign, there may be a strong urge to bring the supply chain close to customer demand with on-shore or near-shore. Mexico may probably play a more important role than it had earlier if its government can curb and deal with its drug violence and political corruption issues.
There may also be a lot more focus on supply chain resiliency and risk mitigation and global supply chain management in international settings.
There can be an increased demand for more diversification. If there were more diversification of supply chain nodes across the globe already, we would not see the impact of disruption we see now.
It may take two to three months once the virus has passed through the system. China appears to have stabilized the spread, but data transparency is a big issue. We can see the impact through the third quarter before the supply chain stabilizes and normalizes.
Longer-term goals like disassociation from China with a more diversified supply chain network will take a few years at least.
The main point here is that cost should not be the only consideration when establishing the company’s supply chain. There have to be some mitigation strategies as well, where essential commodities have several pathways to markets. These have to be built into the company’s global strategy. Companies have to think through certain what-if scenarios, so they are not caught off guard. They need to be proactive instead of reactive.
People have become globally connected. With the help of a very sophisticated supply chain network, household customers can receive their services and products without any delay. In this process, access to excess inventory and slack capacity is removed. This phenomenon took away elasticity to market demand such that there is no room for any disruption, whether caused by natural disaster or pandemic event. The companies have become dependent on each other’s capacities, or lack thereof. COVID-19 is a perfect example. When this started, this was considered as a “China-only” issue. Nobody collaborated in a way that could have helped proactively or engage in a way that could have prevented the spread, or collaborated on potential mitigation plans.
Being proactive and agile can save the companies from such unforeseen risks of tampering the supply chain system. Sourcing the materials locally can serve the purpose to a large extent but it takes much time, to begin with and of course, nothing comes without a cost. If they can meet the extra cost of sourcing locally and the related processes in the chain they can positively be equipped to face such troublesome situations.
With the current technological innovations and trends in IoT services, we are optimistic that this will pass, and will come back to normalcy with much better resiliency. For now, they think this situation is a great lesson and will have a better global supply chain network that is resilient, agile, and reliable in the future.
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