December 31, 2019, is when the first case of coronavirus was identified in Wuhan, the capital center of Hubei province. Covid-19 is caused by severe acute respiratory syndrome coronavirus 2(SARS-CoV-2) that has spread to other countries in Asia, Africa, Europe, and North America. It was declared a world pandemic by WHO on 11 March 2020. By the end of February 2020, almost 90,000 people had been infected with the virus leading to 3,000 deaths.
In the business world, COVID-19 has brought profound effects and economic turmoil. The global economy and financial implications are being felt through global chain supply, from raw materials to finished products. We have witnessed the mandatory closure of industries, businesses, and factories by the government in support of efforts to control the spread of the deadly virus. The most affected and hit hard of all have been the small and medium businesses that have been left crumbling.
While the COVID-19 pandemic is to blame for the downfall of most businesses, it has been a wake-up call to the business environment. Many organizations are now highlighting the importance of being able to react, adapt, and come-up with crisis management mechanisms to weather situations of uncertainty. The need for better, strong, and resilient supply chains and risk management has now become a top priority unlike in the past.
It has become so hard for industries to evade the impact of the pandemic on the supply chain. It has impeded the logistic movement globally and all industrial sectors are affected by the interrupted supply of required materials. The impact on the manufacturing process so far has been relatively limited. As the recovery process lengthens so does the magnitude of these disruptions increase.
Many businesses are now ready more than ever to prioritize analyzing their supply chains to understand where changes are needed and take effective actions to mitigate against future disruptions. Covid-19 has brought out in the open the missing links and the importance of investing in supply resilience to build stronger long-term operations. Even as we accept what the pandemic has brought upon us, it is of the essence to use what we have learned from the recent events and happenings to prepare for the future.
What we expect to see
The impact of China’s lockdown and its dominance in key areas of manufacturing has exposed the problem with modern sourcing chains. Many companies struggled to pivot due to a lack of flexibility in their supplier base when Chinese factories were closed. There has been a call for better, flexible, and strong measures for business to diversify their supply chains in the future instead of relying on one source.
Supply chains will move closer to home
We will see a decentralized manufacturing capacity with many companies looking to bring production home. Automation and small batch production which have been on the increase are considered cheaper leading several companies to start moving portions of their supply chain back home.
Investment in Digitalization of supply chain
During the pandemic, most consumers shifted to online channels. For businesses to remain competitive even after the pandemic a need for embracing high-tech technology has been the key. Digital tools have helped businesses continue to effectively communicate and manage within remote working environments.
Digitizing the buyer-supplier relationship is a fundamental element for building sturdy supply chains, and will make identifying and recruiting new suppliers far less time-consuming.
There has been a stronger reliance and investment in technology and considerations on sustainability in the supply chain. Operations that had stronger digital infrastructure have fared better in the Covid 19 than those without.
A new survey finds that there has been an overwhelming speed for the adoption of digital technologies and these changes could be here for the long haul. Companies have accelerated the digitization of their customer and supply-chain interactions and internal operations.
Long-lasting Structural Shifts Due to Trade Wars
According to some predictions, China could lose its place as world manufacturing hegemony to Mexico, Brazil, and certain emerging markets in South-east Asia. This could be caused by the initial shock from China-centric supply chains caused by the massive industrial shutdown across the country from February to March.
Trade analytics show China lost the global export market share at an accelerated pace in 2019, as companies moved to other countries. The second cause could be the China-USA trade wars which had already pushed many companies to seek other alternatives.
Even before the onset of Covid-19, foreign bank lending to China was falling while ASEAN experienced a 6.9% y-o-y credit expansion in the first nine months of 2019. Many companies have seen the importance of diversifying their supply chains regionally with a view of avoiding future risks from operating solely in China.
Multiple sourcing will be effective
In the past, there was an over-reliance on single sourcing by most businesses. Manufacturers know now more than ever that it’s vital not to rely on single suppliers. Instead, it’s clear that there is a need to shift gears and instead find ways to make use of components that can be sourced from many different locations.
This will affect and put an end to the reign of China as the current manufacturing power. With the experiences, society and companies have learned that they should not rely on a single supply base and share resources collaboratively to ensure uninterrupted supplies.
Drastically changing an already existing supply chain is not as easy as it may sound. A balance to meet the demand for cost efficiency to create a strong, secure, and robust supply chain is highly needed. In these times, there is a need for companies to seek out a more diversified supplier base while aiming to develop a flexible yet cost-effective supply chain.
What is now needed is a more holistic approach that ensures different perspectives are considered and acted upon. Creating smart and nimble supply chains is the key to building a global trade and investment network that’s capable of weathering future storms.