COVID-19 and the Global Supply Chain: The Struggle Continues
Global supply chain professionals are still burning the midnight oil trying to protect companies, identify opportunities, and shift expenses to meet revenue requirements. The work is arduous and complicated
and hasn’t died down since the early months of 2020 when COVID-19 first began changing our industry.
The unfortunate reality is that it looks like we will continue to have long days and stressful nights for months to come. There’s no clear end in sight for the virus and the challenges it creates. Global supply chains are trying to respond, but even these efforts are creating confusion and harm.
It’s a complex relationship that, when stressed during such black swan events, makes it even harder to predict, prepare for, and control.
Countries Are Struggling with Balance
Most supply chains in operation today are global, especially when you look upstream to the collection and use of raw materials. Unfortunately, that doesn’t mean the countries involved in these supply chains are thinking of a global presence or implications in their reactions to the coronavirus.
That isn’t necessarily a fault or negative from the perspective of controlling the pandemic. However, it does restrict how supply chains can respond and what’s available. Multiple studies and reports have noted that attempts to balance economic and health concerns are causing supply chain frictions.
Your job is to look and learn and source alternatives as you understand what is happening at each point in your supply chain. Prioritizing public health measures can have immediate impacts on supply chains as different buyers and sellers are impacted by staying home. However, an economic focus could lead to more significant losses as health outcomes are more severe, and stay-at-home orders extended.
There’s no clear solution to the current pandemic. The one core lesson from COVID-19 will hopefully be the need to have a plan that prioritizes health and science, while also striving to improve health and economic opportunity during times of plenty.
India May Be Your Next Partner Location
One significant global shift, due in part to how countries are reacting to the virus, is the potential for India to supplant China for a substantial portion of manufacturing and production.
India was already benefiting from strained U.S.-China relations due to the ongoing trade dispute. The country has been developing as an alternative source for years, and the Harvard Business Review notes that the pandemic has sped up companies from North America and Europe seeking out Indian partners as Chinese supply chains were disrupted.
Its production facilities and capabilities are getting a renewed look with the potential for the virus’s return in China. Many are now realizing, for the first time, that companies in India are working with NASA’s Jet Propulsion Laboratory, building iPhones, and significantly expanding into green transportation and power capabilities.
The exact shape of these supply chains will depend on your business operations. India still gets many of its raw materials from China — including roughly 70% of materials used in generic prescription drugs. Some supply chains could shift away from China altogether. In contrast, others have become more complex and have slightly longer lead times to avoid issues at the final stage of product distribution.
Dominant Players Face Significant Risks
COVID-19 demonstrated that consolidated power might be a liability for large supply chains, especially when considering the many small players that depend on these chains. The same is true for the marketplaces that control significant portions of supply chains.
Amazon is perhaps the most obvious lesson in this. Its initial response in the U.S. was to dramatically reduce what kinds of goods it would accept from third-party wholesalers. For some, this meant that there was over a month when they could only sell the inventory Amazon had on hand. After that, stores were paused, and income stopped.
For small sellers, there was immediate harm and potential to ruin the business. If Amazon had continued to struggle, and the ban lasted longer, it could have quickly created an e-commerce gap. Shutting down sellers would have sent a shockwave up the supply chain through distributors, carriers, manufacturers, and others. These are beyond other issues in its business model and control over different businesses within its supply chain.
COVID-19 exposed a gap in business models that were overly reliant on a single sales channel. We’ve seen growing interest in 3PL services to prevent this from happening again. For many, it was a lesson they learned through some pain. For others, it was one learned too late to save.
Prepare for Its Return
Unfortunately, it looks like COVID-19 will return to many places around the globe due to internal country measures as well as travel. As long as we’re in the “pre-vaccine” supply chain stage, companies should plan for additional measures such as business shutdowns, shipping lane reductions, and disruptions in raw material and productions.
Estimates vary on when the second wave will hit different markets, but most put it returning with two to three months. So, just as people and businesses are trying to return to normal, we may see the renewed disruption.
Every gap left today will compound into risk and harm tomorrow.
Companies must start to work on their supply chains to introduce and source alternatives, find additional customer segments, and balance lean operations with elements such as having enough inventory and alternative distribution to fill orders when a supplier or marketplace fails.
The impact of COVID-19 isn’t over, just on pause for some. Your efforts today will determine the success of your supply chain in the coming months and how likely you are to be safe and have the potential growth in the rest of 2020 and 2021.