Empty shelves at the supermarket, medical supplies shortages, delayed deliveries, and production stoppages are just a few examples of how COVID-19 has disrupted the global supply chain. Environmental disasters and viral outbreaks throughout history have offered several valuable lessons in supply chain and risk management that may help us navigate the current crisis.
For example, the devastating earthquake that hit Japan in 2011 had a serious impact on automotive manufacturers who relied heavily on inputs from affected Japanese factories. However, public health experts say that COVID-19 is unlike anything we have experienced before, based on its overall scope and duration. As such, governments have responded with non-essential business closures and social-distancing measures to slow the spread of the virus, impeding critical supply chains from operating effectively.
Carleen Greenidge believes a well-functioning supply chain is necessary for businesses to carry out their promises to consumers. Greenidge is a highly successful logistics entrepreneur with over thirty years of experience in the logistics industry.
Since launching the first business in 1995, Greenidge now owns a range of companies, including Road Scholar Staffing, Yellowstone Transportation Group, Mango Capital, Speedy Dispatch Solutions, JEP Insurance Group, Greenidge Transportation Group, and Exact Accounting Solutions. Here, Greenidge discusses the major ways in which the coronavirus pandemic has impacted the exchange of goods around the world.
To ‘flatten the curve’ and avoid overwhelming the healthcare industry, government officials around the globe have urged individuals and businesses to practice social distancing. At the same time, several states are discouraging gatherings of more than ten people, which is a clear indication of the risks posed by congregating in large groups. While white-collar employees can easily shift to remote work, factory workers do not have this same luxury.
With China’s production economy brought to a halt, American manufacturers have an opportunity and a responsibility to remain functional. “Supply chain leaders must protect their employees,” says Greenidge. The Centers for Disease Control and Prevention (CDC) have developed thorough guidelines for minimizing the risk of transmission in the workplace. Such practices include daily health checks, use of personal protective equipment, improving the building’s ventilation system, persistent sanitation, staggered shifts, physical distancing, and more.
China’s Role In The Global Supply Chain
Many large brands manufacture their goods in China for a number of reasons, including reduced overhead costs, affordable labor, higher production capabilities, product diversification, and opportunities for expansion. As a result, it is no secret that offshore manufacturing reduces business costs, which in turn decreases the price consumers must pay for end products.
However, it also means that we are dependent on the smooth flow of goods between various players in a global network. Unfortunately, the coronavirus pandemic has successfully put a wrench in the system and disrupted manufacturing and distribution around the world.
China has held the title for the world’s greatest exporter since 2009. However, with plenty of Chinese plants sitting idle due to COVID-19, the supply of parts has begun to shrink, forcing manufacturers to suspend their operations as they run out of key inputs needed to produce their products. For example, Proctor and Gamble have reported that their 387 Chinese suppliers are having a tough time resuming operations after the country was struck harshly by the coronavirus pandemic.
While China is often referred to as “the world’s factory,” it is also an important consumer of imported goods. Consequently, Apple has warned investors that both supply-chain disruptions and store closures in Asia will affect the company’s bottom line. According to Greenidge, we can expect some companies to start diversifying their suppliers to be less dependent on Chinese production in the future.
“Production has not been the only supply chain issue, shipping has also been affected,” says Greenidge. The majority of the world’s goods are shipped by sea, including automobiles, machinery, apparel, and other consumer staples.
However, transport companies that deliver goods from China to the rest of the world are limiting the number of seaborne vessels, according to a CNN Business report. Meanwhile, countries like Singapore and Australia refuse to allow ships that have visited Chinese ports in the preceding two weeks into their harbors. Additionally, other nations, like South Korea, have put rigid screening measures in place to minimize further spread of the virus.
While travel restrictions have almost eliminated passenger flights, air cargo demand, especially for PPE and other medical items, has increased beyond capacity, according to Alexandre de Juniac, the Director-General, and CEO of The International Air Transport Association (IATA).
While most passenger fleets sit idle, airlines are trying to meet the booming demand for pharmaceuticals by adapting passenger aircraft to all-cargo activity. Fortunately, the spike in airfreight demand has helped rescue several airlines, like the Dubai-based Emirates, from a crippling financial disaster. Overall, mass airline stoppages mean there is not enough aircraft to ship essential items to consumers, businesses, and governments alike.
Impact of stockpiling
In response to the coronavirus pandemic, worried customers began stockpiling items like hand sanitizer and toilet paper resulting in long stretches of empty grocery shelves. Panic buying is a normal response to crises, as people attempt to take control of some areas of an otherwise uncertain situation. The issue is further exacerbated by the scarcity heuristic, which suggests that empty shelves spark an urge to grab whatever is left.
Unfortunately, stockpiling has real-world consequences for individuals and supply chains. Firstly, panic buying takes essential items out of the hands of the people who need them most, such as facemasks for health care workers.
Moreover, just because people are buying more does not necessarily mean they are using more. Subsequently, when things get back to ‘normal,’ consumers will already have a sufficient supply of non-perishable items and will not need to purchase more. Thus, companies face a difficult decision of whether or not to ramp up manufacturing to meet spikes in demand, with the possibility of experiencing future losses.
Additionally, while leading brands like Walmart have the technology, flexibility, and scale required to react to this sudden jolt, small businesses are unable to respond as quickly. In general, as the virus continues to spread, Greenidge predicts that we will keep seeing an increased desire for some products and a loss in interest for others.
Preparing For The Future
“Companies need to start investing in building more resilient supply chains,” says Greenidge. We are living in a global economy with people traveling across the world, so, inevitably, we will someday face another rare health crisis. As such, Greenidge suggests re-evaluating your current network of suppliers. At the moment, many companies are relying solely on manufacturers from one particular country, namely China.
While Greenidge does not think it wise to eliminate all Chinese suppliers, it is worthwhile to diversify your supply network to include plants in various countries. Therefore, if one manufacturing facility is disrupted due to a regional problem, your business can rely on other plants to remain operational. Overall, Greenidge asserts that business resilience, including a diverse supply chain, can help safeguard your people and assets from sudden threats or disasters.
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