The typical consumer’s biggest supply chain concern is whether their favorite clothing stores have the right size in stock. For companies who do business internationally, supply chain is much more of a challenge. Extended timelines necessary for ordering products far in advance require extensive planning and execution to assure consumers have the products they want when they want them.
COVID-19 was perhaps the key indicator for severely impacted supply chains. Stores and restaurants shut down worldwide; orders stopped for new products; shipping schedules went haywire; and containers were left at ports where they were not needed. Air cargo shipments dramatically increased along with the cost of shipping, local food suppliers shut down their production facilities, and stores stopped ordering inventory altogether.
The Impact of COVID-19 on Global Supply Chains
COVID-19 has affected virtually every aspect of daily life for most of the world. Dramatic changes in how we work, play and receive healthcare have been implemented as society struggles to control the spread of the virus. Global supply chains were also impacted by COVID-19, with repercussions that were felt by businesses and citizens around the world and across industries, such as:
• An abrupt reduction in the demands of shoppers for a wide range of goods and an associated decrease in factory production.
• Reduced orders from factories and suppliers.
• Shortages of standard consumer goods such as hand sanitizers, paper products and cleaning supplies.
• Limitations on the quantity of certain products consumers could purchase.
• A change from in-store shopping to online shopping worldwide.
• Uncertainty in our economic future, resulting in companies reluctant to order supplies and manufacturers putting a halt on production.
Disruption to interconnected components of the global supply chain also brought on many COVID-19 travel and commerce restrictions. Some of these impacts, such as the lack of paper goods in the U.S., have been addressed and are no longer of immediate concern but other problems still linger and pose the potential to cause long-term disturbances on both a domestic and global level.
What Current Challenges Face Supply Chains?
The complex nature of modern supply chains makes it harder to rebound from the impacts of the pandemic. Issues with one supplier can have a ripple effect that causes problems in several industries. It will take some time before the behavior of the global supply chain returns to pre-pandemic normalcy. Following are some of the most critical challenges facing supply chains today.
Catching up with consumer demands is proving to be difficult in many markets and industries. Shortages lead to inflated prices with many types of consumer goods. There can also be a lag time of many months between orders being placed and filled, meaning some products will remain in short supply indefinitely.
The reliance of specific industries on a disjointed supply chain can be seen in the U.S. homebuilding market. Shortages in the lumber supply have resulted in skyrocketing prices that directly affect the cost of building a home. Automakers have had to slow down or stop assembly lines altogether due to a shortage of the necessary types of computer chips needed to manufacture vehicles.
The dislocation of shipping containers is another problem that impacts the ability of supply chains to address customer demands and return to pre-pandemic service levels. Many containers were used to deliver goods at the outset of the pandemic but then were left sitting idle due to lack of production, and without available containers, further disruption in supply chains will take months to fully resolve.
What Supply Chain Trends Are Likely to Emerge Post-Pandemic?
The effects of the COVID-19 pandemic on supply chains have forced organizations to reevaluate the way they obtain the products necessary for the survival of their business. The following trends are poised to impact supply chains as the world emerges from the pandemic and attempts to return to pre-pandemic levels of commerce.
Many global industries were adversely affected when China reduced exports to address an increase in internal demands. This raised red flags across the manufacturing sector as alternative supply streams need to be developed to avoid similar incidents in the future. Companies are now looking to spread out manufacturing requirements to multiple countries and reduce their reliance on a sole provider.
Near-shoring is one method of addressing insecurity over the reliability of supply chains. Companies in the U.S. are looking to relocate some manufacturing to Mexico or Canada to avoid being cut off. This may lead to higher prices but would protect the industries from sudden shortages.
Automation in the shipping industry is another trend that will increase post-pandemic. Speeding up the rate at which products are transported is one benefit of automation. Another is the ability to keep track of shipping containers, so they are used more efficiently and do not sit idle while products wait to be transported.
Franchises are attempting to localize products in new markets to avoid the need for extensive supply chains. This is especially true for restaurant chains that are searching for local providers to replace global suppliers. Initially, this may be an expensive proposition but will deliver long-term benefits in efficiency and supply chain protection.
The bottom line is that the viability of supply chains is an essential ingredient as the world strives to recover from the COVID-19 pandemic. Lessons learned from the disruption caused by the virus need to inform future planning and the implementation of more robust supply chains to maintain the health of the global economy.
William (Bill) Edwards is CEO of Edwards Global Services (EGS) and a global advisor to CEOs. He has a four-decade career accelerating the international growth of more than 40 companies. He is an expert on choosing the right global markets for specific brands, country market research, strategic planning, partner due diligence, new country start-ups, global trend analysis, growing existing country operations, supply chain management and cultural adaptation.