How Coronavirus Will Reshape the Global Supply Chain

How Coronavirus Will Reshape the Global Supply Chain

Building Supply Chain Resilience and Bracing for Future Disruptions

Disruptions to the global supply chain under the novel coronavirus 2019 (COVID-19) pandemic are already leading to mass shortages around the world. From global giants to developing nations, no economy has been left unscathed. Grocery shelves remain barren, factories sit idly, and dwindling medical supplies, such as masks, nasopharyngeal swabs, and extraction kits, are increasingly a concern in the crisis response.

Previous major events, such as the global severe acute respiratory syndrome (SARS) outbreak in 2003 or the 2011 earthquake that halted Japanese automotive manufacturing, have made corporations reflect upon their risk mitigation strategies. Given the many supply strains in the age of COVID-19, Washington Business Dynamics (WBD) has aggregated the top experts’ insights on how the corporations may build a more resilient supply chain for the future.

Strengthening Domestic Production

Manufacturers across the globe will want to weigh the benefits of a more robust domestic-based supply chain capable of absorbing risks and supply shocks overseas versus a global-heavy supply chain that favors efficiency and cost-savings. A focus on a domestic-based supply chain could reduce dependence on the global supply chain, enhancing homegrown capacity that can withstand future trade shocks and disruptions. Based on its survey of the impact of COVID-19 on global supply chains, the Institute for Supply Management reports a majority of U.S. businesses experiencing significant delays (and even cessation) in production and increased lead times due to their reliance on resources from abroad.[1] In the age of lean manufacturing, many corporations have de-emphasized domestic production from operations to cut costs; however, striking a balance between cost efficiency and risk mitigation strategies may be reshape the supply chain for greater resiliency.

Onshore Manufacturing

Over the last few decades, corporations have increasingly shifted to lean manufacturing, offshoring, and outsourcing in efforts to reduce manufacturing costs. With major Chinese factories and shipping terminals ceasing operations, these practices now expose corporations to a shortage in parts and new risks. Manufacturers may consider incorporating as much geographic flexibility in their supply chain as possible, bringing the supply chain closer to customer demand and relying on nearby regions for production. An increased focus on supply chain regionalization can achieve faster delivery of goods, simplify the supply chain process, provide greater visibility into the supply chain, and increase consumers’ impact over suppliers.[2] By further aligning procurement strategy with supplier relationships, manufacturers may be able to better forecast issues and mitigate risks.

Diversification

For those that do not opt for offshore manufacturing, manufacturers may begin diversifying their supply chain bases and processes. Heavy reliance on a specific source of supplies, such as Asia, may have resulted in profits and efficiencies in recent years; however, manufacturers must go beyond simply stabilizing existing sources. Rather than quickly restarting existing supply chains, manufacturers must consider long-term strategic diversification that considers supplier tiers, inventory levels, freight capacities, and demand spikes.[3] These additional strategic diversification considerations can greatly decrease the level of disruption that the global supply chain is experiencing during the coronavirus.

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[1] http://ism.files.cms-plus.com/ISMReport/ISM_Coronavirus%20Survey%20Release_3.11.20_FINAL.pdf

[2] https://www.scmr.com/article/accelerating_supply_chains_for_a_post_global_world

[3] https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business