COVID-19 Impact is Diversifying International Supply Chains
The COVID-19 pandemic has had a massive impact on global trade, investment, and supply chains, unlike anything the international community has ever seen. Multinational companies and their associated supply chains were hit first with unprecedented supply shock, followed by a demand shock as countries began urging their citizens to stay at home. Access to basic products became a struggle for both individual consumers and even governments- and as the wait times for basic household cleaning supplies, medical supplies, personal protective equipment, and more- increased, the fragility of the modern supply chain was illuminated.
It was made clear how urgent the need is for more diverse and resilient supply chains as the COVID-19 impact continued to grow. Though painful, this crisis has taught us that our interconnectedness requires more innovation if we are to survive another global impact event.
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How COVID-19 Created a Disruption
The primary issue exposed by the COVID-19 pandemic was the vulnerability of the lean manufacturing model when applied to complex global supply chains. Though often believed to have more overall benefits than disadvantages, with limited waste and less infrastructure, lean manufacturing proved especially unprepared in the healthcare sector. As countries clambered for protective equipment and ventilators, the risks of models focused on cost control were palpable. Maintaining low inventory and single-sourcing, though cost-effective, has proven to be a huge disadvantage.
As a result, individual supply chain management teams, as well as industry leaders, are assessing the risks with maintaining these models. They have recognized that a response to these issues is necessary. Stronger, smarter, more responsive, and diversified supply chains are key.
China’s dominance in manufacturing meant its need to pause output and lockdown to protect its citizens created a huge gap in supply. Global firms, for example, who struggled to respond to the closure of Chinese factories, may now look to other manufacturing centers like India and Mexico as options.
Companies with flexibility in their supplier bases are better prepared to withstand unforeseen events that disrupt the supply chain.
This Reset is Much Needed
In addition to diversifying supplier bases, increased automation, and smaller batch production may be another way to circumvent the impact of future global events. Rather than relying on every step of the manufacturing process to be managed overseas, many companies are looking to bring portions of the supply chain back home. The decrease in costs for automation, along with the cost savings in labor and management, makes this a viable option. Decentralization of manufacturing capacity along with automation are likely to become key transitions for many industries.
Resetting a system that for many has relied on outdated processes ushers in the need for more digitization, utilization of available technologies, updating to artificial intelligence options, and making the buyer-supplier relationship more rapidly responsive. Reducing paperwork that often accompanies global trade, and switching to a more technologically advanced model using the IoT and other technologies will make finding and using alternative suppliers in the event of one being compromised a quicker and more easy process.
Businesses are Responding Rather Favorably
The overall complete COVID-19 impact on the supply chain industry remains to be seen. However, in conjunction with other potential issues associated with a global trade network, creating smart and nimble supply chains is the foundation of a growing and maturing global trade system. A system that od well-equipped to weather future global crisis events. Companies are investing in technologies that allow for sustainability while analyzing their current models and preparing to mitigate future disruptions.
Businesses that are in recovery mode have begun to strengthen both their supply chains and their company’s resilience by adapting their crisis management models. The pandemic has changed the way many companies view their environment and highlighted how critical it is to have access to a diverse range of adaptations and mechanisms for responding to restrictions. Risk management has become more critical than ever.
Having a fully diversified supply chain is necessary, as this pandemic has shown, to shock-proofing any international supply chain. If you are struggling to diversify your strategies or partnerships, reach out to the professionals at Redwood Logistics today to schedule your free consultation.