Covid-19 Affecting the Global Supply Chain

Covid-19 Affecting the Global Supply Chain

Introduction

Since the outbreak of Coronavirus in March 2020, almost all territories and countries had reported cases. By August 2020, the World Health Organization (WHO) indicated over 22 million COVID-19 cases and fatalities, reaching almost 800,000 (Boone et al., 2020). The pandemic could have caused much havoc if all countries had failed to mitigate it. In 2020, the global economy was said to have contracted by 4% as it was facing the most significant recession since World War II. Additionally, the World Trade Organization claimed that the world faced a decline in trade volume from 12% to 35% (Maital & Barzani, 2020). The world has raised concerns about the threats of COVID-19 and how it has disrupted and hindered the reclamation of the global supply chain. Governments from various countries had to enforce preventive measures like mandatory confinement of people, travel restrictions, and the closure of outlets and factories to curb the large spread of Coronavirus. Due to the limits, the effects caused shortages in raw materials, labor, food, and other ingredients. Additionally, the catastrophe was worsened by the restrictive regulations on logistic systems. Moreover, the global supply chain suffered from shortages and delays in inventory. The adverse effects of Coronavirus have been extensive, and reviews from specialists suggest that the pandemic will not end be before late 2022. This calls for immediate response by the government and firms to set quick recovery measures and enact plans to prevent unexpected calamities in the future. With all that said, this paper examines the effects of Coronavirus on the global supply chain and offers solutions that will boost responsiveness and visibility to develop resilience.

Disruption of COVID-19 on the Global Supply Chain

The global supply chain pipeline from delivering raw materials to products was heavily hit by the pandemic, and disruptions were witnessed in all phases. Customers required quick responses, and suppliers focused on reaping profits during the calamity. Generally, there are innovative products and functional products. Functional products have an ordinary demand and stable supply on many occasions. Nevertheless, items such as masks shifted from functional to innovative goods due to the high demand and supply. Additionally, most of the manufactured and consumed commodities that serve the global economy experienced limited space due to demand and supply constraints.

Figure 1: Disruption of the Global Supply Chain

  • High-Tech Equipment

The high-technology industry dealing with electronics, smartphones, and other tech accessories experienced shortages of components due to their supply chain disruption. Apple Inc. had manufactured new products but had to postpone deliveries because the Foxconn factory in China was shut down. Other conglomerates like LG and Samsung stopped manufacturing from their plants in India and South Korea. Additionally, Tesla, the electric motor firm, had to shut down all its plants in the USA and Shanghai. In the aeronautic industry, companies such as Lockheed, Boeing, and Airbus had to suspend flights and production in some factories in the US and Europe to curb the spread of COVID-19. Travel restrictions and the closing of borders by countries caused significant interferences in air travel demand. In 2020, the Civil Aviation Organization reduced the number of seats in airlines by 60% (Fonseca & Azevedo, 2020). Many airlines run into debt due to the disruption of international flights. The Fly Emirates reduced its destinations to only Frankfurt and London, which caused a reduction in cash flow. Airlines in the US had to seek government aid of $50 billion to handle the challenges of Coronavirus, while airlines like Qantas in Australia had to suspend all international flights.

  • Automotive Companies

Automobile companies suffered the disruption caused by COVID-19 as many in the USA, Germany, Japan, and China had to be shut down. It was projected that global automotive production would reduce by 15% in 2020 (Fonseca & Azevedo, 2020). The travel restrictions in China forced Volkswagen to shut down its plant, which caused shortages in automotive parts. General Motors had to re-open factories in China, but experienced low production as Coronavirus had interfered with supply. In South Korea, Hyundai closed its assembly plants because it lacked auto parts from China. Production of automobiles in Nissan factories was halted in the Middle East, Africa, and Asia.

  • Medical and Pharmaceutical Firms

The pharmaceutical and medical industry was adversely affected in its supply chain due to COVID-19. About 42% of the global active pharmaceutical ingredients are manufactured in China. Additionally, India occupies a significant position in the supply of COVID-19 medications as it is the third biggest exporter globally. Nonetheless, a more substantial portion of drug production in India, about 70%, depends on China, and the suspension of supplies from China has resulted in severe shortages in pharmaceutical firms in India (Yu et al., 2021). There is also a global shortage of personal protective equipment (PPEs) like protective gear, respirators, medical masks, goggles, gowns, and footwear, making it challenging to curb the virus. There is a high risk of infections among health workers, and thousands of medical staff have died in the US, China, Italy, and Spain. Additionally, COVID-19 infections have forced a global demand and panic buying, fake news, stockpiling of products, and misinformation. Due to this, there have been further shortages globally on essential commodities. China has been the leading supplier of PPEs globally, and they have prioritized local demand due to inadequate production capacities (Yu et al., 2021). This has forced many organizations and countries to seek other manufacturers to help fill the experienced shortages. Additionally, the inadequate production capacity has forced automobile firms like Peugeot and Tesla to produce ventilators. Such multinationals have collaborated with suppliers of PPE through embracing their systems of producing the needed products.

  • Food Production and Distribution

The supply chain of food from seeds, fresh food (fruits, vegetables, meat), and dry products (wheat, beans, rice) are mainly affected by transportation and farming. It is labor-intensive in all phases of producing food like picking, seeding, planting, pruning, and delivery. As the global exporter of rice in the world, India suffered from logistics disruptions and labor shortages and had to halt all exports. Vietnam is a major exporter of rice globally, and it made plans to make a 45% reduction in quotas in 2020 compared to the previous year (Siche, 2020). In other words, the storage and delivery of fresh produce have been affected due to canceled international flights, lack of trucks, lockdowns, and inspections that consume a lot of time. Thus, if the pandemic is not contained faster, a global famine could occur within a year. COVID-19 has caused an enormous hindrance in the supply of food products, which has doubled the population of people experiencing chronic hunger. According to the World Food Programme in 2019, a report on food crises indicated that over 137 million people are experiencing food insecurity. Additionally, the number is expected to inflate to about 270 million people by the start of 2021.

Interference on International Logistics

The entire logistics supply chain is experiencing shortages of workers in blue-collar and white-collar jobs due to quarantine measures. Necessary tasks in the supply chain cannot be facilitated because of the temporary closure of factories, travel restrictions, and quarantine. For instance, film directors and producers from the US could not travel to Europe to shoot a film. Cargo capacities by airlines were restricted due to the shutting down of commercial airlines. This made it challenging to transport essential supplies like medical goods that could be used to fight Coronavirus. Chowdhury et al. (2021) point out that airlines transport about $7 trillion worth of goods annually, and air cargo accounts for 40% of the global trade value. Nevertheless, passenger planes transport about 55% of the airfreights. Due to COVID-19 in 2020, reports by the Transportation Security Administration claimed a 95% reduction in passenger flights.

Global logistics was disrupted by trade restrictions and sealed borders between countries. It was impossible to import and export essential goods from foreign countries. The US, India, Germany, and France imposed restrictions on medical equipment and medicine exports. This has delayed businesses and has prevented goods from entering or leaving different nations. Maritime freights account for 90% of the trade volume globally. However, stringent inspections, lack of truck drivers to transport containers, and quarantine have delayed goods transportation. The demand for marine shipping services has faced a low demand as the global container trade has become a standstill. Ocean carriers have adopted blank sailings as a technique to maintain a stable rate of ocean freight. As Chowdhury et al. (2021) purports, the international market has witnessed the removal of about 35% of container capacity because of blank sailing, and a greater percentage was reported for the transpacific dealings.

Enhancing Responsiveness and Visibility in the Global Supply Chain

Attaining visibility is critical to comprehending constraints in the global supply chain and enhancing efficiency and swiftness during production. The short-term losses can be mitigated by investigating the entire lower tier of leading suppliers in all regions affected by quarantine restrictions. There is always a ripple effect in the supply chain in case of disruptions, affecting the entire system. When a firm knows the vulnerable or exposed suppliers to COVID-19 will help minimize the response time to impose mitigation strategies (Larrañeta et al., 2020). Second, carrying out a direct collaborative demand estimation with consumers is vital. It is necessary to carefully examine the unpredictable customer demand to realize a reduction or sharp rebound arising from lack of confidence. Then, the customer base and product portfolio of a company need to be reviewed to enact measures that cater to capacity reduction. Third, companies need to collaborate with all stakeholders like retailers and clients and offer the required assistance like legal support, financial backup, and logistic services to ensure the business thrives. According to leading suppliers, having the prospective for production losses has to be renewed supply chain strategies and adequate inventories.

To facilitate long-term competitiveness in business, necessary recommendations need to be implemented. First, it is imperative to realize the global supply chain’s principal vulnerabilities and scrutinize probable disruptive threats in real-time. Vulnerabilities in the supply chain emerge from five sectors: transportation and logistics, product complexity, organizational growth, financial stability and supplies, and planning networks (Larrañeta et al., 2020). Multinational companies must be keen on global events like local wars, pandemics, natural disasters, and political conflicts. This is because such events interfere with the producer and suppliers’ network up to the final consumer. The use of digital solutions and information technology such as cloud computing, big data analytics, artificial intelligence, and 5G network can be utilized by companies to enhance visibility through multi-faceted techniques. In this way, companies can detect complications in early phases in an intricate global supply chain. These suggestions can be practical if there is a collaboration with internal stakeholders and strategic suppliers who can develop consistent risk management techniques to curb shortages in raw materials and production.

During situations of disruptions from Coronavirus, responsiveness capabilities enable the company to make immediate and cost-effective measures. Capabilities enhancements deal with operational procedures which are highly complicated and can inhibit visibility. In the short term, the supply chain can facilitate quick recovery through inventory redundancy and alternative sourcing (Sharma et al., 2020). The current inventory policy needs to be reviewed by determining the projected demand and existing suppliers’ potential. Thus, there is significant safety stock. Additionally, all inventory has to be removed from potential risky locations. The company needs to ascertain all alternative materials and local substitutes have to be sourced. Also, the availability of materials creates different sourcing options for companies as local suppliers will take full responsibility. The establishment of inventory and alternative materials has to be assigned to suppliers in tier-2 and 3.

When considering the long-term measures, the disruption in the global supply chain by COVID-19 can be mitigated by planning, capacity redundancy, and diversification among suppliers (Fonseca & Azevedo, 2020). Firms must collaborate well with all supplies in different locations. Having secondary sources will boost backup options for production, supply, storage, and distribution outages. For firms to improve flexibility, applying capacity redundancy is an essential mitigation technique. With capacity redundancy, a company operating in the global supply chain ensures all resources like trucks, devices, machines, and personnel are flexible. The resources are plotted based on new requirements, and in the event of business restrictions, they manage to boost production capacity. Due to COVID-19, the medical sector has witnessed emerging suppliers of medical products due to increased capacity redundancy.

The effects of Coronavirus have created a mixed demand on various products in the global supply chain. This calls for strictness in implementing effective measures in reviving the global supply chain. Enhancement activities from visibility and responsiveness seek to raise the expenses in the supply chains and alleviate the constraints of their products in the international market (Remko, 2020). Thus, decision-makers have the task of understanding the trade-offs between efficiency and risk mitigation. Additionally, the focus should be on the differential effects of such strategies in both innovative and functional products. The reason is that consumers are highly responsive to the price of functional items. Functional products have easy access and low value. Thus, establishing inventory redundancy is critical to strengthening the global supply chain. Innovative products should have a high value and short span dates of expiration. It is vital to have capacity redundancy in the supply chain when dealing with medical accessories like medical masks, which are in demand during this COVID-19 period. This is because a high inventory level will elevate costs of operation and elevate the threats of expiration loss.

Conclusion

The world has raised concerns about the threats of COVID-19 and how it has disrupted and hindered the reclamation of the global supply chain. Due to the restrictions, the effects caused shortages in raw materials, labor, food, and other ingredients. Additionally, the catastrophe was worsened by the restrictive regulations on logistic systems. Apple Inc. had manufactured new products but had to postpone deliveries because the Foxconn factory in China was shut down. Other conglomerates like LG and Samsung stopped manufacturing from their plants in India and South Korea. The travel restrictions in China forced Volkswagen to shut down its plant, which caused shortages in automotive parts. China has resulted in severe shortages in pharmaceutical firms in India. There is also a global shortage of personal protective equipment (PPEs) like protective gear, respirators, medical masks, goggles, gowns, and footwear, making it challenging to curb the virus. COVID-19 has caused a massive hindrance in the supply of food products, which has doubled the population of people experiencing chronic hunger. Necessary tasks in the supply chain cannot be facilitated because of the temporary closure of factories, travel restrictions, and quarantine. Attaining visibility is critical to comprehending constraints in the global supply chain and enhancing efficiency and swiftness during production. Companies need to collaborate with all stakeholders like retailers and clients and offer the required assistance like legal support, financial backup, and logistic services to ensure the business thrives. The use of digital solutions and information technology such as cloud computing, big data analytics, artificial intelligence, and 5G network can be utilized by companies to enhance visibility through multi-faceted techniques. In this way, companies can detect complications in early phases in an intricate global supply chain.

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