Three long-term supply chain impacts from Covid

posted by Craig Powell
1 September 2020

There’s little doubt that the Covid-19 crisis has had an unprecedented impact on supply chains all over the world.

However, with many countries lifting lockdown and tentative steps being taken to resume business in many sectors, the dust is beginning to settle on what the “new normal” is for supply chains. But what are the lasting impacts of Covid-19?

1. The movement of goods has become slower

One of the major impacts of Covid-19 has been the movement of goods becoming slower. This has been felt throughout the supply chain. For example, at the height of the crisis in China, we saw factory output slow to a crawl as industry shut down and, as the virus spread, many countries closed borders with heavy restrictions. Even on a more local level, rigorous hygiene practices have reduced the efficiency of deliveries.

The slowdown in movement is one of the reasons that the WTO recently projected a fall in world merchandise trade volume of 13–32%. It also outlined a recovery could take two routes: trade begins to recover in 2020 and into 2021, or a much slower and protracted revival takes place. With the future of the virus unknown, it’s hard to anticipate whether the movement of goods will pick up and contribute to a speedier recovery in the near future.

2. Local supply chains have become more valuable

Faced with the prospect of gridlock across global supply chains, many firms turned to local solutions in a bid to keep up with demand. As a result, we have started to see the shrinking of the supply chain footprint, where businesses review the trade-off between costs and resilience in order to secure a more local and more reliable source of products.

The localisation of supply chains has been most visible in the reorientation of some manufacturers from non-essential to more essential products, such as ventilators, hand sanitiser, and PPE. We saw global players like BrewDog, L'Oreal, and Vauxhall switch to manufacturing items that were most needed at the height of the crisis, serving local chains. Though the switch was a temporary measure for many, it has demonstrated the need for better local supply in the future.

3. The need for supply chain technology has increased

With so much uncertainty in supply chains in recent months, there is a growing need for businesses to adopt better technology. Armed with better tools that can be used to analyse and forecast more accurately, they will be able to make better decisions to avoid supply and demand shocks that may come with further Covid-related developments.

There will also be aftershocks that can be better managed with increased technology. For instance, there’s inventory bounce, where demand for a product stabilises at a lower rate, and a cut in production takes place to allow the pipeline to adjust, followed by a brief production increase to ensure new demand is met. This brief spike can often be misinterpreted as rebounding demand without the careful analysis that upgraded supply chain technology can provide.

I hope that this article has given an insight into how the global supply chain has been impacted by the Covid-19 crisis. Things still remain volatile but, with careful decision-making, it should be possible to navigate any ongoing recession.

  Craig Powell is managing director at Balloon One.

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