Essay on Effects of COVID-19 on the Global Supply Chain

Published: 2021/11/09
Number of words: 3607

Abstract

The fragility of the global supply chains was exposed when the COVID-19 pandemic struck the world. Although it originated in China, it took a short time until the whole world was facing a severe impact on the global supply chain. International trade, value chains, economies were hit at an unpredictable speed and on different scales (Chadid, 2020). Suddenly, the world was in supply and demand shock. Trade wars that already existed intensified between China and the US. Governments, in an attempt to protect their people, set policies that restricted and encourages social distancing. The orders to stay home led to a decline in the economy where people lost jobs and lost income. Individuals and businesses began struggling to procure essential commodities. The global supply chain was no longer efficient to ensure goods and services left the source and reached the end-user. The world then realized the importance of having a resilient supply chain that was diverse to withstand challenging situations. This paper looks at how global supply chains have been affected by the ongoing COVID-19 pandemic. By dealing with the impacts, it looks at how the global supply chains will look after the world is free from the pandemic.

Introduction

The COVID-19 pandemic has had a significant effect on the business environment globally. All businesses in all industries have been affected in one way or another. It has been an eye-opener for many organizations. Companies now understand the importance of the ability to react and adapt to such emergencies. They need to set up crisis management strategies to weather the uncertainty that was offset by the outbreak of the pandemic. While governments worldwide try to protect their people, they have set measures that don’t favor business. Restrictions and the frequent lockdowns resulting from the recurring pandemic waves have left businesses in a dilemma on their next move. To survive, companies have had to devise methods to work around the challenges. Due to such attempts, businesses have appreciated the importance of the supply chain in continuity and success. Companies relying on the global supply chain to source and supply goods and services worldwide have been at the front line in experiencing the challenges that came with the pandemic (Fonseca et al., 2020). The global supply chain suffered the effects since it was no longer effective. To be effective, there need to be high-efficiency rates in the system. Quality over control has to be top-notch, and there need to be better customer relationships between the buying and selling countries. Production costs need to be reduced, and economies need to record an overall improved financial performance.

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As the interconnection of the global supply chain increased, globalization increased. Also, with time, goods and services have had to go through more stages before the end consumer could have them. This is because there has been an increase in the emergence of new market economies that have affected the global Gross Domestic Product (GDP). The disruption of such global economies has also interrupted the global supply chain. Currently, the global supply chain is experiencing a strain. Some businesses have stopped their operations due to the pandemic’s impact on the world’s supply chain. Companies that survived the pandemic had to adapt to the changes. The many companies that are still struggling to keep up with the changes have been urged to prioritize supply chains. It is still not evident when the next pandemic might hit or how strong the next wave will be. However, efforts have been put to predict how the global supply chain will look after the pandemic. Companies will have to work their way the impacts and put risk mitigation processes in place to be cushioned in the future.

Impact of COVID-19 on global supply chain

The world supply chain matter as they play a critical part in international development. The ability of a given country to prosper relies on its participation in the global economy, which is mainly influenced by the role they play in the world’s supply chain. This includes the steps involved from the time raw materials are transformed into finished goods to the moment they reach the user in other countries. Although the pandemic started in China, it, later on, spread to all other parts of the world, affecting everyone (Flynn., et al, 2012). The following are the impacts the pandemic had on the global supply chain.

First, the pandemic affected the global manufacturing of products. When COVID-19 first hit China, it led to a disruption in the manufacturing companies. With its population, China is known to be the world’s largest consumer of major global commodities and agricultural commodities. Ports withheld colossal cargo. Travel restrictions within and outside the country led to reduced numbers of truck drivers required to pick up the containers from the docks. Ocean carriers were also no longer engaged in sailings. The impact was felt by manufacturing companies globally. Global dealers in automotive, pharmaceuticals, consumer goods, among others, felt the pinch. Manufacturers had to go through tedious processes to distribute their commodities. The cost of storage became unbearable due to inventory build-up. Along the way, the situation improved since close to 70 percent of manufacturing industries resumed entire operations. However, production later reduced as the pandemic then started spreading to other parts of the world, trading with China. The trucking sector, which also depends on the manufacturing sector of the global supply chain, also went down. The main reason for this was the effects of the lockdown in the country. Strict government policies on the sector later improved the numbers. However, the numbers didn’t go back to normal as other international manufacturing companies had already faced the backlash.

Secondly, the pandemic led to bottlenecks on all types of freights. As COVOD- 19 spread to other parts of the world, lockdowns became the new normal. Borders were closed to restrict the movement of goods between countries. Protocols such as social distancing among workers to ensure their safety at warehouses played a significant role. Countries in the European Union had trucks on their highways due to Poland closing its borders after the situation in Germany worsened. The lockdown in India led to a shortage of truck drivers.

Consequently, containers filled with supplies got stuck in their ports. For ocean freight, there was a 10 percent drop in container. Essential global importers and exporters were affected. Land transportation of supplies did not suffer the effects compared to ocean and air. However, the conditions for land transport became more challenging for countries such as Italy that were severely struck by the pandemic. Air freights also dropped. Government restrictions on air transport called for reduced passenger flights. Therefore, global shippers turned to cargo transport, especially for essential goods. Airfreight charges then went up. Congestion at airports led to delay in supplies as every country was struggling to get goods.

The world had already experienced other disruptive events before the noble coronavirus pandemic. The shock that affected the global supply chain due to the COVID-19 was different. All the aspects of the worldwide supply chain were affected. The pandemic led to a demand shock that the global supply chain could not handle. The demand shock has happened in three phases so far. The first demand shock wave hit when China declared a shutdown in production. Local demand in the country went down. With time, other countries in Asia were having the same problem. The second demand shock wave hit when the conditions in Europe became unbearable. The demand shock followed supply shortages due to the collapse in domestic demand in Asia and Europe. North America joined the team in a third shock wave on the global supply. The domestic shock waves in Asia and Europe eventually reached North America. With the world facing challenges due to transportation issues from the pandemic, the demand shock was becoming severe on the global food supply chain. In fear of shortage of food products, the demand for food products went. Global companies selling food products recorded an increase in sales leading to a seismic shift in demand.

The key stakeholder in the global supply chain is the consumer of the imports and export products. The end-user in the supply chain looks for suppliers who will offer them quality products at cost-effective prices and in time to meet their needs. Although suppliers and businesses went out of their way to protect consumers by maintaining their sales, the impact of the pandemic on the consumers was significant. After the spread of the virus, many jobs were lost. This implied that the end-users had reduced incomes due to a decline in economic activities. The demand for products subsequently went down.

Additionally, although the demand for products went down, consumers could still afford both essential and non-essential commodities. Since the impact of the pandemic had hit the global supply chain hard, they could not afford to supply the end-users with the products. The ports and the congestion delays made it challenging for the companies to ensure that they reached the consumers on time. Consumers relying on essential products such as food supply and medical products were the ones who were most affected. Reports from the World Food Programmer (WFP) indicated that more than 135 million people worldwide experienced acute hunger due to the effects of the pandemic on the global food supply chain (Erhie, 2020). Countries were in dire need of Personal Protective Equipment (PPEs) for their medical staff at the front line in dealing with the COVID-19 patients. The delays affected the end-user users, making them contact the virus due to delays in supply.

COVID-19 led to trade wars that hurt the global supply chain. The trade that shock the entire world was the US-China trade war. The pandemic disrupted the two giant economies that interfered with the interdependence of their supply chain. Although there already existed a trade war between the two economies, the pandemic magnified it. The former president of the US had already levied tariffs on Chinese imports to reduce the trading practices between the two countries. This was an attempt to kill the economy of China but boost that of the US. When COVID- 19 was confirmed to have originated from Wuhan, China, US, the trade war intensified. The trade war this time was for protectionism from the virus. No supplies could be imported from China. An attempt to pressure China to make significant changes to facilitate fair trade between the two countries got out of hand. The supply chain companies between the two countries suffered the most. Companies that relied on foreign resources from China had to look elsewhere. Manufacturing companies were reinvigorated due to protectionism policies that were set. The pandemic changed how the supply chain companies between the two countries did business in a short time. Protectionism became more aggressive as more people died due to the pandemic. Global supply chains ended up losing due to the COVID-19 trade war.

Global supply chain post-pandemic

The disruption of the global supply chain shed light on the supply chain companies on the importance of creating a resilient system. It showed the world how the supply chain is interdependent on different countries. Supply chain organizations realized the challenge of managing the nature of the interconnectivity of the system and the severity of a pandemic. When the pandemic first caused a supply shock, other parts of the world didn’t take precautions early enough to protect supply chains. The restrictions, shortages, delays, and hiked prices of the supplies highlighted the weaknesses in the world’s supply chain. The rising number of trade wars became alarming (Hedwall, 2020). The world’s supply chain future hung on the fate of how long the pandemic was going to last. However, the world now needs to look forward and devise ways that the supply chain will survive such a pandemic or worse situations.

Post-pandemic, the global supply chain will diversify its base. When the virus struck China, all the supply chain companies worldwide realized how dependent they were on China as the world’s largest manufacturer and consumer. Due to the US-China war, supply chain companies have been motivated to avoid over-reliance on China as the sole provider of necessary resources. After the pandemic, global supply companies have shifted their strategy of production to other countries in Asia. The Supply chain manager will also produce substantial amounts of critical goods within local regions to avoid over-reliance on importation. After COVID-19, China will no longer be the sole supplier of essential products in the global supply chain. However, since China remains the second-largest economy, global supply chains will not afford to cut it off. Instead, they will maintain a presence in the markets for competitive intelligence.

In the future, the global supply chain will engage in outsourcing, digitization, and shift to E-commerce. These will be trends that will be accelerated by the pandemic. During the pandemic, the supply chain companies recognized the importance of outsourcing. The future will see the world’s supply chain businesses outsource specialists to handle integrated and end-to-end services. This will help reduce the risks of failure, increase flexibility, focus on business while the supply chain experts maneuver the challenging time. Outsourcing will also ensure they make immediate responses to changes and emergencies of the pandemic (Sureddin, 2021). Global supply chains will have to engage digitization of their services. This will foster automation and respond quickly to sudden changes in demand due to demand shock. Productivity will also increase as companies will withstand additional volumes regardless of social-distancing measures put in place. Ecommerce will handle the increased cases of online shopping. Unpredictable customer behavior will continue, but with eCommerce, global supply chains will remain intact. Ecommerce will enable a faster reaction to customer needs as it comes with a well-laid-out strategy.

COVID-19 opened the world to a new realization of innovations. Companies in all industries relocated their business operations online. As the companies relocate their supply chain to suit the innovations in place, global supply chain companies are forced to move in the same direction. Post pandemic global supply chains will therefore be forced to shift production in-house. There will be improvements with transplanting of production lines and coming up with new ones. This is because global supply chains will be able to unfreeze organizational routines. It will be possible to revisit underlying assumptions of the pre-pandemic processes.

It is expected that different trends will resurge after the nobel coronavirus pandemic. The pandemic put life on hold. However, after the pandemic, the global supply chain is expected to face a labor shortage. With many industries closing down and many people losing their jobs to the pandemic, logistics providers required trained workers. The pandemic created a talent gap. The supply chain will see attract trained people with creative skills that will help a safe working environment. The world logistics companies will participate in a battle to get the best, creating a labor shortage. Considering how erratic consumer behavior was during the pandemic, global supply chains will create intelligent forecasting programs. Technology will be incorporated in forecasting. As the supply chain companies strive to get back to a stable environment, AI and machine learning will become necessary. It will take place its place at the forefront to handle advanced analytics and intelligent forecasting. Since the industry realized they lagged on sustainability pre-pandemic, sustainability will become a trend in the future. The need for business continuity will drive the global supply chains to prioritize sustainability supported by governments to protect their people.

In the long run, global supply chains are expected to implement lasting effects that will manage the magnitude of the pandemic and others. Therefore, world supply chains are expected to put more emphasis on redundancy. Supply chain managers, manufacturers, distributors, and retailers will understand the importance of risk finding themselves in situations where they have insufficient stock. Managers will appreciate the need for cushioning operations from disruptions such as the one caused by COVID-19. Redundancy will therefore be normalized post-COVID-19. Due to redundancy, global third-party logistics providers will be well-positioned. Also, a trend of resilience will emerge. Lack of stability in the worldwide supply chain was the major collapse of many companies. Post-COVID-19, global supply chains will focus o visibility. There will be real-time monitoring on the emergence of risks for management at an early stage to prevent what happened with COVID-19. This will prevent inventory disruptions.

As the pandemic is ongoing, global chains will engage in short-term trends to keep going. Short-term trends will help the global supply chains see the light on what to expect in the future. Supply chains will improve transportation capacities. With the travel restrictions leading to congestions at ports, the post-COVID-19 will have changes in transportation capacity. Passenger flights will take longer to end social distancing. There will be sustained peaks evolving around e-commerce. The demand for medical products will be higher across international borders. Vaccine logistics will be on a high. The global supply chain after the pandemic will see through shipment and distribution of vaccine supply in all countries. Focus in the world supply chain will be more on medical goods with an emphasis on the vaccine.

After the pandemic, global supply chains are going to be set to thrive (Bergstrom et al., 2020). The duration and extent to which the pandemic will last and impact international economies is still a mystery. Global supply chains will get in positions where they can only thrive through hard work, accurate assessments, and undertaking long-term investment in the industry. The only way that supply chain companies succeed regardless of the pandemic is by advancing along the technological curve. All industries are now investing in technologies to be at bay with the current economic times. This will push world supply chains to consider engaging in activities that can make them after the pandemic. The future will see manufacturing companies work alongside robots that are resistant to pandemics. The global value chains will be viewed from a central location by use of AI. Operations will keep going with the supply chains synchronized from the source to its destination with the consumer (Wilson, 1996).

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Conclusion

When the pandemic hit the world, all the key players in the global supply chain were affected. International suppliers, manufacturers, distributors, retailers, and end-user were all involved in different ways. The restrictions set by various governments made it difficult for manufacturers to process and distribute their produce. Getting raw materials from their sources became hard. Supply chain countries that relied on China for essential resources experienced shortages due to congestion at ports. The volumes being imported and exported around the world went down. Border restrictions made it challenging to sell products around the globe. The cost of distribution went up due to congestions and transport restrictions. Essential commodities such as medical supplies and food were in shortage. Logistics bottlenecks in the trucking industry lead to congestion at the ports.

The impact they had on the world supply chain acted as an eye-opener for the industry. The global supply chain realized its fragility and its lack of resilience to handle the pandemic. Therefore, like other industries, global supply chains began taking the road to recovery to get back to normal and better operations after the pandemic. It is, therefore, expected that post-pandemic, the procedures in the global supply chain would improve and become more resilient to risks. Post-pandemic will see global supply chain engaging in outsourcing to get expertise. All the operations will be digitized to drive every aspect towards automation. Ecommerce will be the new way of doing business. Labour shortage, intelligent forecasting using AI and machine reading will be implemented, and sustainability will be given priority. These are expected to resurge after the pandemic. In the long run, redundancy, proper management of inventory, and resilience will be the new look of global supply chains. The new-look will position the global supply chain up to thrive.

 References

Flynn, B., Cantor, D., Pagell, M., Dooley, K., & Azadegan, A. (2021). From the Editors: Introduction to Managing Supply Chains Beyond Covid‐19 ‐ Preparing for the Next Global Mega‐Disruption. The Journal of Supply Chain Management, 57(1), 3–6. https://doi.org/10.1111/jscm.12254

Chadid, H. (2020). The impact of COVID-19 on global supply chains. Oxford Business Group. https://oxfordbusinessgroup.com/news/impact-covid-19-global-supply-chains

Fonseca, L., & Azevedo, A. (2020). COVID- 19: outcomes for Global Supply Chains. Management & Marketing (Bucharest, Romania), 15(1), 424–438. https://doi.org/10.2478/mmcks-2020-0025

Bergstrom, J., Gallagher, P., & Stewart, I. (2020). Looking beyond the horizon. Deloitte Insights. https://www2.deloitte.com/us/en/insights/focus/industry-4-0/supply-chain-future-post-pandemic.html

Erhie, E. (2020). Impact of COVI-19 on the supply chain industry. PwC: Audit and assurance, consulting and tax services. https://www.pwc.com/ng/en/assets/pdf/impact-of-covid19-the-supply-chain-industry.pdf

Hedwall, M. (2020). The ongoing impact of COVID-19 on global supply chains. World Economic Forum. https://www.weforum.org/agenda/2020/06/ongoing-impact-covid-19-global-supply-chains/

Sureddin, S. (2021). Twelve post-pandemic supply-chain trends for 2021. Supply Chain Brain – Supply Chain News, Analysis, Videos, Podcasts. https://www.supplychainbrain.com/blogs/1-think-tank/post/32374-twelve-post-pandemic-supply-chain-trends-for-2021

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