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The coronavirus pandemic has hit almost every corner of the world. Apart from its socio-political impact, the effects of the crisis have also severely affected the economy. Many industries have suffered as a result of the pandemic; the supply chain industry is no exception.
It can be challenging to move materials and products from one side of the world to the other, and the coronavirus pandemic is now separating a world that was once a globalised marketplace. Both producers and distributors are facing setbacks due to the challenges within the supply chain industry.
Let’s take a closer look at how the industry has been affected;
Production of High-Value Products Has Decreased
With technological advancements in many industries, production processes are typically divided into different stages, each one taking place in a separate location. These are known as global value chains (GVCs), and they mirror the traditional distribution of labour but on a large scale. China, which was the first country to experience the effects of COVID-19, plays a vital role as both a supply and demand hub in many GVCs.
Many manufacturers, regardless of their location, ship the components they need from China. Following the impacts of the pandemic on the export-import sector, sourcing critical raw materials became challenging, and indeed, impossible in some cases. As a result, there has been a low supply of some products across various countries.
In addition to being the leading global supplier of raw materials, China also runs several processing and assembly operations. For instance, Foxconn is one of the largest electronic assembly companies in the country, working with famous brands like Sony and Apple.
Apart from China, the United States and the European Union are the other primary players in the GVCs. Shipping materials or high-value products to and from these regions has become difficult. But it won’t stay that way forever.
Service Levels are changing
It’s important to realise that while some businesses may have difficulty delivering products, others, especially those in the machinery/parts industry, are working to improve their delivery times by changing and growing their businesses as a result of the pandemic. Logistics companies have taken the opportunity to review their service offerings and performance and have adapted to meet ever-changing consumer expectations.
In fact, some companies, such as Fortis Catalogue, have been able to continue providing their rubber tracks for excavators with the same outstanding service, while working continuously to enhance delivery options and reduce transit times for their customers, while still offering their entire catalogue.
Reduced Demand
We are living through unprecedented times. Lockdowns to the extent we have seen in 2020 have never happened before. Currently, industries with the highest demand are the medical and food sectors, while many other sectors are struggling to hit their targets, and as such, factories and retailers are closing down permanently. Restriction of movement has played a considerable part in the downturn in demand, with some countries opting for total lockdown and quarantine on all items shipped from abroad.
It is no surprise that the oil industry has been severely impacted. Vehicles have been locked up in garages due to the widespread quarantine measures, as no one was able to travel, meaning oil demand has plummeted and prices have fallen drastically. For the first time in history, the U.S. saw its oil prices hit below zero. One of the world’s most lucrative industries is undoubtedly among the hardest hit.
Medical Supplies Have Been Prioritised
The global demand for medical supplies has made this sector one of the most profitable during the pandemic. Due to overwhelming patient numbers expected at the hospitals, there is an enormous demand for medicines and safety equipment. As we have already witnessed in Italy and parts of the United States, this equipment is vital to prevent healthcare systems from being overwhelmed and having to make choices about which patients to treat.
This prioritisation has had far-reaching negative impacts on other, non-affiliated industries. However, it has led to other companies to be proactive and take advantage of the situation, adjusting their operations to produce products like masks and hand sanitisers—provided they meet the required standards. Whether this shift will be permanent or temporary remains to be seen.
What Next for The Supply Chain Industry?
Evidence is pointing towards global economic distress shortly. The impact of the pandemic is already being felt, but no one knows if the worst is yet to come. Advocating for a coordinated response seems to be the best way to navigate this crisis.
Many governments are urging their domestic investors to rethink the spread of their production requirements across various countries or continents in a bid to prevent a further downturn. Not all companies will yet appreciate or understand the effect of this global shock on their business. Stakeholders will need to come to an agreement about future trading if they are to succeed through the uncertainty of 2020.
Final Remarks
Anyone working within the supply chain industry, ranging from the manufacturers to distributors, has, without doubt, felt the impact of COVID-19. Movement of goods in the first half of 2020 has been hindered by government restrictions, with the future still uncertain. This has led to reduced production of some products while others have seen the lowest demands in history. It is not yet clear when things will get back to normal, or if there will be a new normal, but companies must nevertheless remain agile in these uncertain times.