Supply chain disruptions resulting from the coronavirus have brought countless international corporations low. Hitendra Chaturvedi, a professor of supply chain management, discusses what may come from these significant disruptions.
While China has begun slowly reopening as the number of coronavirus cases there decreased in recent weeks, reports of the illness shot up in other countries, and the epicenter of the pandemic shifted to Europe and then the U.S. Thus, multiple supply chains have been compromised as the outbreak spreads, and there’s no telling when those links in the various chains will operate at normal capacity.
There are waves of effects coming even if Chinese manufacturing gets back to full-go. As the coronavirus has spread globally, drops in different trading partners’ ability to supply is felt everywhere. What this is showing, especially in the U.S., is we need to reassess supply chain strategy and make it stronger to withstand unforeseen, major disruptions.
Possible outcomes include:
Learning That Cost is Not the Only Consideration
When companies in the future plan their overall global supply chain strategy, they may decide that paying more to establish a more resilient and flexible process would be worth it by reducing risk. Companies typically find the lowest-cost supplier, but if you have a single source, you’re vulnerable, and that’s what’s happening now. This will move companies more toward mitigating risk, which requires making investments. They could stabilize their supply chains by enlisting alternative suppliers, boosting inventories or investing in more diverse ways of distribution.
Localizing More Manufacturing and Transporting
Dependence on China for manufacturing has put small and midsize businesses in jeopardy. The pandemic exposes the vulnerability of companies that rely heavily on a limited number of trading partners. As a result, businesses will look to restructure their global supply chains, and some companies will look at localizing more than they would have in the past. A shift in that direction had already started during the U.S.-China tariff fight.
Planning for Future Disruptions
Another result of the pandemic’s impact on supply chains is it will compel companies to anticipate disruptions in the future and build in quick responses to their supply chain. This involves a process called mapping, in which companies engage suppliers in order to better understand their sites and processes. It’s imperative for businesses running a global supply chain to be in the know about news that could cause disruptions. You have to be proactive and not reactive. Knowing where the disruption will come from and how that will impact their products allows companies lead time and the ability to create a mitigation strategy.
I expect to see a rise in the use of AI, chatbots, the internet of things and robotic process automation to facilitate supply chains. This will be done not only as a pretext to bring manufacturing jobs back from China, but also for purely selfish reasons, because bots do not get sick.
The impact of the coronavirus pandemic on supply chains has given new meaning to the word “disruption.” We’ve never seen anything quite like this, and businesses can learn a lot from it that will help their supply chain process in the future.