In September 2020, the World Health Organization, with the advice of the CSCS Task Force, commissioned an assessment of the Covid-19 Supply Chain System (CSCS) focused on three main areas: strategy, implementation and moving forward. Vendors diversified into providing services to other industries that needed them during the earlier stages of the pandemic. Opinions expressed are those of the author. Most worryingly, these new problems are emerging just as senior leaders are turning their attention away from supply-chain issues. A well-designed supply chain is built to withstand some supply uncertainty and some demand fluctuations. Others invested in their distribution systems, so that they could anticipate and respond more quickly to local shortages. To make sure . But the extent of pandemic-related shortages across vast ranges of goods now challenges whether these benefits are worth the tradeoff if the result is a significant lack of preparation for future disruption. In most cases, neither the automaker nor the semiconductor manufacturer can trace what goes on in these intermediate layers (or tiers) of the supply chain, due in part to lack of trust among parties in supply chains, who fear that the information might be used to replace them or to bargain for a price reduction. A key reason for the acute problems in motor vehicles is that automakers appear to have underestimated demand for their products after the start of the pandemic. In the past, many industries have been surprised by strong demand and caught with too little inventory of specific goods. Amazon has increased investments in Amazon Logistics, expanding its distribution warehouse center footprint and growing its fleet of airplanes, trucks and last-mile carrier vans to deliver on the surge in e-commerce sales and reduce reliance on third-party carriers like UPS, FedEx and USPS. Hundreds of thousands of small and large businesses have to reopen, millions of laid-off workers have to find new employers, and manufacturers have to bring back production lines idled during the pandemic. World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use. Most businesses would be surprised by how much inventory sits in their value chains and should estimate how much of it, including spare parts and remanufactured stock, is available. As the crisis takes its course, constrained supply chains, slow sales, and reduced margins will combine to add even more pressure on earnings and liquidity. Coronavirus Is a Wake-Up Call for Supply Chain Management But a surprise disruption that brings your business to a halt can be much more costly than a deep look into your supply chain is. In our 2020 survey, only 10 percent of companies said they had sufficient in-house digital talent. During peak COVID-19 fears, supply chain touchpoints all over the globe were affected in different ways. The next step is to conduct scenario planning to project the financial and operational implications of a prolonged shutdown, assessing impact based on available capacity (including inventory already in the system). Create a free account and access your personalized content collection with our latest publications and analyses. The U.S.-China trade war has motivated some firms to shift to a China plus one strategy of spreading production between China and a Southeast Asian country such as Vietnam, Indonesia, or Thailand. In our increasingly data-driven and electrified world, the products of a growing number of companies now require semiconductors, making them dependent on the chip supply to bring products to market. Examples of the latter include production of the most advanced smartphone chips, which is concentrated in three facilities in Taiwan owned by the Taiwan Semiconductor Manufacturing Company; fabrication of exotic sensors and components, which happens largely in highly specialized facilities in a handful of countries, including Japan, Germany, and the United States; and refining of neodymium for the magnets in AirPods and electric-vehicle motors, almost all of which is done in China. And who can forget the Ever Given saga, in which a mammoth cargo ship blocked the Suez Canal, stranding 400 vessels and holding $9 billion in global trade hostage each day? Yet supply cannot rise overnight to satisfy demand. Early in 2021, Taiwan Semiconductor Manufacturing Co. announced a new factory in the U.S. with possible new manufacturing operations in Germany and Japan. Managers should consider a regional strategy of producing a substantial proportion of key goods within the region where they are consumed. Just under half of the companies in our survey say they understand the location of their tier-one suppliers and the key risks those suppliers face. Adding to the complexity, different retail chains wanted their own packaging and assortments. RT @RwandaFinance: On VAT exemption on maize flour and rice, Minister @richard_tusabe explained that the move was informed by the high cost of living and doing business brought about by COVID-19 impact as well as supply chain issues, all of which affect Rwandans. The analysis will draw on a cross-functional team that includes marketing and sales, operations, and strategy staff, including individuals who can tailor updated macroeconomic forecasts to the expected impact on the business. As some coffee drinkers can remember, coffee prices have spiked repeatedly due to frosts that damage coffee harvests, most recently in late 2010. Availability and supply of a wide range of raw materials, intermediate goods, and finished products have been seriously disrupted. The majority of companies did not heed the lessons of the natural disasters of the last decade and, as a result, suffered severe supply disruptions when the Covid-19 pandemic struck. Hospitals and other healthcare providers have been hit particularly hard. Entire industries that shrank dramatically during the pandemic, such as the hotel and restaurant sectors, are now trying to reopen. Other Black Swan events include . Going forward you will see some differences between different companies. Chinese firms that want to protect their global market share are already looking to Egypt, Ethiopia, Kenya, Myanmar, and Sri Lanka for low-tech, labor-intensive production. We need to transform the pain of that experience into new ways. How can supply-chain leaders also prepare for the medium and long termsand build the resilience that will see them through the other side? The supply shock that started in China in February and the demand shock that followed as the global economy shut down exposed vulnerabilities in the production strategies and supply chains of firms just about everywhere. Rationing, e.g., many retailers respond to shortages by rationing certain items. This paper investigates the effect of supply chain disruption on production activities, in particular by exploiting the difference in the timing of the lockdowns in China and Japan. A weekly update of the most important issues driving the global agenda. The authors wish to thank Viktor Bengtsson, Chris Chung, Curt Mueller, Hilary Nguyen, Ed Paranjpe, Anna Strigel, and Faaez Zafar for their contributions to this article. To supply Western Europe with items used there, companies could increase their reliance on eastern EU countries, Turkey, and Ukraine. Even as the immediate toll on human health from the spread of coronavirus (SARS-CoV-2), which causes the COVID-19 disease, mounts, the economic effects of the crisisand the livelihoods at stakeare coming into sharp focus. Expecting weak demand, they cancelled orders of semiconductors, an item with a long lead time and with a secular increase in demand from other industries. From stay-at-home orders to travel bans and quarantines, supply chains were interrupted like never before. As firms relocate parts of their supply chain, some might ask their suppliers to move with them, or they might bring some production back in-house. For example, Exhibit 3 shows how a digitally enabled clustering of potential suppliers shows the capabilities they have in common. The love affair with just-in-time manufacturing may be over. But the savings from those practices have to be weighed against all the costs of a disruption, including lost revenues, the higher prices that would have to be paid for materials that are suddenly in short supply, and the time and effort that would be required to secure them. Revisit your product strategies. Building a new supplier infrastructure in a different country or region will take considerable time and money, as Chinas experience illustrates. How did supply chains adapt to the COVID-19 lockdowns in 2020 During the pandemic, when demand surged in many product categories, manufacturers struggled to shift from supplying one market segment to supplying another, or from making one kind of product to making another. The purpose of this study was to identify and exhibit the interrelationships among COVID-19's impacts on supply chain activities. The Administration has established a Supply Chain Disruptions Task Force to monitor and address short-term supply issues. Advanced-analytics approaches and network mapping can be used to cull useful information from these databases rapidly and highlight the most critical lower-tier suppliers. Share to Linkedin. Once youve identified the risks in your supply chain, you can use that information to address them by either diversifying your sources or stockpiling key materials or items. Companies will need all available internal forecasting capabilities to stress test their capital requirements on weekly and monthly bases. The analytical underpinnings of this risk analysis are well understood in other domains, such as the financial sectornow is the time to apply them to supply chains. Different industries have responded to the resilience challenge in markedly different ways. The Covid-19 coronavirus pandemic has exposed gaps in the ability of retailers to mitigate supply chain imbalances and offer an omnichannel customer experience, among other challenges in. And by this year, that figure had dropped dramatically, to only 1 percent (Exhibit 6). These resilient responses from manufacturers helped to shorten the stressful period of empty store shelves. Nevertheless, despite the prevalence and impact of supply-chain shocks over the past two years, only 39 percent of companies are investing in tools to monitor risks and disruptions (Exhibit 5). Planning for supply chains that can function well in this environment is very expensive. 4. A small minority (4 percent) set up a new risk-management function from scratch, but most respondents say they have strengthened existing capabilities. These low inventories have caused cascading issues in industrial supply chains. The supply shock that started in China in February and the demand shock that followed as the global economy. The common point of pande Apr 14, 2022 They are some of the most enduring memories from the early days of the Covid-19 pandemic: long, socially distanced lines to buy food; empty shelves in supermarkets; shortages on everything from non-perishable foods to fresh fruit. Danko Turcic is an associate professor of operations and supply chain management. Theres no doubt that the tumultuous events of the past 18 months led to the massive disruption of many key supply chains. Either coursetransplanting a production line or setting up a new oneis an opportunity to make major process improvements. The goal of the mapping process should be to categorize suppliers as low-, medium-, or high-risk. Others have been hit with a supply shock due to a crop failure or a natural disaster which took key factories temporarily offline, such as after the 2011 earthquake in Japan. How the beverage supply chain is adapting to COVID challenges in 2021 To do that, Tom Linton, who served as a supply chain executive at several major companies, and MITs David Simchi-Levi suggest applying metrics such as the impact on revenues if a certain source is lost, the time it would take a particular suppliers factory to recover from a disruption, and the availability of alternate sources. An integrated approach of exploratory factor analysis (EFA) and grey-decision-making trial and evaluation laboratory (G-DEMATEL) was used to reveal the causal . What particular impacts are we seeing now due to the coronavirus? Impacts of COVID-19 on Global Supply Chains: Facts and Perspectives MIT Professor Yossi Sheffi on some of the pending supply chain impacts to be expected resulting from the COVID-19 coronavirus outbreak. Many businesses are able to mobilize rapidly and set up crisis-management mechanisms, ideally in the form of a nerve center. This past year, companies made bold moves in risk mitigation by adopting a more distributed manufacturing strategy to diversify supply chains and better prepare for vulnerabilities both natural and man-made. The lesson that needs to be learned: We cant assume suppliers will always be there if we dont treat them well during difficult times. In our homes, there are semiconductors in air conditioning temperature sensors, rice cookers, refrigerators, LED lighting systems and, of course, in all of our digital devices from phones to laptops. Thomas Y. Choi, Dale Rogers, and Bindiya Vakil, David Simchi-Levi, William Schmidt, and Yehua Wei, Clayton M. Christensen, Stephen P. Kaufman, and Willy C. Shih, From the Magazine (SeptemberOctober 2020), China has the second-largest economy in the world, Bringing Manufacturing Back to the U.S. Is Easier Said Than Done, Its Up to Manufacturers to Keep Their Suppliers Afloat, Coronavirus Is a Wake-Up Call for Supply Chain Management, Coronavirus Is Proving We Need More Resilient Supply Chains, From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions, Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things. When China first opened its special economic zones in the 1980s, it had almost no indigenous suppliers and had to rely on far-flung global supply chains and on logistics specialists who procured materials from around the world and kitted them for assembly in Chinese factories. The economic turmoil caused by the pandemic has exposed many vulnerabilities in supply chains and raised doubts about globalization. For more details, review our .chakra .wef-12jlgmc{-webkit-transition:all 0.15s ease-out;transition:all 0.15s ease-out;cursor:pointer;-webkit-text-decoration:none;text-decoration:none;outline:none;color:inherit;font-weight:700;}.chakra .wef-12jlgmc:hover,.chakra .wef-12jlgmc[data-hover]{-webkit-text-decoration:underline;text-decoration:underline;}.chakra .wef-12jlgmc:focus,.chakra .wef-12jlgmc[data-focus]{box-shadow:0 0 0 3px rgba(168,203,251,0.5);}privacy policy. Doing so allowed both to focus and to make more storage space for items that are currently in high demand. Supply-chain recovery in coronavirus timesplan for now and the future. With the sole exception of the healthcare sector, more than 50 percent of respondents in every industry say they have implemented additional analytics approaches during the past 12 months (Exhibit 3). Over time, stronger supplier collaboration can likewise reinforce an entire supplier ecosystem for greater resilience. Please enable JavaScript to use this feature. Demand evaporated in some categories and skyrocketed in others. Companies need to make their networks more resilient. The ongoing impact of COVID-19 on global supply chains Start by mapping the full extent of your supply network to identify both direct and indirect sources. As the coronavirus pandemic subsides, the tasks will center on improving and strengthening supply-chain capabilities to prepare for the inevitable next shock. Using a critical . This is time-consuming and expensive, which explains why most major firms have focused their attention only on strategic direct suppliers that account for large amounts of their expenditures. Restarting the economy after a pandemic and a recession has not been and will not be simple. In a post-COVID-19 world, supply chain stress tests will become a new norm. Collaborating with partners can be an effective strategy to gain priority and increase capacity on more favorable terms. Schwab Foundation for Social Entrepreneurship, Centre for the Fourth Industrial Revolution, Discovering the real impact of COVID-19 on entrepreneurship. The lesson: Companies should reconsider the pros and cons of producing numerous product variations. McDonald's exec: The Covid-19 meat shortages taught us all an - CNN Armed with a demand forecast, the S&OP process should next optimize production and distribution capacity. My experience in the tech industry has taught me that there are four areas in which we need to look at the supply chain in new ways, but these all apply regardless of the industry: 1. Some companies will build upon the momentum they gained during the pandemic, with decisive action to adapt their supply-chain footprint, modernize their technologies, and build their capabilities. Just under half of all respondents also say they are looking at network-modeling tools to help them improve supply-chain design in the longer term. ), Bringing Manufacturing Back to the U.S. Is Easier Said Than Done Willy C. Shih HBR.org, April 15, 2020, Its Up to Manufacturers to Keep Their Suppliers Afloat Tom Linton and Bindiya Vakil HBR.org, April 14, 2020, Coronavirus Is a Wake-Up Call for Supply Chain Management Thomas Y. Choi, Dale Rogers, and Bindiya Vakil HBR.org, March 27, 2020, Coronavirus Is Proving We Need More Resilient Supply Chains Tom Linton and Bindiya Vakil HBR.org, March 5, 2020, The 3-D Printing Playbook Richard A. DAveni HBR, JulyAugust 2018, Find the Weak Link in Your Supply Chain David Simchi-Levi HBR.org, June 9, 2015, From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions David Simchi-Levi, William Schmidt, and Yehua Wei HBR, JanuaryFebruary 2014, Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things Clayton M. Christensen, Stephen P. Kaufman, and Willy C. Shih HBR, January 2008, Does America Really Need Manufacturing? Gary P. Pisano and Willy C. Shih HBR, March 2012, Restoring American Competitiveness Gary P. Pisano and Willy C. Shih HBR, JulyAugust 2009. . The COVID-19 pandemic has created global health and economic disruption. When the Covid-19 pandemic subsides, the world is going to look markedly different. Consumers will continue to want low prices (especially in a recession), and firms wont be able to charge more just because they manufacture in higher-cost home markets.
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