The spread of COVID-19 has had a significant impact on global trade. Many of the epicenters for this disease have corresponded to the regional manufacturing and processing hubs for products we rely on. This has inevitably caused disruption at various stages in our global supply chains.
Manufacturing is now a global enterprise. Over the last 40 years. production has been organized into global value chains (GVCs). Raw materials and intermediate goods will pass through several economic operators, in a variety of countries, before being assembled and shipped to customers in all corners of the planet. From raw material to end consumer, the GVC may encircle the world several times. The complexity and international reach of these supply chains makes them particularly vulnerable to disruption by negative events like pandemics.
First identified as an international public health emergency in January 2020, and declared a pandemic on March 11, 2020, COVID-19 has severely affected GVCs. China, Europe, and the US, all major GVC hub regions, have all been epicenters. In China, the first epicenter for the disease, industrial production fell by 13.5% in January and February, compared to 2019. This trend has followed the disease, as other countries have been forced to instigate lockdowns to combat the spread of the disease.
Industries that rely on labor-intensive processes have been particularly badly hit by social distancing rules. The knock-on effects of this disruption may be felt for several months as it passes along the supply chain.
‘Bottlenecks’, where weak links slow down or completely stifle the flow of goods, can happen at any point in the supply chain. As a weakness is addressed, the next weakest point will become the primary disruption, a phenomenon known as the ‘shifting bottleneck’. A pandemic, and the way governments and individuals respond to it, creates disruption on such a large scale, that it is impossible to predict where the next bottleneck will appear. Businesses are automatically forced to adopt a reactive approach to supply chain disruption.
Without an effective vaccine, these forms of disruption are going to continue. The effects are going to be particularly severe in labor-intensive stages of the GVC – farming and factory production.
In the last few months, many of us will have experienced empty shelves in our grocery stores. At first glance, this may seem to be the result of a failure in the supply chain. In fact, this has largely been the result of panic-buying by consumers – for example, stockpiling toilet rolls. In reality, there has been no major disruption in our food and grocery supply chains.
One area where it might be predicted there will be shortages is in the GVC for prescription drugs. These rely on supply chains in China and India, two hotspots for COVID-19 that have instigated lockdowns. China is a key supplier of medicinal raw materials and India has become a major producer of generic drugs.
There have been calls in several developed countries for businesses to rethink GVCs, to avoid bottlenecks and improve resilience in the supply chain.
A key input into the creation of a more durable supply chain management system is diversification. Reliance on a single supplier has inherent risk. If a supply chain relies on a single source for a raw material or component, and they are affected by a negative event, then businesses along the supply chain will be unable to operate until an alternative source is found.
COVID-19, however, has hit supply chains in such a way that simple diversification may not be enough. Instead, governments and international regulatory agencies need to work together to build resilience in the supply chain. This can only be achieved through international cooperation.
The pandemic is a global experiment to see how quickly supply chains can diversify when faced with insurmountable obstacles. By being creative and resourceful, manufacturers have utilized their supply chain management systems to find alternative sources for raw materials and intermediate goods.
Disruptions to the flow of materials along the supply chain may also result in additional disruptions, such as the cessation of normal operations – for example, the work of internal compliance and quality assurance teams. In turn, this can have a knock-on effect further down the supply chain.
To help businesses respond to these additional disruptions, SGS can utilize its global network of highly trained auditors to execute brand checklists, based on the client’s own specifications. These will ensure standards are maintained, thereby minimizing the risk of disruption, and saving clients both time and money.
Additionally, SGS provides advanced data analytics and supplier audit data management through its Customized Assessment Tracking System. A simple, user-friendly dashboard that lets clients receive real-time reports, audit scheduling capabilities, auditor output metrics, and complex supplier key performance indicators (KPIs).
SGS supports manufacturers by ensuring their suppliers remain compliant. By improving traceability and visibility to the supply chain, SGS can help clients mitigate the risks inherent in GVCs.
Learn more about Supply Chain Management.