On January 30, 2020, the World Health Organization declared a global health emergency caused by Covid-19. In addition to the health consequences for humans, the effects on global supply chains are becoming apparent and could have an impact on global business processes.
At this stage we have to deal with a situation of uncertainty - but for how much longer?
Warehousing1 provides information about the potential impact of the virus on the supply chain from a global perspective and explains, what you can do for your own business right now.
Stress Test for Supply Chains?
Just a week ago, empty shelves were a normal occurrence at the supermarket. In the meantime, the situation has recovered and the regular assortment is almost completely available again. The calming of the situation can be explained on the one hand by the decline in initial panic effects such as hamster purchases, and on the other hand by stabilized supply chains in the food industry.
Nevertheless, two effects of the Covid-19 virus on global supply chains can currently be identified. The continuing strong increase in demand for products such as disinfectants, sanitary products, respiratory masks or long-life foods is leading to demand-related congestion, especially in the pharmaceutical industry. In addition, there is a supply-driven interruption, as many products lack components required for final assembly. This is primarily evident in the automotive industry, as it has long supply chains with many production processes.
The global supply chains of the following industries are increasingly affected:
- High-Tech consumer electronics
- Apparel production
- Automotive, industrial and heavy engineering
- Means of transportation
However, the supply chains of all sectors could be exposed to greater risks as the year progresses. Depending on seasonal demand, it may no longer be possible to provide full liquidity. In principle, global supply chains currently have to undergo a stress test, but so far there are no signs that this test has been lost.
Decline in Global Supply Chains
Even before Corona, the trend towards the dismantling of global supply chains was already apparent. Global supply chains have various advantages such as cost reduction or easier access to special resources, but times of crisis like now show their vulnerability.
Global supply chains connect the whole world
Many companies recognized this before Corona. Among others, the trend can already be seen in the chemical, metal and electrical industries in Europe. Global supply chains, on the other hand, have grown in the automotive industry, as many companies produce in Asia.
Supply chains could be more regional in the future, with an additional focus on digitalization. Even under consideration of possible additional costs, it is apparent that the wage differentials between China, Eastern Europe and Mexico are not as severe as they were a few years ago. This also argues in favour of rethinking and the so called ‘reshoring’ - bringing production back to the home market. As a possible impact on global supply chains, Corona could accelerate the regionalisation and digitalisation of supply chains, but cannot be seen as a cause for future regionalisation.
New Trends for the Future Supply Chain
In addition to bringing back the global value chains, new technologies also help to make supply chains more stable and flexible. The Internet of Things, artificial intelligence, robotics and 5G, among others, are used to identify and overcome emerging problems at an early stage.
It is therefore important for companies to pay attention to the following points now:
- Create transparency in the supply chain
- Digitize processes in sourcing, management and overview of supply chains
- Increase flexibility of the supply chain
- Early search for alternatives from suppliers
- Develop a supply chain monitoring and response plan
What actual effects we can expect in terms of supply chains will only become apparent in the coming weeks and months. At the moment, it is therefore advisable to take increased precautions and control of your own supply chain.
Warehousing1 also supports you and your company in times of crisis. With our innovative platform and the use of AI-based software, suitable warehouse logistics solutions can be found and digitally managed at any location. Please arrange an initial meeting to learn more about our solution.