Supply Chain Management and Risk in the Time of COVID-19

When the spread of the SARS-COV-2 coronavirus and the COVID-19 virus first started to hit headlines at the top of 2020, nobody could have predicted the devastating effect it was going to have on our lives and businesses. Now, well over a year later, we are still suffering the effects of this deadly and debilitating virus and our lives are still being significantly disrupted in an effort to curtail its spread.

Different parts of the world experiencing a different ebb and flow when it comes to levels of infection, with some almost free and clear and others dipping in and out of lockdown measures. It’s therefore important to understand the varying circumstances in different countries – especially when it comes to assessing supply chain risk – and the way supply chains in the Asia-Pacific region are transforming.  

China

Obviously, no discussion of COVID-19 or supply chains is complete without China. As the country in which the coronavirus pandemic began, China now finds itself almost returned to a state of relative normality, with very few new COVID-19 cases reported in recent months.

However, while one may assume that China’s emergence from the worst of the pandemic as a sign that it will be returning to its position as a global manufacturing (and therefore supply chain) superpower, may discover why assumption is so often referred to as the mother of all mistakes.

For years now, countries (especially the USA and UK) have outsourced nearly all their manufacturing to China and turned the country into an economic titan which seemed on course to eclipse the US as the next global superpower. However, the pandemic has shone a bright and painful light on how fragile relying on one country and just-in-time supply chains can be.

Compounding the issues relating to the pandemic is the US-China trade war instigated by former US president Donald Trump. While Trump no longer occupies the Oval Office, the changes he policies he enacted relating to trade with China will take years to unravel and is a big part of the reason why China fell more than 40 percent short of meeting its goods purchase commitments set out for 2020.

Outside of China

Last year, Malaysia saw its steepest drop in exports for a decade, with April figures showing a drop of 23.9% compared to the previous year. However, a RM35 billion economic stimulus package and its entry into a Recovery MCO phase are creating some cause for optimism.

Indonesia, like many other countries, initially focused on containment of the virus. However, in September 2020, it announced plans to, among other things, address the flaws the crisis had revealed in its supply chains. These strategies include phasing out just-in-time supply chain strategies, encouraging domestic solutions for essential goods such as food and medicine, and accelerating the digitization of its supply chain networks.

Filipino farmers have responded to COVID disruption by working with government to boost the country’s self-sufficiency. The agriculture industry employs nearly a quarter of the Philippine workforce and the P31 billion initiative will enhance inputs, provide seeds, and boost production. P8.5 billion of this fund will be dedicated to increasing domestic rice production from 87% of consumption to 93%, thus further reducing the country’s reliance on imports.

More recent news has seen the US and other global buyers identify Vietnam and India as potential alternative sourcing locations to China. Approximately a third of buyers stated that they intend to increase sourcing from Vietnam in 2021.

The Road to Recovery

The disruption caused by the COVID-19 crisis has had global industry playing catch up for some time. However, we are now at a point where we are more used to living with COVID-19 in our lives, and can focus on making sure businesses are able to effectively respond to this kind of disruption when it occurs.

With everything still remaining so fragile, businesses are not thinking about long-term strategies when it comes to supply chain operations in Asia-Pacific right now. The focus of the vast majority of organizations is likely to be on short-term survival, meaning they are likely to be weighing up the pros and cons of shifting and/or diversifying their operations. This means that there is both danger and opportunity for manufacturers and suppliers in the A-P region to make their proposition as attractive as possible.

(Image source: https://www.accenture.com/be-en/insights/consulting/coronavirus-supply-chain-disruption)

Factors which need to be considered include whether new tariffs or protectionist policies are likely to be applied to the kinds of good being shipped, and which regions are the most unstable in terms of coronavirus restrictions and are therefore unable to guarantee a consistent service.

This last point is leading a serious debate in the supply chain world as to whether companies are going to be looking to relocate their manufacturing operations to more stable (in COVID terms) jurisdictions. One thing the pandemic has taught is, is the dangers of relying on a single region for the majority of manufacturing and imports and supply chain leaders the world over are going to be looking to diversify their product and/or material sourcing to prevent or mitigate the kinds of product shortages we saw during the early days of the pandemic in 2020.

Business leaders need to make sure they have processes in place which allow them to switch with agility to other suppliers in these more diverse supplier networks. This should help procurement teams avoid the kinds of product and material shortages we saw in the first half of 2020 and, to a certain extent, which are continuing to this day. 

That’s not to say that China should be counted out just yet. Despite shedding global export market share at a remarkable pace (thanks to the pandemic and its issues with the United States) China will continue to be a force majeure in the global supply chain world. 65% of European Chamber of Commerce members still rank China in their top three new investment destinations, and its global market share when it comes to exports to emerging markets has continued to rise in nearly all categories, which is making the country a manufacturing base through which foreign multinationals can sell into these markets.

Digitalization and sustainability are also becoming even hotter topics now. Digital tools are able to make shipments more reliable and secure thanks to IoT and blockchain enabled sensors, and, of course, remote working tools are worth their weight in gold these days. The environmental impact of long-distance supply chains is also becoming increasingly important to both consumers and businesses and investment into electric vehicles and alternative energy sources needs to be at the fore of industry consciousness.

Final thoughts

The coronavirus pandemic is going to continue to disrupt the Asia-Pacific region for the foreseeable future and supply chains clearly need to adapt and persist through this unstable period. However, this does not mean everything which was underway in the pre-COVID world must be consigned to the scrap heap, as innovations such as sustainability and digitalization are perhaps even more important now than ever before.