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How COVID-19 is reshaping global supply chains

10 Jun 2020

Article by HCL Technologies executive vice president of digital consulting and analytics, Amitava Sengupta.

As the COVID-19 pandemic disrupts lives and businesses around the world, one area coming under increasing pressure is supply chains.

With modern life now heavily dependent on the movement of goods around the globe, any disruption can have significant implications. If those disruptions continue for an extended period, the impact can be dire.

According to a recent survey by the Institute for Supply Chain Management, almost 75% of companies are reporting some level of supply chain disruption as a result of the viral outbreak. This figure is expected to rise even further in coming weeks.

The survey also found more than 50% of companies had already experienced sudden, unexpected delays in receiving orders from suppliers in China.

Facing the challenges  

Results such as these demonstrate the vulnerable state of global supply chains, yet this is not a situation that has occurred overnight. The consolidation of suppliers in certain regions and the ‘just-in-time’ strategies followed by many businesses have heightened risk and meant any disruption to flows has an immediate impact on business activity.

This situation is particularly evident when you look at the manufacturing sector. In the past, components needed to create a finished product tended to be sourced from a variety of different locations around the globe, however these supplies have now become much more concentrated. 

As an example, India imports more than 50% of its Active Pharmaceutical Ingredients (APIs) from China. Between the Indian government selectively restricting API imports and the logistical challenges created by COVID-19, India’s pharmaceutical industry is going to find it difficult to maintain its position as the largest global supplier of generic medicines and this could lead to a global shortage.

There are also challenges when it comes to procurement. In our globally integrated world, a drive towards efficiency has caused an increasing consolidation of production in lower-cost countries such as China, Taiwan and Vietnam. With the pandemic starting in China and hitting countries across the globe, the need for distributing risk has become more evident than ever.

The task of distribution is also under pressure. There are challenges around maintaining staffing in warehouses and keeping trucking fleets operational. This, coupled with unnatural spikes in demand, can have an impact on supply chains and quickly lead to artificial shortages.

Reengineering the supply chain

The pressures being placed on organisations around the world by COVID-19 are leading to a reassessment of how supply chains function. They are also likely to accelerate the process of digital transformation as a means of overcoming weaknesses and vulnerabilities.

There are several ways in which businesses can go about creating resilient supply chains in a post-COVID world. First, there is an urgent need to reduce dependency on physical labour in areas such as transportation, logistics and warehousing. This can be achieved through the introduction of technologies such as the Internet of Things, drones, blockchain and artificial intelligence and machine learning.

Second, it’s clear that factories which can modularise production and adapt lines in line with demand changes will become the norm. They will be backed by supply networks capable of communicating intelligently with one another, thereby increasing their effectiveness and agility.

Some of the key elements that will emerge in the supply chains of a post-COVID world include:  

  • Intelligent procurement to help organisations understand where and when to source using advanced machine learning algorithms based on factors such as past purchases and commodity pricing
     
  • Supply chain control towers that offer a single source of truth from sourcing to delivery that is available for all parties in the supply chain
     
  • Data management with intelligent automation and analytics that will deliver end-to-end information management and provide supply chain partners with insights around diagnostics, market intelligence and risk management
     
  • Supplier risk management to help organisations model cost structures and keep abreast of any supply disruptions and secure capacity 
     
  • Supply chain simulation involving modelling new strategies based on changes to business or operating models which helps to validate and identify the most cost-efficient supply chain design.

Humans have an innate ability to learn from experience and bounce back after destructive events. While the COVID-19 pandemic is far from over, now is the time to take stock of what needs to change to enable the creation of more efficient and resilient supply chains.

By carefully observing where virus-related factors have caused problems and disruptions, and taking steps to address them, the global exchange of goods on which we all rely can become much stronger.