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Supply chains have experienced unprecedented instability as companies have been impacted by tariff increases from the trade war with China and now COVID-19. As the novel coronavirus outbreak has rapidly expanded over multiple geographic regions, this global pandemic has undoubtedly raised concerns about how supply chain disruptions have become more prevalent over the span of just a few months.
China currently controls about one-third of the world’s manufacturing industry and likewise has been slated as the heart of the manufacturing industry. Yet, over-concentrating supplier dependency to one area is a risk that manifests even more profoundly during times of worldwide economic uncertainty. Implications in lead times as well as decreased supplier production have led to plummeting sales and revenues. Constraints in transport across the Pacific Ocean have also reduced transportation capacity, causing freight costs to escalate. Depending on the market, companies can either see an increase in demand or a significant decrease, in addition to other effects of recent market volatility.
As the U.S. GDP continues to contract, one of the nation’s chief economist predicts that this new normal could cost the U.S. economy $120 billion by the end of March as a result of store closures and decreases in consumer traffic in restaurants, airlines, and entertainment venues.
U.S. supply chains can curtail dependency on China by building resilience through proactive strategies that withstand major impacts of coronavirus disruption to the economy. In the case of the global pandemic caused by COVID-19, companies that can readily move production across alternative suppliers outside of China while still maintaining required levels of quality are more resilient because they are able to avert the risk of over-reliance in one geographic location and instead apportion supplies through a diverse supplier base across different regions.
With these abrupt changes to the social and economic climates, supply allocation decisions can be made easier through thoughtful financial leadership and innovative leveraging of technology. Maintaining supply chain visibility in the face of economic upheaval is another proactive and sustainable measure that helps companies thrive in disruptive environments such as the one seen with the coronavirus outbreak. Knowing where components of production are during end-to-end supply chain activity and being able to readily respond to supply side bedlam while still meeting demands also allows a company to strengthen supply chain resilience as they can quickly pivot to mitigate risks from disruption and make informed decisions.
Inevitably, disruptions to supply chains may continue to unravel as this global crisis continues to cut across industries. There is no true one-size-fits-all response and recovery plan to mitigate inherent risks associated with changes in economic and social climates. However, diversifying your supplier network across different geographic locations and increasing visibility of your supply chain to understand where disruptions and volatility will cause the most pain gives companies the flexibility to withstand the impact of future supply chain disruptions to keep operations as viable as possible while awaiting economic relief.
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