BUSINESS & ECONOMY

COVID-19: IMPACT ON SUPPLY CHAIN AND WAY FORWARD- AN ARTICLE BY SAYEM KHAN

With the origin of the corona virus in China- the de-facto ‘factory of the world’– the global supply chain has been crippled and the impact of the disruption is only deteriorating with each passing day. With national lockdowns and the aviation & shipping industry coming to a halt, never has there been such restrictions on logistics and supply chain of numerous industries. Impact of Coronavirus on global supply chain is adverse. Let’s explore the insight of the impact of coronavirus on global supply chain.

According to a research conducted in March by Institute for Supply Chain Management nearly 75 per cent of companies reported supply chain disruptions due to coronavirus-related transportation restrictions and this is only expected to increase as the effect of the pandemic continues, and well over 50 per cent of the companies also reported experiencing sudden, unexpected delays in receiving orders, a problem compounded by supply chain information blackout from China. Moreover, in March almost 50% of the companies reported a negative impact to revenue.

In Bangladesh, the RMG industry has been hit the hardest with the disruption in supply chain. According to BGMEA, Bangladesh imported raw materials related to textiles and apparel worth $5.02 billion during fiscal year 2018-19, which is around 50% of total. Moreover, about 40% of the capital machinery related to the textile and garment industry comes from China. 

With the increase in globalization, the world’s supply chains have become more integrated. The disruption due to the Coronavirus highlights the need to transform traditional supply chain models, especially those highly dependent on China to fulfill their need for raw materials or finished products.

The Way Forward

Organizations need a more resilient and adaptive supply chain to deal with unprecedented disruptions like the covid-19 pandemic. People with higher degree and expertise on supply chain management courses recommend a lot of solutions.

Organizations may consider changing their supply chain strategy to reduce over dependence on China which can lead to Reshoring closer to home or Nearshoring to a nearby country.

Reshoring is the practice of transferring a business operation that was moved overseas back to the country from which it was originally located while Nearshoring is the practice of transferring a business operation to a nearby country in preference to a more distant one.

“There are diminishing returns from the old model of moving continually from one low-cost sourcing country to the next.”- McKinsey and Company, Apparel CPO Survey 2019

However, near shoring is considered costly because of the lack of all raw materials in one place- the reason it is not so popular. Although there are doubts about its viability, automation and technological innovations are making it much more feasible.

But there is no doubt to the fact that, in post pandemic economy there will be increased supply chain automation. Through integrating automation technology, manufacturers can lower production costs, increase output, and decrease vulnerability to health risks.

For the last decade, the focus has been on supply chain optimization to minimize costs, reduce inventories, and drive up asset utilization; but this has removed buffers and flexibility to tackle and react to disruptions like COVID-19. With the emergence of AI (Artificial Intelligence) and AR (Augmented Reality), and other technologies such as IoT, Cloud Computing, 5G, 3D printing, and Robotics, there will be dramatic improvement in visibility across the end-to-end supply chain, which will support companies’ ability to resist shocks like COVID-19 (Deloitte, 2020).

Consequently, the traditional linear supply chain model will be transforming into digital supply networks (DSNs), leveraging on end-to-end visibility, collaboration, agility, and optimization.

As with the two world wars, humanity will win the battle against the COVID-19 pandemic; but the aftermath may be societal change and technological advancement on an unprecedented scale.


The writer is a sophomore in Institute of Business Administration (IBA), University of Dhaka.

You can reach him: [email protected]


References: 

  • Deloitte (2020). COVID-19: Managing Supply Chain Risk and Disruption. Deloitte.

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