Why the Global Supply Chain is Not Immune to COVID-19 | A Q&A Session with Quantzig’s Analytics Expert

Apr 6, 2020

ventilator manufacturers

As the number of positive cases of the novel coronavirus (nCOV) rises exponentially, its impact on the global economy is quite notable since it has caused fluctuations in stock prices, a decline in global earnings, and even delays in movie premiers. Our analytics expert, Sudarshan, has been analyzing the spread of COVID-19 from the start, taking note of how the outbreak has impacted global supply chain operations.

Sudarshan KL, Associate Vice President – Presales at Quantzig has more than 11 years of experience in the field of analytics, management consulting, and technology. He has implemented supply chain, manufacturing, and marketing decision sciences solutions for large companies across industries such as CPG, financial services, technology, e-commerce, and pharmaceuticals. He has tremendous experience in conceptualizing and building advanced supply chain analytics solutions, system dynamics, marketing ROI models, customer and pricing analytics engagements for Fortune 500 clients across industries.

Discussion at a Glance

Q1: How has COVID-19 impacted the global supply chain and operations management initiatives of businesses?

Q2: How has stockpiling impacted the global supply chain? Have businesses witnessed a similar situation in the past?

Q3: What lessons can one learn from the ongoing impact of COVID-19 on supply chain operations?

By answering three critical questions in this QnA session, we discuss and gauge the impact of coronavirus on the global economy and analyze how businesses can diversify their supply chain operations to become more resilient based on our analytics expertise, domain knowledge, and lessons learned from past disasters and public health crises.

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Q1: How has COVID-19 disrupted the global supply chain and operations management initiatives of businesses across sectors?

Sudarshan: Over the past few months, the impact of COVID-19 on the global supply chains were mostly due to the situation in China. But with the virus spreading rapidly and several regions under lockdown, the disruptions to the global supply chains are already quite severe with widespread repercussions. These deep-rooted disruptions can be analyzed by categorizing their impacts into two distinct types. The first type of disruption can be traced back to the roots or the epicenter of the disease- ‘China’.

As we all know China is a primary source of industrial components, raw materials, and finished goods for leading manufacturers and retailers globally. Since the outbreak, most of the leading manufacturing units and raw material suppliers in China have been forced to stop their production and export activities. As a result, global pipelines that were meant to supply raw materials and components to businesses all over the globe are now exhausted, causing manufacturers to suspend their operations as they run out of the raw materials and other parts.

The second type of disruption is mainly due to the fact that China is a dominant market for essential goods and services. Local economies that are dependent on the revenue generated from China are the worst-hit as Chinese manufacturers suspend their operations and impose travel restrictions on the locals. With the borders closed and travel constraints in full swing, cross-border activities along with tourist flow from China has come to a standstill leaving a huge impact on the tourism and travel industry across the globe.

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Q2: How has stockpiling impacted the global supply chain? Have businesses witnessed a similar situation in the past?

Sudarshan: Stockpiling as we know is directly proportional to the spike in demand, the immediate effect of which is a shortage of goods and essential commodities. However, the impact of stockpiling on the global supply chain operations depends on the size of your business. Large, well-established businesses tend to be more robust and agile due to their centralized global supply chain operations and management system that includes- diverse supply bases, better inventory management, and a well-planned warehouse management system. This means it is more of an opportunity for bigger establishments to improve market shares when consumers value nothing but timely availability of essential goods and services. Whereas, for the other small-scale establishments the current global situation turns out to be a very vulnerable moment that could most probably result in a sharp decline in profits and market shares if they don’t take the right decisions and act immediately. Since stockpiling creates variability in demand, smaller businesses with a not so flexible and agile supply chain may find it difficult to ensure product availability at times of supply-demand shocks.

Have businesses witnessed a similar situation in the past?

Yes, businesses have witnessed similar supply chain shocks in the past but nothing compares to the impact of COVID-19 on global supply chain operations. The impact of COVID-19 in terms of the economies affected, the number of deaths, the geographies involved, and its prolonged duration, seems to be unique in every aspect.

However, one cannot forget the other supply chain disruptions that occurred due to SARS in 2003 and the earthquake in Taiwan in 1999 that resulted in huge losses of life and property. Also, more recently the earthquake that hit Japan left a huge black spot on the automotive sector that relied heavily on auto parts that were imported from affected Japanese factories.

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Q3: What lessons can one learn from the ongoing impact of COVID-19 on supply chain operations?

Sudarshan: Modern businesses are witnessing unique disruptions due to the ongoing impact of COVID-19. China, the epicenter of the outbreak had essentially locked down the entire country and imposed travel restrictions in an effort to curb the outbreak even before it was declared a pandemic by WHO. Most of the Chinese factories discontinued production and once-bustling ports became abandoned spots. This situation is not something one could fully anticipate or plan for. 

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But what leading businesses can learn from past disruptions caused due to outbreaks like SARS is that disruption in the production line in one part of the world could starve the global supply chain from the much-needed raw materials. To tackle such situations, manufacturers must understand that a resilient, agile supply chain is one that is capable of detecting early warning signs by proactively responding to shifts in production. To do so, businesses must devise a contingency plan to avoid being affected to a large extent. Unfortunately, with something like COVID-19 that is affecting operations on a global scale, even the best contingency plans may turn out to be inadequate.

At Quantzig’s Center of Excellence for Global Supply Chain Operations and Management, we’re optimistic that this will pass, and the global supply chain will return to normalcy with much better resilience. For now, we think this situation is a great lesson, and we will have a better supply chain network that is more flexible and immune to such ‘black swan’ events in the future.

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