Few industries have been spared from the catastrophic damage of the ongoing pandemic. Far from being an exception, the global supply chain proved to be among the most vulnerable industries as COVID-19 began to spread outside of China in March and April of 2020.
Now, 8 months later, average daily cases have increased by more than 600% as the second wave of coronavirus begins to rage in Europe and North America. The Center for Infectious Disease Research and Policy has predicted 3 possible pandemic wave scenarios, all of which project multiple waves recurring through 2022.
The US has seen rolling 7-day averages of new daily cases approach 160,000; Germany, 20,000; France, 58,000. India and Bangladesh appear to be nearing the end of their collective first wave (peak ~98,000 daily cases) with a potentially more devastating second wave approaching; Pakistan’s and Turkey’s second waves appear to be materializing at this moment with ~400% and ~300% increases in daily cases, respectively, from the late summer and early autumn. Indonesia’s daily cases have increased steadily throughout the past 8 months, and many other countries in southeast Asia and Latin America appear to be on one of these trajectories.
With no guarantees as to which regions will be hit next, organizations with supply chains must act now to prepare for future waves of the pandemic. In this article, we take a look at data on losses and industry damage from the first wave, in order to understand what is at stake with further waves. We then provide an overview on how to prepare for those waves now — so that you can improve your organization’s prospects through the pandemic.
The challenges and losses in wave 1
The World Bank predicts the global economy will shrink around 5.2% in 2020, making the current pandemic the worst recession since World War II. It also represents the greatest proportion of economies suffering per capita declines in 150 years. While the US has seen a 9.5% economic decline in Q2, other economies have taken double-digit downturns:
- Japan, 10%
- Germany, 11.7%
- Philippines, 16.5%
- Italy, 17.3%
- Mexico and France, 19%
- United Kingdom, 21.7%
For those in the supply chain industry, the economic impact of COVID-19 has been dramatic. McKinsey & Co. began research at the end of 2019 on how the US-China trade war was impacting the global supply chain, a scuffle that was estimated to result in around $165 billion in trade diversion. The arrival of the pandemic dwarfed this figure, however. Referred to as the “mother of all supply-chain shocks” by McKinsey’s Susan Lund, it could cause at least $5 trillion in losses if companies are unable to prepare for the next supply chain disruption in the form of recurring waves and lockdowns. The textile and apparel industry, one of the most thoroughly globalized on the planet, has taken a significant hit with $16.2 billion in canceled payments as of mid-October. In the EU, the sector is predicted to take a 50% hit in sales by the International Labour Organization (ILO), with similarly dramatic figures worldwide due to decimated consumer demand and lack of workers and raw materials.
In fact, global supply chains had plenty to contend with even without the pandemic. According to PWC, “Global supply-chains have always been vulnerable to shocks that occur in the major exporting countries,” including trade wars, domestic political unrest, and more. This vulnerability comes from “factors that could impede the seamless flow of goods and services from these exporting countries to their major import trading partners.”
In the context of COVID-19, one of these vulnerabilities is the widespread use of “just-in-time” production techniques, according to the ILO. This style of production entails sourcing last-minute goods from a cluster of suppliers in one geographical location, which in the context of the pandemic has left the retail industry in a particularly compromised position. Single sourcing has also, yet again, revealed itself as a recipe for trouble; organizations relying on one company for product were stranded during lockdowns. In both of these scenarios, companies sourcing from China saw firsthand how difficulties like production halts, restricted movement of people and goods, closed borders, and logistical constraints could bring a bustling supply chain to a jolting halt — and with the interconnectedness of today’s global economy, it took very little time for this stoppage to spread to other places of production. As a result, world trade is predicted to have shrunk by 13% to 32% in 2020, with foreign direct investment shrinking by 30% to 40% over 2020 and 2021.
As a result, it is no surprise that the list of bankruptcies is extensive and growing. In December 2019, predictions for Q1 2020 growth were just north of 0.5% and trade growth was predicted to be around 0.2%. By March, these figures had dropped to around -0.2% and -4.3%, respectively. With lockdowns likely to continue, the global supply chain is predicted to experience significant disruptions. In a recent study, research models estimated that a strict global lockdown could have an effect ranging from $20 trillion (2-month lockdown) to $30.1 trillion (6-month lockdown, or 40.3% of global value added).
The supply chain industry is at particular risk for disruptions both during and after COVID-19 — and data shows that organizations should expect a 1 to 2-month production disruption every 3.7 years. The following section outlines 4 key ways to protect your supply chain from the next waves of COVID-19.
How to prepare for future disruptions
For any brand or retailer, there must be no greater priority than building resilience, according to Global Trade. A resilient supply chain is better able to absorb blows and resume normal operations when disruptions occur, allowing organizations to weather storms and emerge on the other side without crippling damage. To avoid the same losses in the next waves, focus on the following initiatives:
Transparency and real-time visibility
To react quickly and effectively when crisis strikes, you must be able to see what’s happening across your production network in real-time. This requires digitizing your entire supply chain. Evidence abounds in support of digital transformation, particularly in the context of the current pandemic, with World Economic Forum noting that organizations “with stronger digital infrastructure have fared better in the COVID-19 pandemic than those without.”
McKinsey notes that technologies are now capable of helping companies “improve end-to-end transparency,” letting them create a seamless flow of data and monitor both what is happening and when it is happening.
Effective data analytics
There is now more supply chain data being collected than ever before in history. And though data is power, it is useless without analysis. Big data analytics are what empower executives to leverage the data collected, quickly gather insights from it, and use it to “stay in front of potential problems,” according to Deloitte. This technology includes built-in automation to prevent the need for a dedicated team to pore over spreadsheets and interpret results. Data analytics promote fast, effective decision making even in the midst of a crisis.
A network platform that continuously collects data across your entire supply chain in real time, then presents that data to you in actionable, digestible graphics is a radical improvement over conventional supply chain management and monitoring. Executives can now make data-driven decisions in seconds with more accuracy, context, and objectivity than ever before.
Diversify your supply chain
Putting all of your proverbial eggs in one basket is antithetical to the idea of supply chain resilience. By reducing reliance on a single region or country and instead focusing on building redundancies and backup plans, sporadic or localized disruptions are less likely to have a drastic effect on production. Overreliance on a single country, namely China, is partly responsible for “the inherent vulnerabilities in global supply chains,” writes the Center for Strategic & International Studies.
Geraint John, Gartner’s VP Analyst, noted that due to more frequent and intense disruptions, “the cost of retaining multiple supply locations must be seen more as a cost of doing business, rather than an inefficiency.” Gartner notes that the best time to establish supply chain diversification is “right at the decision point for a new product or a new network setup,” as diversifying an existing production network is more time-consuming. Choose the right partners based on data-driven risk assessment through a network platform, and take time to develop an effective and cost-efficient network diversification strategy.
Activate remote inspections
Travel restrictions prevent your inspectors from being able to enter factories, halting quality control and compliance capabilities. However, by establishing a partnership with factories and enabling remote self-inspections, you can continue to move product where it would otherwise remain in the factory or warehouse, uninspected and unshipped.
This capability allows your brand to “uphold quality standards, avoid costly defect-remediation cycles, and circumnavigate travel bans” during times like these, writes Sourcing Journal. Creating this relationship with your suppliers revolves around trust, which continues to be an ever-appreciating commodity in the current climate. A digital solution with real-time monitoring allows you to verify the results of self-inspections in a way that was not possible a few years ago.
March and April of 2020 revealed just how far-reaching and devastating disruptions can be in the new normal. Don’t suffer the same losses again. Mitigate the risk of upcoming disruptions by preparing your supply chain right now for the next wave of the pandemic.
Activating the 4 key initiatives previously described can be the difference between sinking and swimming. Technology and digitization are the path forward to achieving these initiatives.
Inspectorio enables brands and retailers to gain total supply chain visibility with real-time monitoring, AI-powered data analytics and risk mitigation, network diversification insights and factory performance metrics, and full self-inspection capabilities — all with a rapid, closely supported onboarding process. Contact us to learn more about how Inspectorio software can prepare your company to remain resilient through the next waves of the pandemic.