Impact Of COVID-19 On The Supply Chain: Then & Now
The first wave of COVID-19 has exposed the flawed nature of the global health and economic structure.
Accordingly, many businesses, regardless of their size and operation scale, have crumbled under this pandemic’s impact.
Indeed, the demand and supply have been slower due to the global financial crisis and a pandemic-induced lockdown.
To top it all, businesses witnessed several new challenges as restrictions on movement and distribution were made more stringent to contain the first wave. Needless to say, it has had a drastic effect on the supply chain of businesses at large and continues to be a concern among entrepreneurs across all sectors.
That said, let us try to identify the glaring impact of the 1st wave of COVID on the supply chain and what to expect down this road.
Impacts Of Covid-19 On Supply Chain
Here are some significant effects of Covid-19 on the supply chain.
COVID-19 has added several new words like – lockdown, social distancing, and quarantine to our everyday vocabulary. Similarly, ‘supply shock’ has become common among businesses as more enterprises struggle with streamlining their supply chain amidst this pandemic.
Typically, it is defined as an unexpected turn of event that influences the supply of goods mostly in a negative manner. With the onset of this pandemic, the global supply chain has been disrupted significantly.
For example, businesses who outsource raw materials or semi-finished products from other states or countries faced challenges to access them during the 1st wave. As a result, companies scrambled to keep their production uninterrupted.
Systematic Demand Shocks
This concept is entirely new for entrepreneurs. As the first wave approached its peak, supply chains were introduced to systematic demand shocks. It is an immediate outcome of consumers hoarding staples to meet unexpected events that could arise from a series of lockdowns.
There was a constant fear that supply chains will fail to meet the unprecedented spike in demand because the classic planning models do not factor in severe demand peaks.
Fortunately, the production level of the supply chain was able to replenish the surge in demand by increasing output capacity.
Economists are now warning us that the onset of a deep recession could lead to a bullwhip effect. Now, in such a supply chain phenomenon, a small fluctuation in demand at the retail level can lead to larger fluctuations in raw material supply, manufacturing, distribution, and wholesale level.
Coming Out Of The Shock
As recession sets in, some levels of supply chains are trying their best to keep up while others are forced to scale down their operation. As a result, entrepreneurs struggle with inventory bounce in their supply chain.
Usually, when demand for goods reaches a new steady level, businesses optimise production to allow the stock to match the new stable point. Often to match the new demand, companies increase their production. Note that problems could arise if the bounce is amplified or, worse, leads to a prolonged bullwhip effect.
Hence, it can be said that supply chains were faced with demand shocks as the first wave reached its peak. Subsequently, businesses had to scale up or lower their production to adhere to the prevailing demand for various products in the market.
Moving ahead, businesses took a cue from the discrepancies and shortcomings of the first wave. They devised strategies to lower the impact of this raging pandemic as much as possible.
New Normal And Better Prospects
Some entrepreneurs believe that shrinking the supply chain’s footprint could increase profits to sail through the pandemic. In other words, businesses are leaning into cost-effective trade-off and settle for localised production and sourcing. In fact, the procurement of localised goods and services already witnessed a surge from the past year.
This presents a lucrative opportunity for businesses that extend supply chain services locally. However, to tap into the shift in demands towards localised goods and services, small businesses need to upgrade their operations and how they cater to customer orders.
Likewise, entrepreneurs need to overcome challenges prevalent at different levels of the supply chain. This will help them minimise disruptions in case they are met with another supply shock.
These days businesses are also quick to seek professional help to streamline their supply chain more effectively. Industry-specific supply chain solutions like Capvel are rapidly becoming popular among enterprises these days. Such an innovation integrates with existing ERP to update the supply chain and digitalise ERP. Accordingly, they gain better control over the system and allow real-time tracking and synchronise each level of the supply chain perfectly.
This way, businesses could manage to cushion the overall and prolonged impact of COVID-19 and subsequent waves on their supply chain.