06 Jul 2022

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The effects of Pandemic on Global Supply Chains

 

Omair Jawaid
MS Supply Chain
Enrollment # 01-396212-013

 

The world will look significantly different when the pandemic will completely subside. The first shock was when Covid 19 struck China creating waves of supply and demand shocks that followed a global economic shut down. Trade restrictions were in place from major trading hubs.

Shutdowns of marketplaces also paved for a changing customer behavior. In addition to these developments, the US-China trade war exacerbated a rise of economic nationalism. Governments now encourage their manufacturers to be less reliant on imports and further increase domestic production.

Strategies such as lean manufacturing are now discouraged to minimize dependence on global supply chains for their inventories. However, this might not be feasible so soon as organizations wont risk manufacturing high-cost products at home when they can get cheaper ones from overseas. The US government has imposed tariffs to combat the dependence of their nation on Chinese imports while China responded with the same regulations taking the trade war to a whole other level. This caused increase in duties that the consumer will have to eventually pay extra for it when purchasing their products. However, Customer in a Post Pandemic world is now more aware than ever of their buying choices as e-commerce created several opportunities for them to not only buy their essentials but also trade them online.

A customer now values less their daily job routines and has discovered more ways to earn while sitting in the luxury of their homes. The customer’s buying behavior has made sure that the economic nationalism being imposed in several countries around the world will have no effects anytime soon. Due to the changing buying behavior, it has caused major burden on the global supply chains that has only recently tried to recover from the trade restrictions. The demand shocks meant more containers on the ocean freight vessels causing accidents such as the Suez Canal incident where an overburdened container vessel tried to cross the narrow Suez Canal challenging all odds such as the air pressure, water density, speed, etc. Port Congestions at several global trading hubs like Los Angeles, New York, Hong Kong, Bangkok, London, Karachi, Chennai, etc. caused vessels to wait near the port for months before they can get a chance to dock and even after they are successful, the containers sit at the port yard for several days or even months before they can be picked up.

This causes more waiting time, additional surcharges, penalties and not to mention higher delivery fees due to less trucking capacity to cover the demand shock. This eventually leads to a global price hike that we face currently. Inflation is soaring and even though many governments have introduced subsidies to control it but will not be enough. The Global supply chains need a complete overhaul to fully overcome the post pandemic world’s supply & demand gap. Understanding where the risks arise so that a company can protect it might require a lot of research. It will include mapping of the full supply chain that will include distribution facilities and transportation. This will be quite time consuming, and it explains why companies spend a lot in outsourcing their supply chain. Although, outsourcing is not a bad thing as using third- and fourth-party logistics can transform a company’s supply chain in a cost-effective manner. However, this also causes companies to be overly reliant in permanently outsourcing their supply chain to avoid time consumption while eventually spending a major part of their expenditure. This is a mistake which will have severe consequences in a Post Pandemic world. Another major factor that the production companies should revisit to increase their profitability is to stop a push strategy in a world where the customer behavior is now ever changing.

Instead, the best way to move forward is to study customer behavior, increase variety in the product line. A case in point could be that of a toilet paper where the heightened demand of it during pandemic forced manufacturers to revisit their varieties and introduce soft multi ply rolls that the customers now prefer. In addition to that different supermarket stores and hotels wanted their own varieties of packaging.

The economic changes in a post pandemic world have exposed many loopholes in the global supply chain and even doubts were raised by governments over globalization. Supply chain managers must take benefit from this global crisis to revisit their supply chains and should never back away from globalization. Instead, the companies that fill in the gap left by economic nationalism will greatly benefit from it soon. Business leaders must find ways to adopt new visions that are more adaptable to the current era and provide themselves a great advantage by creating a more resilient supply chain.