The COVID-19 pandemic presented a threat unlike any the world has faced since the Spanish flu of 1918. It was a crisis that demanded an extreme response; however, everything comes at a cost. In the case of combating COVID-19, straining the global supply chain to its breaking point was one such heavy cost. Even though the worst of the pandemic seems to be behind us, the economic shockwaves it created have unfortunately just begun. The only question now is, was all of this preventable?
How the Pandemic Has Strained Global Supply Chains
On the surface, it might be challenging to see the link between COVID-19 and supply chain disruption. To understand the pandemic's effect on global supply chains, we have to look at the worldwide response to slowing the virus's spread — namely, government lockdowns and stimulus checks. Before the development of COVID-19 vaccines, businesses worldwide were forced to close their doors and send their employees home for periods ranging from weeks to years, depending on the location. Most governments enacted massive stimulus packages to keep their economies afloat.
Thanks to these stimulus packages and the fact that consumers had limited options for spending their money during lockdown periods, Americans could add an estimated $4 trillion to their savings during the COVID-19 pandemic. With plenty of money in their pockets and eagerness to return to normal, consumer demand quickly skyrocketed to all-time highs once the economy began to reopen.
Unfortunately, most manufacturers were in no position to meet such demand. It turns out that when you send your employees home for an undetermined period, many don't ever return. Once the economy began to reopen, many across industries faced a severe labor shortage. At the same time, these businesses had reduced inventory due to an inability to stockpile inventory during lockdown periods. This labor and inventory shortage combined with increased consumer demand is the perfect recipe for the supply chain implosion we are now witnessing.
The Current State of Global Supply Chains
It isn't just manufacturers feeling the strain created when supply outpaces demand. Companies in the transportation industry are now struggling to keep up with demand as well. Recently, we have seen record port congestion as cargo ships operate at a maximum volume just to keep up. Inland transportation isn't any better off, with truck driver shortages making it even more difficult for companies to keep up with increasing demand. As a result, companies must deal with increased delays, higher per diem, detention, and demurrage fees, soaring transportation costs, inventory shortages, and higher material costs. In other words, even if a company can procure the needed materials, getting them where they need to go remains a considerable challenge.
Could Anything Have Prevented These Issues?
It's easy to second guess the worldwide response to COVID-19 now that the worst is behind us. In a paper published by Studies in Applied Economics, researchers concluded that pandemic lockdowns had a marginal effect on preventing COVID-19 deaths while devastatingly impacting the worldwide economy. Many other experts have followed suit, claiming that lockdowns have caused far more harm than good in the long run.
However, it's also important to point out that many of the weaknesses in the global supply chain that the COVID-19 pandemic exposed were issues long before COVID-19 came onto the scene. One such shortcoming is that manufacturers and transportation companies operate at near capacity by design. While operating at near capacity is great for maximized efficiency and profits, it can create real issues when demand starts to outpace supply. The pandemic also exposed many additional supply chain weaknesses, including a lack of diversification, long lead times, and a lack of supply chain visibility. As we advance, companies must address these various issues to recover from the pandemic's impact and prepare for future disruptions.
Looking Ahead: Responding to Current Supply Chain Challenges and Preparing for the Next Disruption
There's little that companies can do to predict — much less prevent — an event as disruptive as the COVID-19 pandemic. What companies can do, though, is ensure that they remain prepared. At VIZION, we are committed to helping organizations across all industries create more agile and reliable supply chains via improved supply chain transparency. Contact us today to learn more about how VIZION can help you overcome the current supply chain challenges and prepare for future disruptions!