Social Awareness

Everything is in short supply: How Covid-19 exposes the flaws in today’s global supply chains

One aspect that commanded headlines in the early days of the Covid-19 pandemic may or may not make it into textbooks several years from now, as the impact of the pandemic is deconstructed and documented: supermarket aisles stripped bare of toilet paper, hand sanitizers, and other everyday items across the globe.

One year later, the world is learning to live with the virus, panic shopping is no longer a thing, and shelves are once again stocked with toilet paper and protective gear — but there is still a scarcity of everything. According to an Accenture study, Covid-19 disrupted supply chains for 94 percent of Fortune 1000 companies, 75 percent of companies saw a negative or highly negative impact on business, and 55 percent plan to lower its growth forecasts.

These disruptions have immediate ramifications for financial markets and the economy, businesses, and workers. Long-term supply chain disruptions can negatively influence market sentiment by instilling concerns about inflation and supply chain resilience and sustainability. The following is likely to go down in history: Covid-19 exposes a structural vulnerability in modern global supply chains, threatening to destabilize the same architecture that has kept them afloat for the past half-century.

This architecture is based on Just-in-Time manufacturing, which Toyota pioneered in a postwar attempt to compete with the batch manufacturing approach that defined the success of American automotive firms. Lean manufacturing has become the standard in most businesses worldwide, and for a good cause. Excess inventory has allowed corporations to increase production efficiency, save warehousing and other expenses, encourage product innovation and diversity, respond to changing demand, and increase shareholder value through buybacks by eliminating excess inventory.

On the other hand, experts have been warning for decades about a significant flaw in the system: the inevitability of supply chain interruptions. Where they have occurred, the impact has been primarily limited and transient. Until now, that is. The Just-in-Time model relies on a harmonious dance between production, delivery, and consistent average demand, but when the music stops, supply chain pandemonium ensues. This is what happened when Covid-19 brought the industry to a halt in major export markets, and lockdown-induced effects doubled shipping times and resulted in severe labor shortages – all as consumer demand skyrocketed as economies began to recover.
What firms have chosen to ignore, and what academics have repeatedly warned about, is that the leading cause of such shortages is a ruthless pursuit of short-term profit over long-term sustainability, with natural calamities like pandemics serving only as triggers. Companies have normalized sacrificing resilience at the altar of efficiency somewhere along the path, but Toyota has shown that this does not have to be the case. It has been demonstrated that the most efficient embodiment of its model may be found at the confluence of lean manufacturing and a diverse, resilient supply chain that can withstand market disruptions until markets recover.

The shockwaves have reverberated around the world, including in India. Before the epidemic struck, an aggressive US-China trade war and other issues drove a global supply chain movement away from China and other Asian countries. In a worldwide poll of 700 enterprises, approximately one-third of respondents named India as a leading sourcing location across different industries, with good investor sentiment and strengthened domestic manufacturing placing India in the race as well.

Overall, while much depends on how the Covid-19 outbreaks are dealt with, it would be advantageous for India’s private division to acquire from the first two waves to establish more robust supply chains. Suppose it is to become a key manufacturing and sourcing hub. In that case, it must build trusting ties with foreign corporations and domestic markets and show that it can endure – and recover rapidly from – long-term crisis-induced disruptions like the one Covid-19 is presently fueling.

This release is articulated by Prittle Prattle News in the form of an authored article.

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