It’s always difficult see a storm when you’re in the middle of it. In the coming weeks, months and even years, we’ll start to get access to hard data and numbers about just how much the global economy has suffered, how many businesses were deemed essential or nonessential, and how many people lost their jobs during this pandemic. However, that doesn’t mean we can’t study the news as it comes in and ask ourselves some tough questions: What could we have done to better prepare? How can we learn from this to succeed in the future?
This current economic situation is far from over, but it’s never too soon to start charting a path forward. As a first step, let’s look at the current effects on supply chains and businesses. Then, we’ll think about how this disaster will change supply chains in the future.
Current effects of COVID-19
We already are able to see some drastic effects of COVID-19 on businesses and supply chains. By looking at what has happened so far in China, we can get a clearer picture of how Europe and America will be affected in the near future.
China has had a huge decrease in output, Financial Times reports. Many companies have declared force majeure, a provision that exempts companies from contractual obligations because an unforeseeable circumstances prevents them from meeting those obligations, according to CNBC. However, experts say that force majeure claims are unlikely to be honored outside of China. Instead, factories and businesses likely will be encouraged to come up with a solution to fulfill their contacts or risk losing business.
In an ideal world, both suppliers and customers will be more understanding in this tough situation and instead work together to heal the flow of the supply chain. However, these situations likely will cause some friction and complications as businesses are forced to find new suppliers or close their doors.
In the short term, this is all creating bottlenecks at many points within the supply chain. There is a lack of inventory to provide and ship. There is inventory sitting in storage at warehouses with no workers to pack it. There are retail shelves sitting empty. Consumers are canceling online orders, hoarding and panic buying. The supply chain basically looks like Los Angeles rush hour traffic. There is some good news, though: In the United Kingdom, panic buying already is decreasing. But, it still remains to be seen how long it will take the rest of the supply chain to recover.
How could we have prepared for this?
For more than a decade, experts have been advising businesses to diversify their supply chains in order to be more resilient. Spreading out your supply chain over many locations is similar to diversifying your stock portfolio. You can increase your chances that a few of your stocks will do really well. If the entire economy crashes, everyone will be feeling the negative effects, but you’ll have a higher chance of at least some of your stocks recovering after the crash. By diversifying your supply chain, you can make it more resilient to shocks to the system. If you can successfully manage your business in the meantime and take advantage of the help that is out there, you’ll have a much better chance of surviving the pandemic.
But still, it would have been hard to predict or expect an interruption this large. Nothing truly like this has happened in the recent past that we could have learned from to prepare for this. You probably can’t ever remember being forced to stay inside to stop an outbreak before now, which shows that this situation is serious.
There have been a few viral outbreaks recently that are somewhat similar, but their effects have not been as serious as those of the COVID-19 pandemic for a variety of reasons. Ebola, even with its astronomically high death rate, was difficult to pass along, and it was easy to spot someone with symptoms. H1N1 had a very low death rate and was not that different from the seasonal flu. SARS, which had a high death rate around 15%, is probably the closest comparison to the current pandemic. However, SARS did not spread nearly as easily and did not make it very far globally before dying out.
COVID-19 spreads easily and quickly and has affected people around the world.
In addition, the world is a vastly different place than it was in 2003 when SARS wreaked havoc on China. China’s gross domestic product has increased almost tenfold, and the country now is a more critical supplier of global manufacturing than it was back then.
Ultimately, this situation is unprecedented, and only time will tell if it is as rare as it seems. The idea of a global pandemic shutting down most major countries previously seemed outrageous, but the truth is, we are a more globally connected economy than ever before.
How can we prepare for the future?
This leads us back to diversification. What if, instead of having manufacturing based solely in China, a company has factories in China and Eastern Europe? In the case of the COVID-19 pandemic, the company would still be hit hard, but it would be more likely to survive. The virus spread so quickly that just as factories in China were coming up empty, the other factories began feeling the effects. But, perhaps this means that factories in China could then reopen as others are shutting down, spreading out the harm across the supply chain rather than taking the hit all at once.
However, this is a strategy that realistically only large businesses can follow. It isn’t possible for many businesses, and it would not provide great protection against harm during a time like this anyway.
So what does the future hold? Will things change or remain the same?
Honestly, things have to change. Things cannot remain the same forever, but they probably will for the foreseeable future. Why is that?
The truth is that the real solution to this problem doesn’t exist yet. We need to look to the future for bigger, better solutions that allow us to stay globally connected while mitigating risks. These areas have only just begun to be explored. The first things that come to mind are automated, contactless supply chains powered by self-driving cars and freight and drones, but that likely is just the tip of the iceberg. We don’t have the answers right now, but we have to make it a priority to find them. We need to invest heavily in researching solutions that will help us be more prepared when this happens again.