The Weaknesses of globally evolved supply chains

If you find yourself nowadays standing in front of empty shelves in British supermarkets, you may wonder whether chickens also stopped laying eggs because of the Covid-19 pandemic. Sure enough, this is not the truth. Chickens continue laying eggs and warehouses are even full of stocked eggs. But those eggs somehow don’t make the journey to the empty shelves. The egg shortage in the UK is just one example of several unexpected disruptions in the system of international supply chains.   

The current Covid-19 crisis lays bare the vulnerabilities of our complex global economy respectively globalisation as such. In the case of eggs, it might not be dramatic. But it becomes of vital importance when it comes to medical supplies.

The weaknesses of globally evolved supply chains

In the era of globalization, manufacturers all over the world are facing staggering complexities, in terms of competition, product development as well as of sourcing and distribution. This results in price and innovation pressure. To keep up with the race, multinational companies across every industry have begun to focus on cost optimization. Whole production processes were offshored to countries with lower wages. That is why supply chains of complex products have become highly fragmented. Important industries, such as automotive and consumer electronics, are particularly dependent on Asian countries, especially China. A country, that offers important raw materials, technological know-how and cheap labor.

The earthquake and Tsunami in Fukushima, Japan, in March 2011 already gave the global economy a hint for what is the reality today. Many car manufacturers relied on parts produced in affected Japanese factories. It uncovered the weaknesses of globally evolved supply chains. Whereas the impact of the Fukushima disaster on direct suppliers was quickly detected, companies were blindsided by the impacts on second- and third-tier suppliers.

Lack of sustainability and resilience of many supply chains

Now with Covid-19, supply chains are disrupted on multiple fronts: raw material shortages, labour shortages, and resulting production shortages, all the way to the delivery and demand side. Either companies cannot supply the number of goods needed or when they can, their customers might not be able to buy the products due to nation-wide curfews. The lack of sustainability and resilience of many supply chains is made obvious through this crisis. Again, many companies struggle to identify which of their lower-tier or indirect suppliers are based in Covid-19 and lockdown affected regions. Furthermore, the risk of single sourcing now hits companies across industries.

Dependence on quarantined areas

Thus, weaknesses in sourcing strategies are one of the most important factors for the current supply crisis. The egg shortage in the UK shows that supply chains even for the most simple products can easily collapse.

Shortages in medical supplies

As such the shortage isn’t caused by an actual egg shortage, but rather a shortage in egg cartons. Only three egg carton manufacturers supply the entire of Europe and not one is based in Britain. The nearest one in Denmark is closed due to a nation-wide lockdown. This means enough eggs are being laid and enough customers wanting to buy those eggs. But there is no way of connecting both. Here again, it is a sourcing problem

A lack of eggs might be annoying, but when it comes to medical products that are of vital importance, such as ventilators and face masks, a breakage in the supply chain can have dire consequences. Since most supply chains for complex products are also more complex by nature, they are also more at risk and face several obvious and non-obvious vulnerabilities. In the case of face masks, the US now faces a problematic shortage caused by decades of offshoring the production overseas, especially to China. So, a vital supply chain is disrupted at a time when demand spikes due to Covid-19. For the few remaining companies producing masks in the US, it will not be easy to expand their production capacity quickly enough. As the US also heavily relies on medical supply from Europe those goods also experience shortages due to the lockdowns across the continent.

Current adaption of production processes to fill gaps in supply chains

As a result, we see examples of manufacturers deciding to not close their factories but instead to adapt their production processes to help out locally. Examples are General Motors, Dyson, Airbus and Seat that try to fill gaps in supply chains for medical ventilators. Or perfume and spirits producers, such as LVMH and Jägermeister, that start to mix up disinfectants. Factories with access to industrial 3D-printers are also rapidly retooling and collaborating with medical manufacturers to speed up the production of vital parts for new devices. There’s also been a wave of individuals organizing and plugging vital gaps from 3D printed parts for medical devices to hand-sewn masks to help protect healthcare workers and the public. And as Asia’s factories slowly start to reopen again the global stress might ease in the coming weeks. But a new wave of infections might just as well disrupt the global economy again.

Currently, experts estimate a 6-months disruption of global supply chains at a minimum. So, players across various industries are now forced to reflect on their supply chain. And to take the steps necessary to ensure their resilience for when the next crisis arrives. We can expect a trend towards lower complexity of supply chains and an increase of local-based supply solutions

Current adaption of production processes to fill gaps in supply chains

Clevis Research can help to make supply chains more resilient

The Covid-19 crisis affects the supply chains of companies from mass to niche markets. We follow this development and resulting trends with high interest. As a market research boutique, we are used to working in a complex and dynamic environment through our expertise in quantitative and qualitative research. Clevis Research is your partner when it comes to making your supply chain strategy more resilient for now and the future.

by Meike Winkler

Clevis Research is a market research and advisory boutique. We support clients to pursue global business development opportunities and spark new growth.

Contact

David Aberspach, Head of Sales / Team Lead Market & Strategy
Mail: da@clevis-research.de
Phone: +491715633939

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