Question

Essay on Impact of Covid-19 on Procurement And Global Sourcing?

Answer 1

Impact of COVID-19 on Procurement and Global Sourcing

The world is struggling with the Corona Virus disease (COVID-19) pandemic with currently over three million infected and over 208,000 people dead. It continues to spread rapidly all over the globe. This outbreak is affecting hundreds of thousands of people. It has slowed global trade and disrupted supply chains, thereby making a huge impact on the global economy. As per the survey conducted by Institute for Supply Chain Management, nearly 75% of companies are affected due to COVID-19 related transportation restrictions. The common opinion is that economic recovery may take 1-3 years.

The virus, which first started in China, shut manufacturing facilities for long period of time. Due to this shutting of factories in China, which is known as the factory of the world, it resulted in a ripple effect across the global supply chains with businesses struggling to source inputs.

Most countries if not all, have suspended passenger flights, international as well as domestic. The issue here is that commercial passenger planes also carry freight and with reduction in the number of commercial flights, the air freight prices has also spiked.   According to the TAC index, which measures air freight rates, these rates have spiked by 200% to destinations from China to Southeast Asia, and more than 100% to Europe and US.

On the other hand, lesser demand and canceled orders due to COVID-19 are resulting in a decline in export orders across the world. It is also forcing companies to lay off their staff. To cope with this issue, several plants have reduced their workforce and have temporarily shut down production lines. Some factories are taking extended period of time off, while some are running staggered shifts with reduced hours.

Most companies across the world had been working to make their supply chains leaner. They are emphasizing on minimizing costs and “just in time” deliveries. This has led to reduction of inventory buffers and left no room for adequate buffers or safeguards. Lean supply chain strategies, which increases short term profits, are exposed to supply chain vulnerability. Covid-19 has taught businesses decision-makers that in formulating future supply chain designs, apart from parameter they would also need to stress-test the chains on new performance measures including resilience, responsiveness and reconfigurability.

Corporates would also seek to diversify procurement and global sourcing from a geographic perspective to reduce supply-side risk from one country. Multiple sources of key commodities or strategic components would be identified, and protocols will be implemented to activate alternative sources of supply in short notice.

The COVID-19 pandemic will change how companies do business for coming years. However, it’s important to realize that demand will gradually increase as businesses and consumers adapt in the long term. We will be able to see some transformation in the supply chain model when this pandemic end. For example, there will be need in reducing of physical dependency on procurement and global sourcing. This can be done by enabling digital technologies, such as IoTs, AI/ Machine Learning enabled systems, blockchain, etc. to name a few. It is likely that corporate strategy would also look to build a robust inventory as buffer against supply chain disruptions. Nevertheless, the pandemic will force businesses and supply chains to evolve. Businesses will have to prepare themselves and further innovate for new demand volumes, patterns and trends.

As a conclusion, we as a human being can learn a lot from this experience and come back stronger. We will be able to experience much more intelligent and optimized procurement system with enhanced user-experiences.