The Impact of the COVID-19 Supply Chain Disruption
The last 18 months have been some of the most testing of our lifetime. As a parent, your patience may have been put to test. As an adult, your mental health may have been put to test. The COVID-19 supply chain disruption worldwide has been a test of resilience.
From my experience in the supply chain industry, the COVID-19 pandemic is the first disruption of this scale and magnitude. Every single company—whether original equipment manufacturers (OEMs), suppliers, distributors or service providers—has been impacted in some way.
The novel coronavirus first reared its ugly head in the last few weeks of 2019 in China, which accounts for 20% of the world's manufacturing output. As the virus spread rapidly throughout China and the rest of the world, many supply chains became a casualty to it.
Since then, 70% of supply chain decision-makers said that COVID-19 is creating the biggest impact on the supply chain currently, according to Jabil's Special Report: Supply Chain Resilience in a Post-Pandemic World.
Furthermore, supply disruption has become synonymous with the coronavirus outbreak, as logistics lockdowns and demand increases add to the complexities of doing business during the global pandemic. Download the full report.
Which of the following market dynamics are impacting your company's supply chain?
How Have COVID-19 Control Measures Affected Global Supply Chains?
As Lunar New Year celebrations began at the end of January 2020, China made the fastest and most extreme decisions for lockdowns and factory shutdowns. In fact, the country extended the holidays to limit further movement and spread of the coronavirus within China. These restrictions meant that numerous supply chains and factories came to a halt, leading to significant production delays and product shortages.
At Jabil, we were fortunate through strategic decision making to get production back up and operational within a very short period of time, as the company was deemed a part of the essential supply chain supporting critical business areas. But many of our suppliers were not in a similar position.
We spent an abundance of time collaborating with our suppliers to find ways to get them to the point where their production could open. Ultimately, our efforts were about saving people's lives with the products we manufacture, such as ventilators, diagnostic tests and personal protective equipment (PPE). That is why we had to move at unprecedented speed to get our and our suppliers' facilities back up and operational.
As we were monitoring the spread of the disease, we were working to put plans in place—anticipating where the next hotspot would pop up and what the government reactions would be—so we could be as prepared as possible.
To complicate the matters more, supply chain professionals and business leaders had to make the tough decision about when to open their businesses. If facilities opened too quickly or failed to take the proper control measures, problems could escalate. In many ways, the pandemic has forced leaders to reevaluate how they do analyze the various levels of their supply chain. Even as the COVID-19 vaccine gets rolled out worldwide, some of these changes are inevitable as new strains continue impacting people.
How Has the COVID-19 Pandemic Caused Shortages in the Supply Chain?
In February and March 2020, more mandatory lockdowns and stay-at-home orders followed across numerous continents, most prevalently in Europe. With extended factory closures in China and Europe, manufacturing delays and supply disruptions were inevitable.
In the meantime, consumers went into "survival mode" and demand for critical supplies like toilet paper and paper towels skyrocketed. Next were medicines, diapers and the entire food supply chain.
Between rapid and unexpected demand shifts and the closure of numerous production facilities, out-of-stocks became a standard for retailers. In fact, the average percentage of retail out-of-stocks rose from 9% on a regular week to as high as 65% during the pandemic.
Extraordinary demand increases were not limited to consumer goods. Healthcare products like ventilators, respirators and test equipment also experienced a sharp increase in demand with the number of global hospitalizations. The number of ventilators needed—which typically do not exceed several thousand a year—went up to millions to meet the moment. If the challenge of ramping up production wasn't enough, many of these medical devices require legacy components that are limited in availability. All this volatility amplified the impacts of electronic component shortages worldwide.
When production facilities started coming back online in China, many experienced a skilled labor shortage on top of it all. With parts and components on hand, some simply did not have the expertise to carry out the backlog of demand.
Furthermore, there was a major shortage of PPE, which became a necessity in and out of the medical field. Gloves, face masks, N95 respirators, powered air-purifying respirators, eye protection and gowns are vital to transmission-based precautions. As COVID-19 testing faced more delays, the demand in PPE worsened. In June, Jabil announced the launch of a substantial face mask manufacturing operation to address this demand for face masks and other PPE.
The COVID-19 Pandemic Creates Logistics Deadlock
In April 2020, many COVID-19 lockdowns were no longer in effect, or they imposed fewer restrictions. Most factories could open and operate in several countries worldwide. However, border controls were still set for some areas, limiting transportation and travel, thus creating impediments for international trade and transportation. This was an area that really kept our teams up at night.
Logistic issues related to quality, payment terms and air cargo capacity became major obstacles when attaining PPE, most of which was located overseas. More countries had to restrict global air, impacting a significant amount of cargo space. Most of these changes took place overnight, with countries announcing new regulatory protocols, leaving supply chain managers scrambling to make alternative arrangements.
Around 40% of annual global air cargo is typically transported in the belly of passenger aircrafts. This method of transport is crucial for global supply chain management—everything from semi-finished assemblies to finished products are transported using these aircrafts.
Unfortunately, as travel restrictions increased globally, more than 30 airlines had no choice but to suspend all flights or reduce the number of scheduled flights, resulting in even less capacity.
As a result, supply chain decision-makers had to make short-term changes. While 44% said they had to quickly identify new options for international shipping, 38% had to identify additional alternatives for last-mile deliveries to customers. In fact, these supply chain teams had to make additional organizational changes to their logistics initiatives due to COVID-19.
Several months later, commercial airlines are still experiencing rough waters with no end in sight. Research from McKinsey highlights that "business travel is more volatile and slower to recover than leisure travel." These findings point to ongoing turbulence for supply chain logistics.
For sure, the travel restrictions companies have implemented to save costs and keep their teams safe have introduced further complications. For example, prior to the pandemic, in-person meetings were essential to building strong supplier relationships. The current mode of doing business requires a mind shift to focus on sustaining and developing relationships with supply chain partners through virtual means. This is crucial for supply chain operations, which is a people business at its core.
Which Industries' Supply Chains Were Most Impacted by the Pandemic?
A supply chain disruption of this magnitude has impacted every industry across every geography. As people in the Western countries shifted to work from home, growth for consumer electronics and telecommunications products and services increased. Due to the nature of the supply chain disruption, healthcare was overwhelmed with demand for PPE, ventilators and more, as I mentioned earlier.
Between the seven industries included in the Jabil survey (retail, telecommunications, smart home, healthcare, energy and industrial, consumer electronics, automotive and transportation), all reported some direct negative financial impact, with nuances within each industry. For example, the smart home industry is more likely to report losses between $50 million to $500 million, whereas consumer electronics are more likely to have losses above $100 million. Considering we are still in the midst of the pandemic, these findings may not be indicative of the total financial impacts of the pandemic. But they provide a benchmark.
To the best of your knowledge, what has been the negative financial impact on your company’s business outcomes as a result of supply chain issues related to COVID-19?
All in all, this pandemic has been a turning point for supply chains worldwide. According to the Jabil survey, 82% of decision-makers said their supply chain footprint has shifted notably because of it.
As we eventually get to the point where the pandemic is in the rear-view mirror, there is undoubtedly more work to do to ensure resilient supply chains are table stakes going forward. Supply chain risk management must be top of mind.
As certain geographies experience another wave of the pandemic, it is important to remember that supply chain is a profession that requires resilience. While the responsibilities of supply chain teams did not change during the COVID-19 crisis, the urgency and speed at which they had to work was amplified dramatically. If 2020 and 2021 were any indication, it is fair to say that 2022 will have more supply chain challenges we must overcome.
The implications of this pandemic will be a defining moment in the future of supply chain strategy, how we ultimately orchestrate and manage future disruptions and facilitate business continuity. The lessons we learn and apply to our supply chains will make the biggest difference. Is a resilient supply chain top of mind for you?
Special Report: Supply Chain Resilience in a Post-Pandemic World
Insights from over 700 supply chain decision-makers at OEMs with more than $500 million in revenue on how they are managing their supply chains in light of COVID-19 and other market dynamics.