Covid has disrupted supply chains. Now that they’ve recovered, will they be able to withstand another shock?



Minneapolis
CNN

The pandemic has disrupted the global supply chain, throwing once-smooth businesses, industries and economies into turmoil.

After nearly three years of wild swings and extremes, the system is slowly accelerating and becoming more synchronized: Ocean freight transit times are steadily decreasing, ports are less congested, labor strikes have been somewhat avoided, and there are shortages of products and labor. has eased, prices are down, warehouses are full (perhaps too full), friendship, proximity and reshoring efforts are accelerating, and China has scrapped its “zero Covid” policy.

“We’ve had a major change that started about six months ago,” said Timothy Fiore, chairman of the Supply Management Institute. “There are certain components, such as integrated circuits [and] microcontrollers still impact manufacturers’ material flow capabilities. But in general, the pressure has decreased.”

However, many potential obstacles still loom large.

Globally, developments in China and Ukraine remain lingering question marks, especially if the manufacturing megapower suffers another setback or blockade, or if conditions worsen with Russia’s war in Europe.

Domestically, exports have weakened and the state of consumer demand remains a wild card, said Phil Levy, chief economist at freight forwarding and consulting firm Flexport.

“I wouldn’t describe it as a humming machine right now,” he said. “It’s more about trying to get your bearings and figure out what’s next.”

Among the potential bottlenecks: Storage capacity is nearly full in certain locations, particularly in Southern California, he said. In addition, the internal distribution network – especially the rail and transfer areas from one mode to another – faces some challenges, he said.

The system is not yet in a stable state, so businesses know exactly how long it will take to produce, ship, and finally sell.

“I don’t think we have that,” Levy said. “There’s still a lot of uncertainty about how long it will take for things to ship. When you see warehouses full, is it because demand is too low? Because people moved things too early? So, there are still many things to be solved.”

Zac Rogers, associate professor of operations and supply chain management at Colorado State University, said supply chain activity has not yet returned to normal, but it is returning to pre-pandemic trajectories.

“There’s a kind of reaction-overreaction pattern that happens every time there’s a major disruption,” Rogers said. “And Covid is the biggest disruption we’ve ever had.”

At the beginning of the pandemic, businesses canceled orders, believing that consumer spending would be crushed. However, trillions of dollars have been injected into the economy to try to keep consumers and businesses afloat. With fewer outlets for discretionary spending, stay-at-home Americans have turned to e-commerce for shopping.

A surge in demand for finished goods has crippled the global logistics system at a time when supply has been severely constrained by pandemic-related labor shortages and shutdowns, particularly in cities, factories and manufacturing centers in China.

Ports became clogged, delivery times extended and costs skyrocketed whom shortages in the supply chain have increased.

“Everyone overbooked and in February and March [last] year, everything got here – almost just in time for the invasion of Ukraine, “said Rogers.

Gas prices and inflation soared, taking a big hit on consumer spending.

“The challenge of the last 10 months in supply chains has been trying to balance the needle between keeping inventories down to a reasonable level while not overreacting. [landing] they return to a state of scarcity,” he said. “We’re getting back to the trendline in a way we haven’t in the last few years.”

Rogers said supply chains are tighter than they were at the end of 2019.

“In 2019, we basically got all our chips from one side, which is that things are built in East Asia, come from ports in Southern California on a boat, get on trains to Chicago, and then on other trains. or to distribute trucks to the East Coast,” he said.

Although it is almost impossible to divorce China, Rogers said, companies are covering different paths for their supply chain, whether in Vietnam, Bangladesh, Central America or domestically.

“That’s why supply chains are not as fragile as they were three years ago,” he said. “And so if there’s another shock, especially a China-centric one, I think we’ll be able to absorb it a little bit better. … But you can’t put a price on something like the invasion of Ukraine or a virus outbreak that shuts down the world — there’s no system in place to handle that smoothly.”

Rogers is also a researcher and co-author of the Logistics Managers’ Index, a monthly survey of supply chain executives by a group of university researchers and the Council of Supply Chain Management Professionals.

December reading of an index measuring inventory levels and costs; storage capacity; usage and prices; and capacity, utilization and prices — rose 1 point to 54.6 after eight months of declines.

Rogers said the majority of LMI readings were in the 40s, 50s and 60s, marking the first time the index has not been in the 70s or 80s since the start of the pandemic.

The container ship Ever Libra (TW) docked at the Port of Los Angeles on Monday, Nov. 21, 2022.  The supply delays of the past two years -- and the delays, shortages and exorbitant prices they brought -- have improved dramatically since the summer.

“If you’re in your 40s, that’s shrinkage, but the 50s is a normal, healthy growth spurt,” he said. “Within a month, there could be another giant black swan event that shakes things up; however, respondents currently predict stability in the supply chain.”

Jack Buffington, director of supply chain and sustainability at First Key Consulting and associate professor of supply chain management at the University of Denver, said the pandemic’s supply chain shock should be a wake-up call.

“I would classify it as ‘effectively disrupted,'” said Buffington, whose book on supply chains, Reinventing the Supply Chain: America’s Deal for the 21st Century, was delayed due to supply chain problems.

“All supply chains are really about supply and demand, and there’s a lot of disruption in materials and consumer demand related to labor, inflation and geopolitics,” he said. “Naturally, compared to today’s requirements, the foundation of the model is broken. “The complexities involved in a globalized supply chain, human systems cannot handle it.”

He added: “Covid was not the cause of the supply chain problems, it was a trigger to show how bad it was.”



Source link