{"id":337201,"date":"2020-05-05T09:02:26","date_gmt":"2020-05-05T16:02:26","guid":{"rendered":"https:\/\/www.esri.com\/about\/newsroom\/?post_type=wherenext&p=337201"},"modified":"2024-05-10T06:36:25","modified_gmt":"2024-05-10T13:36:25","slug":"covid-19-and-supply-chains","status":"publish","type":"wherenext","link":"https:\/\/www.esri.com\/about\/newsroom\/publications\/wherenext\/covid-19-and-supply-chains","title":{"rendered":"Will COVID-19 Rearrange the Global Supply Chain?"},"author":501,"featured_media":0,"parent":0,"menu_order":0,"template":"","format":"standard","meta":{"_acf_changed":false,"sync_status":"","episode_type":"","audio_file":"","podmotor_file_id":"","podmotor_episode_id":"","castos_file_data":"","cover_image":"","cover_image_id":"","duration":"","filesize":"","filesize_raw":"","date_recorded":"","explicit":"","block":"","itunes_episode_number":"","itunes_title":"","itunes_season_number":"","itunes_episode_type":"","_links_to":"","_links_to_target":""},"categories":[432271,443111,381312],"tags":[26512,427051,430851,281,1331],"department":[476792,488822],"wherenext-category":[],"industry":[],"class_list":["post-337201","wherenext","type-wherenext","status-publish","format-standard","hentry","category-business-continuity","category-climate-series","category-cxo-priorities","tag-climate-change","tag-coronavirus","tag-covid-19","tag-location-intelligence","tag-supply-chain","department-cxo-priorities","department-sustainability-risk"],"acf":{"short_description":"COVID-19 has impacted many parts of society. Will it shake the supply chain in ways even climate change and trade wars haven't?","pdf":{"host_remotely":false,"file":"","file_url":""},"flexible_content":[{"acf_fc_layout":"content","content":"Editor's Note: For business executives and professionals seeking resources to respond to COVID-19, <\/em>visit this site dedicated to business continuity<\/em><\/a>.\u00a0\u00a0 <\/em>\r\n\r\n \r\n\r\nIt has been a dispiriting decade for the multinational COO, keeper of the global supply chain\u2014dispiriting enough to send COOs scrambling for a new model of global production and distribution.\r\n\r\nNatural disasters costlier than any<\/a> in history have battered the globe, knocking out production facilities, damaging transportation routes, and repeatedly interrupting the flow of goods. Economic nationalism has flared, prompting tariffs between world powers and driving up the cost of cross-border trade. Now a pandemic has decimated consumer demand for some products, magnified it for others, and prompted rolling factory shutdowns worldwide."},{"acf_fc_layout":"sidebar","layout":"standard","image_reference":null,"image_reference_figure":"","spotlight_image":null,"section_title":"","spotlight_name":"","position":"Right","content":"Article snapshot:<\/strong> Wobbled by outbursts of economic nationalism and increasingly severe natural disasters, then floored by the COVID-19 pandemic, the global supply chain faces critical questions of risk and resilience. Will manufacturers retract into regional supply chains or diversify even more? As they decide, location will be their guide.","snippet":""},{"acf_fc_layout":"content","content":"Signs of shifts and soul-searching are emerging. In October 2019, the American Chamber of Commerce in China and its counterpart in Shanghai asked 25 US multinational companies whether decoupling\u2014separating the US and Chinese economies\u2014would be impossible. Two-thirds said it would be, according to the Wall Street Journal<\/em><\/a>. By March 2020, that number had dropped to 44\u00a0percent.\r\n\r\nUnder siege from climate change, economic nationalism, and COVID-19, the bedrock of global manufacturing for the past several decades\u2014low-cost production in Asian countries and complex, extended supply chains\u2014is showing fissures.\r\n

To Expand or Contract: That Is the Question <\/strong><\/h3>\r\nExperts have suggested divergent response strategies. Some say manufacturers should regionalize the supply chain\u2014confining it to a smaller geographic area to create more reliable access to raw materials and finished goods. Others suggest more geographic dispersion\u2014creating redundant sources of supply around the world to dampen the risk of business interruption should a particular region or supplier falter.\r\n\r\nDespite the differences, there\u2019s agreement that supply chain visibility is a linchpin of both approaches. As global risk adviser and insurance brokerage Willis Towers Watson recently explained<\/a>, companies should know who supplies their suppliers. That is, they should inventory the Tier\u00a01, Tier\u00a02, and Tier\u00a03 participants in their supply chain. If executives hadn't done so before the COVID-19 outbreak, experts say, they need to now. Which means many COOs have a lot to learn\u2014and quickly.\r\n\r\nWith their March Harvard Business Review<\/em> article \"Coronavirus Is a Wake-Up Call for Supply Chain Management<\/a>,\" Arizona State professors Thomas Y. Choi and Dale Rogers reinforced that view, saying the small group of companies who mapped their supply chains before COVID-19 was better prepared for disruption than those who did not.\r\n\r\nAs some executives have discovered, supply chain awareness depends heavily on location intelligence<\/a>.\r\nMapping the locations of factories, distribution centers, and transportation routes helps a company adjust quickly in moments of crisis\u2014a key factor in mitigating risk. It also gives them a road map to more significant, long-term changes, if they're bold enough to make them.\r\n

Change Is Hard to Come By <\/strong><\/h3>"},{"acf_fc_layout":"sidebar","layout":"standard","image_reference":null,"image_reference_figure":"","spotlight_image":null,"section_title":"","spotlight_name":"","position":"Right","content":"

Is the Supply Chain Facing a Liquidity Crisis? <\/strong><\/h3>\r\nA professor at the University of South Carolina's Darla Moore School of Business suggests that the US may need a national stress test for its supply chain. In an interview on the school's website, Professor Mark Ferguson likened COVID-19-related product shortages of personal protective equipment<\/a> (PPE) to a liquidity crisis. Just as banks lacked liquidity during the 2008 financial crisis, today's manufacturers lack supplies of critical goods, Ferguson said.\r\n\r\nIn the case of manufacturers, poor liquidity stems from just-in-time practices, which prioritize limited inventory to minimize carrying costs. As Ferguson notes, the COVID-19 crisis exposed that shortcoming in devastating fashion, and could provoke changes down the road.","snippet":""},{"acf_fc_layout":"content","content":"Despite profound bruises to the global supply chain in recent years, COOs and their fellow CXOs have maintained a global production paradigm that looks much like it did a decade ago. Many observers predicted otherwise.\r\n\r\nAs climate change began to materialize in the form of more frequent and punishing storms, wildfires, and other catastrophes, supply chains suffered. The 2011 earthquake and tsunami in Japan are oft-cited examples. Amid the devastation, automakers, chemical manufacturers, and computer companies faced months-long delays in parts and supplies that hobbled production further down the supply chain. After they recovered, some companies increased their safety stock and added buffers to the just-in-time manufacturing model. But few made significant changes, according to Reuters<\/a>.\r\n\r\nIn 2018, the US set off trade wars against countries around the globe\u2014most notably China. Billions of dollars in tariffs created a material impact on consumer goods prices and companies' bottom lines. Supply chain rethinking came into vogue again, and some companies made adjustments. Several Apple suppliers, for instance, initiated plans to move production out of China<\/a>, according to a Bloomberg report.\r\n\r\nBut companies didn't fundamentally change the model. They mostly shifted production to countries such as Vietnam, Indonesia, and India, which means supply chains remain long and complex.\r\n

A Feeling of Inertia, Interrupted by a Pandemic <\/strong><\/h3>\r\nSo why have most global CXOs balked at fundamental supply chain changes?\r\n\r\nIn a recent MIT Sloan Management Review<\/em><\/a> article, Harvard professor Willy Shih pointed to a decidedly human answer: complacency. Even after Japan's 2011 earthquake and nuclear meltdown and a spate of trade wars, he wrote, some executives felt locked in to the model of Chinese production that has fueled global supply chains for so long. For CXOs, change isn't just unsettling; it's also expensive.\r\n\r\nNow, after years of discussion about restructured supply chains, the COVID-19 pandemic is delivering another powerful provocation. Like the Chamber of Commerce polls in China, a series of PwC surveys suggests COVID-19 might stir change. The consultancy has asked global CFOs<\/a> what supply chain changes they plan to make in response to the pandemic. In late April, the most popular response\u2014with 52\u00a0percent selecting it among their top three\u2014was to develop alternate sources of supply.\r\n\r\nStill, the study's authors call supply chain relocations a last resort<\/a>, due to the expense. What they expect is for manufacturers to invest in forms of automation that will deliver improved data and help them make better decisions."},{"acf_fc_layout":"quote","image":337161,"text":"Companies with a GIS-powered map of their supply chain can quickly analyze two critical pieces of information\u2014the location of suppliers and the materials at risk due to a disruption.","author_name":"","author_profession_organization":""},{"acf_fc_layout":"content","content":"

The Visibility Challenge: Mapping Today's Supply Chain <\/strong><\/h3>\r\nWhich brings us back to the strategy everyone seems to agree on: mapping a company's supply chain<\/a>. Whether executives intend to make major changes, or simply want to be prepared for on-the-fly adjustments during a disruption, they need visibility before they can make good decisions."},{"acf_fc_layout":"form","form_type":"aside","form_position":"Left","form_title":"THE ESRI BRIEF","form_desc":"A biweekly email for senior executives and business leaders, featuring thought-provoking articles on location intelligence and critical technology trends","form_button_label":"Sign up now","form_content":"https:\/\/go.pardot.com\/l\/82202\/2017-10-12\/jw1bmb","form_tag":"low-commitment-form\/sign-up-form"},{"acf_fc_layout":"content","content":"US automaker GM provides a meaningful example. After more than a century in business, the company has learned a thing or two about global supply. Its supply chain risk management team<\/a> led an effort to map suppliers and distributors worldwide\u2014including where they are, what they produce, and where it goes next. Once team members gathered that data, they placed it in a geographic information system (GIS) for mapping and analysis.\r\n\r\nUsing GIS and companion technologies, the risk management team monitors alerts for disruptive events worldwide. Based on the location and scope of each event, the team quickly generates a map that shows which suppliers are affected and which parts and materials they deliver to GM plants. Alternate sources of supply can then be pinpointed and ramped up.\r\n\r\nThe interactive map helps the automaker navigate quickly around disruptions. Due to its risk mitigation capabilities, it has also lowered the company's insurance premiums.\r\n\r\nWhile this brand of location intelligence is pivotal in helping GM analyze and respond to supply chain disruptions, it exists thanks to a lengthy data gathering process. Mapping the supply chain involves talking to each Tier\u00a01, Tier\u00a02, and even Tier\u00a03 and Tier\u00a04 supplier, carefully cataloging where they are and how they contribute to the network.\r\n\r\nArizona State professors Choi and Rogers call the process of supply chain mapping resource-intensive and difficult. But they note that during the COVID-19 outbreak and other disruptions, executives who understood where parts and subassemblies were produced, where distribution centers were located, and how materials flowed along supply routes were the first to arrange alternate sources of production."},{"acf_fc_layout":"sidebar","layout":"standard","image_reference":null,"image_reference_figure":"","spotlight_image":null,"section_title":"","spotlight_name":"","position":"Right","content":"

Global Supply Chains under Siege<\/strong><\/h3>\r\nA short list of the factors causing COOs and other executives to rethink the supply chain:\r\n