Introduction
Undeniably, supply chain disruption is not a new phenomenon for many leading companies worldwide. Over time, pandemics such as SAR-2012, MER-2013, and political situations, including Brexit and the 2019 China-US trade wars, have caused supply chain disruptions for many companies in some parts of the globe. However, the outbreak of COVID-19 in China and its global spread in 2020 proves to be a unique phenomenon because its wrath falls on the worldwide supply chain. The covid-19 pandemic caused China, Europe, America, and other parts of the world to implement strict curfews, social distancing, local and international lockdowns as containment measures. As a result, most US companies that sourced or sold products from or to countries such as China experienced shortages or stockpiling problems, respectively. This study proves that past experiences mentioned above helped most companies to create more adaptive networks and reduce risks of supply chain disruptions due to COVID-19. As countries continued to adapt to the new normal, some manufacturers and company leaders focused on ensuring reliability, customer satisfaction, reducing demand and supply uncertainties, and not procuring low-cost goods from China.
Supply Chain Diversification Helped Organizations to Survive COVID-19 Disruptions
Experiences from past occurrences such as the 2011 Japan earthquake, the Brexit, the 2019 China Trade-wars have taught most companies how to recover from local or regional supply chain disruptions. Despite the past experiences mentioned above, the outbreak and spread of COVID-19 presented many global companies with a unique and unprecedented global supply chain disruption challenge, which past supply chain strategies failed to solve. As a result, most international companies have adopted several strategies to increase, flexibility, reliability, resilience, and competitiveness of their supply chains to cope with the current and future uncertainties (El Baz & Ruel, 2020). Due to the recent COVID-19 disruptions, most companies have had to rethink and redesign their upstream supply chains to ensure a constant supply of sub-assemblies, raw materials, and finished products for competitive advantage.
For many years, companies have focused on diversifying their supply chain to reduce costs. However, the COVID-19 pandemic has changed this focus from a cost perspective to a strategy to ensure constant reliability, competitiveness, and customer satisfaction. For instance, General Motors, an American company with significant demand in the US and China, enjoys several benefits by establishing production plants in both countries. Notably, the company manages to lower costs through a diversification strategy. As a result, it ensures increased reliability, competitiveness, and endurance in local and international markets even during turbulent occurrences such as the COVID-19 pandemic (El Baz & Ruel, 2020). However, at the onset and peak of COVID-19, low-cost and Just-In-Time strategies proved dangerous to the survival of many businesses as the pandemic impaired production activities in most countries, leading to unprecedented shortages. As a result, most companies cared for their survival more than cost. For this reason, supply chain diversification served as a strategy to boost supply capacities, keep companies running, and not purposely acquire low-cost products from China.
Mitigation of Supply Chain Risks by Organization
Undoubtedly risks associated with the supply chain can come from several sources. These sources include damage, theft, data breach, terrorism, wars, supplier bankruptcy, or natural calamities like the COVID-19 pandemic. For example, the onset and spread of the COVID-19 pandemic disrupted the global supply chain, thereby posing a significant risk to the survival of most businesses globally (El Baz & Ruel, 2020). As a result, the surviving companies have to implement several long-lasting strategies to reduce the current and future supply chain risks.
Supplier Diversification and Holding Buffer Stocks
Notably, global businesses that rely on a single or few suppliers and production plants from a particular geographical region have high exposure to supply chain risks if disruptions occur. Therefore, if such businesses want to keep their supply chain risks at a minimum, they should consider adding more suppliers located at different geographical locations. However, enterprises face the challenge of limited suppliers. For instance, the US pharmaceutical industry experienced this shortage of several products in 2020 because it gets most ingredients from China (El Baz & Ruel, 2020). Therefore, as a solution to the supply shortage problem, global businesses should consider sourcing most of their raw materials and labor locally. Alternatively, interactions with limited suppliers should act proactively and hold buffer stocks to Cater customer demands over the disruptive period. However, companies should be ready to incur additional acquiring new suppliers or holding buffer stocks.
Increasing Agility and Responsiveness of the Supply Chain
Most supply chain risks are unforeseen, and their occurrence is uncertain but have dire consequences to any business when they occur. Therefore companies ought to be risk-prepared by making investment decisions before the occurrence of uncertain events (El Baz & Ruel, 2020). This strategy is costly but acts as insurance to the business against any risk of supply chain disruption. Although the most proactive approach may not be feasible to solve given trouble upon its occurrence, some companies such as Nokia have succeeded through this strategy in the past.
Short-Term/Long-Term Benefits of Supply Chain Risk Mitigation for the US Local Manufacturers
The US manufacturing business can enjoy several benefits by implementing strategies to mitigate risks against supply chain disruption mentioned above. For instance, by adopting the supplier diversification strategy, organizations such as the US Pharmaceutical industry can provide alternative sources of raw materials in case China faces supply chain disruptions. This way, the industry will continue with its production and satisfy both current and long-term market demand. In addition, by establishing local sources of raw manufacturing, companies enjoy cost and legal benefits as they do not have to comply with international laws or incur high logistical charges. By holding buffer stocks of raw materials, the US manufacturing businesses can enjoy seamless production at a competitive cost (El Baz & Ruel, 2020). Notably, supply chain disruption causes a shortage of raw materials, leading to increased prices to offset excess demand. In addition, these companies may experience unreliable supplies due to transport bans and increased logistical costs. Therefore, US businesses that mitigate supply chain risks by holding a buffer will enjoy a competitive advantage by satisfying the needs of their customers and carrying out production at reduced costs during disruptive times.
Benefits of Increasing Agility of Supply Chain for Local US Manufacturers
Moreover, considering supply chain uncertainties that may occur in the future before making investment decisions can provide several benefits to US manufacturing companies. For instance, prior risk preparedness can help local manufacturers in the US create a more agile supply chain network that will endure current and future disruptions. As a result, these businesses can enjoy undisrupted continuity of their activities as they can quickly respond to unexpected changes in the business environment. Furthermore, in cases where such companies suffer from supply chain disruptions, they recover more rapidly than businesses without risk preparedness plans (El Baz & Ruel, 2020). In addition, prior risk preparedness can help US manufacturing businesses to have increased supply chain visibility thereby, detecting and responding to imminent risks beforehand to ensure the organization remains safe from current and future disruption.
Example of Better and Less Prepared Organizations for Supply Chain Disruption
Notably, a company’s preparedness towards the risk of supply chain disruption can only become visible at the time of risk occurrence. Organizational performance during disruptive times provides the primary metric to judge a company’s risk preparedness. For instance, the fire incident in 2000 at a semiconductor manufacturing plant of the Phillips Company presents a good comparison between two mobile phone manufacturing companies, Nokia and Erickson, in terms of their level of preparedness to risks of supply chain disruption. When the fire occurred at the Albuquerque plant, it became impossible for Phillips Company to deliver chip supplies to Nokia and Erickson, phone manufacturing companies in Finland and Sweden, respectively (El Baz & Ruel, 2020). This disruption would take Phillips Company about two weeks before restarting the production process and reviving its supply chain. This scenario would mean two weeks of chips shortage, which would delay or cause mobile phone production stoppage for both Nokia and Erickson.
Under the circumstances mentioned above, Nokia emerged as the company most prepared to experience supply chain disruptions. Notably, instead of waiting for supplies from Phillips after two weeks, Nokia redesigned its chips and boosted its production speed from other suppliers. As a result, the Nokia Company’s production activities never stopped or slowed despite the chip supply disruption. Another global business that portrayed agility and preparedness to supply chain disruption is LVMH, a company in the fashion and design industry. In the wake of COVID-19 in 2020, LVMH quickly redesigned its supply chain by shifting its production line from perfumes and cosmetics to hand washing sanitizers to fill the demand gap in America (El Baz & Ruel, 2020). On the other hand, Erickson Company of Sweden depicts businesses as less prepared for supply chain disruption. Notably, the company relied on Phillips only for its chip supplies, and thus when disruption occurred, its production activities stopped, incurring huge losses amounting to $400 million (El Baz & Ruel, 2020). For this reason, Erickson became a constituent of the Japanese Sony Company in the same year.
Conclusion
In conclusion, COVID-19 is not the first phenomenon that has disrupted the supply chain. However, this pandemic is unique from other phenomena because it disrupted global supply, thus exposing many international and local businesses to the risk of material shortage and stockpiling. As a result, many companies diversify their supply chain to maintain steady supplies and ensure seamless and competitive business continuity. Therefore, most businesses did not seek to procure cheap components from china at the expense of supply chain diversification but instead sought business survival during the disruptive period of COVID-19. As a mitigation to the risk of network disruption in the future, businesses ought to implement strategies such as supplier diversification and redesigning their supply chains to increase their flexibility and responsiveness to uncertainties. Applying the above risk mitigation measures can benefit US local manufacturing companies in several ways, including ensuring the continuity of their business during disruptive times and reducing over-reliance on international suppliers. The Nokia Company and LVMH are two examples of companies well prepared for supply chain disruptions, while Erickson depicts them as a less prepared business.
Reference
El Baz, J., & Ruel, S. (2020). Can supply chain risk management practices mitigate the disruption impacts on supply chains’ resilience and robustness? Evidence from an empirical survey in a COVID-19 outbreak era. International Journal of Production Economics, 233, 107972. Web.