A Deep Dive into the Global Supply Chain Collapse
Updated: Jan 5, 2022
The Covid-19 pandemic has caused a majority of the world to come to a standstill. However, as many sectors slowly move back to a relative state of normalcy, one is still left reeling from the entire world shutting down.
This rather behind-the-curtains industry is currently facing a crisis like never before. But, to understand what is now happening, it is essential to know what the industry consists of.
What is the Global Supply Chain Industry, and Why is it Important?
Global supply chains are networks that encompass numerous continents and countries to source and distribute goods and services.
The dissemination of information, procedures, and resources across the globe is facilitated through global supply chains. It employs low-cost country procurement, which refers to acquiring goods and services from nations with lower labor rates and lower manufacturing costs than the home country.
Apart from reducing operating costs for a company, supply chain management also boosts customer service, increases profits and cash flow, and plays a major role in job creation.
Why is the Global Supply Chain in a Crisis?
Due to the virus's aggressive spread in 2020, industries worldwide were forced to shut down, and while many of us were in isolation, consumer demand and industrial activity were curtailed. Demand has skyrocketed as lockdowns have been eased. Furthermore, supply networks interrupted during the pandemic are still facing significant hurdles and are striving to recover.
This has wreaked havoc for producers and suppliers of goods, who cannot manufacture or distribute as much as they did before the crisis for many reasons, including labor shortages and a scarcity of crucial raw materials and parts.
Raw materials are still primarily sourced from developing countries such as India and Brazil, where the pandemic management has been challenging and complex. Power shortages in China have hampered production recently, while Brexit has played a significant role in the UK's trucker shortage. The United States and Germany are also dealing with similar issues.
Ports, storage facilities, and transport businesses are processing more cargo than ever before while dealing with a slew of crucial shortages, including employees, infrastructure, and space.
What Does this Shortage Mean for the Rest of the World?
There is a nearly endless shortage of almost everything produced or manufactured, from chemicals to electronics to running shoes. Scarcity fosters scarcity. A lack of raw materials leads to a shortage of production, which leads to a decrease in supply, causing a global scarcity of several products from shoes to books to computer chips. This is not only affecting the consumers, but also the economy of the world.
Essentially, at the beginning of the pandemic, most industries had a surplus of supply and lack of demand, but as the world slowly progresses towards normalcy, there has been a sharp increase in demand, with manufacturers being unable to meet the supply requirements. This had forced them to increase prices, which, on a large scale, had led to currency inflation, causing a rise in interest rates before they were expected and shaking the economy on an international level.
The present situation is simply the most recent in a succession of blowouts that have prevented the overall system from stabilizing since early 2020. The upheaval of supply chain management and the economy at large during Covid-19 demonstrates that much work remains to be done to revitalize the infrastructure of world trade, re-evaluate systems that were not designed for continuous stress, and ensure measures are in place for the next round of disruptions.
Is There any Good that has Come Out of This?
A pause on imported goods has allowed several locally owned businesses to thrive. Countries shifted the focus towards being self-sufficient to pull through the supply chain shortages. One good example would be the microchip manufacturers in the USA. These chips are used as countless products ranging from phones, gaming controllers, and even automobiles.
American manufacturers are slowly gaining traction as a lack of these essential parts has affected production. Companies are searching for alternatives to prevent their units from grinding to a halt.
Will the Issue be Resolved Anytime Soon?
In short, no. The most efficient way to solve the crisis would be to cut down on consumption.
However, it isn’t a very viable solution, especially with consumption only growing. Despite rising prices, The Consumer Price Index, a measure of the growth in the costs of products over a given period, climbed upwards of 5% in twelve months.
Experts say that the crisis may last well into 2022 and is likely to worsen due to holiday shopping.
Companies have worked their way around this issue though. From offering customers more deals even before Black Friday and Cyber Monday, having their fulfillment centers ready to handle higher demand, etc., they have satisfied their customers to a greater extent than expected.
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Surabhi Paraki is a Journalism and Communications student at Jain University. She is also an activist and a content writer at the International Youths Organization for Peace and Sustainability.