In March 2020, the World Health Organisation declared the coronavirus outbreak sweeping the world to be a pandemic. The virus has affected more than 180 countries and territories around the globe, and claimed more than a million lives. Many countries continue to step up their containment efforts, travel restrictions are still being implemented, and many millions of people are still in lockdown.
The outbreak sheds light on an issue that stands to disrupt global business for months to come: the impact of a shock on global supply chains – especially for the alarming number of businesses still reliant on a single, centralised supply chain.
Overexposure means risk
Research from Resilinc – a company that maps out global supply chains – found that the world’s largest 1,000 companies or their suppliers own more than 12,000 factories, warehouses and other facilities in current or previously quarantined areas. This is particularly true for US companies, which are significantly more exposed than others. However, businesses all over the world are affected, from medical and electronic device makers to auto parts suppliers. Writing in the Harvard Business Review, Resilinc CEO Bindiya Vakil and Resilinc senior adviser Tom Linton noted that manufacturers from more than a dozen industries are facing a supply crisis that stems from issues with their sourcing strategies. Many businesses are evaluating their supply chain model in a new light.
Centralised versus decentralised logistics
Spreading supply chains and logistics across multiple markets allows a business to respond flexibly to global or systemic shocks, rather than buckling under the pressure. Moreover, production at each link of the supply chain can be ramped up or down depending on that specific area’s demand in order to best serve the customer base. In this way, a decentralised logistics network is far more agile than its counterpart –and in times of global crisis, agility is essential. According to a survey by the Institute for Supply Management of 628 individuals conducted between 22 February and 5 March 2020, almost 75% of US businesses have experienced supply chain disruption as a result of the Covid-19 outbreak.
Multiple hubs in multiple markets
Single sourcing can be tempting when it comes to securing supply or meeting a cost target. However, when crisis strikes, it is those companies that have multiple hubs based in different markets around the world that can remain competitive. Of course, this means that a business has to evaluate several different markets rather than just one, and assess political and economic stability, location, access and regulatory frameworks across all of them. It is worth the investment, however, as many companies have demonstrated. Global manufacturers such as Mondelez, Arla Foods, BASF, Yokogawa, Rickett Benckiser, Kimberly Clark and many more have set up their regional hubs in Bahrain. The fast-growing $1.5trn Gulf opportunity suggests these investments will rapidly pay for themselves and hedge against further supply chain risk.
In order to mitigate the risks of similar disruptions in the future, companies will undoubtedly need to face challenging questions that may not have any easy answers, including whether they should broaden their supplier choices or focus more on local or near-shore sourcing, as well as questions around the inventory of raw materials, sub-assemblies and finished products required to tide them over during the crisis.