Supply chain lessons from COVID-19

Samuel Mathew Global Head, Flow & FI Trade

27 Mar 2020

It’s an understatement that COVID-19 is disrupting global supply chains. The coronavirus pandemic has had a huge impact on financial markets and trade ecosystem triggered by an unprecedented global supply and demand shock. But it is also forcing businesses across the world to assess their supply concentration risks and to consider opportunities and ways of working previously set-aside such as automation and the use of data and AI tools to derive insights.

Complexity of modern supply chains

We live in a hyperconnected world. Modern supply chains are longer and more complex, often spanning multiple countries across continents. An Airbus A380, for example, has approximately 4 million parts, coming from more than 1000 suppliers across 30 markets. The rise of mainland China as the factory of the world, continued growth of the Asian tiger economies and globalisation in general have all contributed to undeniable interdependencies.

Will coronavirus lead to de-globalisation of trade?

Before coronavirus shook the world, the ensuing global trade war had already disrupted supply chains. While certain nations reverted to more protectionist and nationalist behaviours, what was interesting to note was that supply chains adapted, and inter-regional partnerships and trade proliferated. In the future, we see diversification and therefore more of a balance between global and regional supply chains being the norm.

To assume that the end of globalisation is nearing would be too simplistic.

How businesses can prepare for seismic events like COVID-19

Smart businesses will look at their supply chains very differently going forward. They will invest in technology and digitisation as a tool to help manage diversification, providing real-time visibility of inventory, supply chain vulnerability identification, order/purchasing patterns and forecasting to name a few.

Bearing this out, data and analytics, with 48% of the vote, was highlighted as the foremost technological investment by the audience in Standard Chartered’s ‘Global Supply Chains: Trends and Tremors’ live webcast poll.

We expect companies will approach their supply chain infrastructure as a business diversification tool building continuity and risk management into this critical infrastructure. We are already seeing companies increasing their interest and adoption of digital and we expect even more to automate and to look to further diversify their supply chains to minimise concentration risk.

Automation will drive insights into not only a supplier’s quality, but also performance, optimal transportation routes and how to reduce supply chain waste. It will make corporates less dependent on the labour force and bring the production closer to the end consumer. We see South Korea, Germany and mainland China leading the way, already producing where they sell.

Those with limited appetite for diversification and low automation will be left behind.

Implications for sustainability

Similarly, those who ignore the importance of sustainability to consumers and governments post-crisis, will miss opportunities to build stronger supply chains. The results of a poll during the webcast also shows sustainability to be high on the corporate agenda. This is very encouraging and aligns with Standard Chartered’s strategic priorities. While the world has come close to a standstill due to COVID-19, sustainability, climate change, ethical work practices, sustainable sourcing and financial inclusion promise to be pivotal components for the future of trade and supply chains.

Once this storm passes, the immediate question then to consider is – Is your supply chain a strategic differentiator?