Supply chain management encompasses an array of approaches that are intended to ensure efficient amalgamation of warehouses, suppliers, factories and stores in order to ensure that the products and services are produced as well as disseminated within the stipulated time frame to the destination (Freyssenet & Lung, 2000). The key intention of supply chain management is to make sure that the total cost is minimised as well as a satisfaction of the service is maximized. The supply chain is driven by production, inventory, location transportation and information which make up the basis for all the decisions. The supply chain interdependence is outlined by the relationships exhibited with external partners, it is usually the reason for the elevation of complexity in the interdependencies, but the global pandemic has further inflated the intricacies in interdependency in supply chains. This outbreak with immense magnitude has resulted in off-guarding of all industrial sectors (Kamalahmadi & Mellat-Parast, 2016). This has, in turn, impacted the supply chains and the businesses.
In the time of crisis, analysis shows that the world has become more dependent on China for imports. At the same time, China has effectively managed to diminish the degree of intermediate imports from other countries and has effectively integrated supply chain in the vertical custom apart from the commodities such as hi-tech goods. The crisis has brought forward a picture of the fragile nature of globalisation. It is cardinal to consider that the feel-safe alternatives of manufacturing have further lead to the breakdown of the supply chains which have already occurred in a health-related field and medical facilities. Covid-19 has emerged as a shock in both supplies as well as demand stream in international trade of services and goods (EY, 2020). India's pharmaceutical industry has become dependent on China due to the 14-day quarantine norms and procuring APIs from China as the cost of production is lower there (Chatterjee, 2020).
Zhengsheng Zhong, CEMB Group’s chief economist stated that China's economy was impacted drastically in February this year (Baldwin & di Mauro, 2020). He also confirmed that the supply chains became stagnant in the country in the context of supply and demand. However, the workforce of the countries gradually came back to work. On the other hand, the purchasing managers' indices across East Asia have depicted a devastating decline in terms of production especially in countries like Vietnam, Taiwan, Japan and South Korea. In the context of the regional dimension in the supply chains, Japan China and Korea are among the most hit ones by this outbreak. The automobile sector is undergoing adversative impact in terms of supply chain disruption at an international level. The parts coming from China has resulted in Korean carmakers to shut its plants. Furthermore, the UK based company had also flown in emergency supplies from China to prevent its run-off. Despite the destruction in the supply chain which is extended globally, China's factories are operating at 50 per cent to 60 per cent of capacity which is appreciable as compared to the other countries (Baldwin & di Mauro, 2020). China is a major source of demand in the context of the economy of the world in many core industries of Europe is highly dependent on the Chinese market. Most of the German car industries revenues which accounts for about 40% is due to sales in China.
Due to the collapse in Chinese supply chains and reduction in the efficiency, many countries are suffering effects of persistent and opposing impact on government, companies and individuals in terms of pitiable integration in globalisation and elevated risk from the health shocks (Shawn, Christoph, Joe & Ian, 2020). It is evident that the economic collapse in Covid-19 is higher than the SARS (Baldwin & di Mauro, 2020). The complex interdependence in the supply chain is due to the fact that China along with other countries like Italy, France Germany, US and Japan accounts for about 60 per cent of the world supply and demand contributing to the overall GDP, 65 per cent of the world manufacturing and around 41 per cent of the exports in the context of the manufacturing sector (García-Herrero, Nguyen & Tan, 2020). China is a global value chain, as a consequence, supply chain contagion is hence been disturbed Supplychaindive, 2020).
The supply chain is a cardinal mechanism for producing and disseminating knowledge and capacities for problem-solving. It facilitates coordination between the networks of different firms. The crucial reason for complex interdependency is that despite the Covid-19 crisis, China is remaining as ever committed to globalisation. China is still trying to manage pandemic and its associated global recession and is deflating the negative consequences of the financial crisis (García-Herrero, Nguyen & Tan, 2020). It is trying to retain constable competitive advantage in many areas involving equipment manufacturing, electronics and types of machinery which is irreplaceable considering its large market share in other countries. It is also emerging as a leading supplier of health kits and equipment on which many countries are reliant currently. The country is climbing up the value-added ladder which is enabling it to become a leading element of the supply chain and as a result, the interdependencies have further complicated. It is dominantly laying emphasis on the exports as well as its domestic consumption. The tariffs imposed by the US on China have peaked up to $300 billion on the imports (Supplychaindive, 2020). This is further resulting in other countries to become more dependent on China as compared to China is on the other countries (Project Syndicate, 2020). The key reason behind this is also the fact that China is ahead of many of the countries in terms of handling the virus and reconstructing its economy.
A root-to-branch shutdown is being witnessed by the firms on a global level. In the words of the head of global economic research at Bank of America, Ethan Harris, the outbreak is no less than a natural disaster rolling progressively (Industry Week, 2020). It is anticipated that in comparison with China, the outside world will bear more severe consequences. And, these consequences directly indicate the implications in terms of disproportionate dependence in the global supply chain (Industry Week, 2020). Many years before this outbreak, CEO of Maine Pointe, Steve Brown stated that the world’s dependence on China has grown to an exaggerated level (The Japan Times, 2020). The pandemic has made countries to realise the potential that they hold and to see the alternative suppliers that are present in other countries as well. Most of the countries in this time of crisis are trying to focus on the domestic economy rather than stressing on globalisation, this is the reason that Council of Investment for future which was chaired by the Prime Minister of Japan, stated that he wishes to further promote domestic manufacturing in order to foster the economy that is restricted by the outbreak (The Japan Times, 2020).
Investment panel, in addition, confirmed its focus on taking effective measures to help the tourism sector to recover from the crisis and settle down in an equilibrium state. It brings forward a transparent picture of the budget for fiscal 2020 which the countries are currently working on (The Japan Times, 2020). The country is also making sure that the highly profitable products and the production industries are brought back to the country so the profitability is inflated and economy sustained. The country has also affirmed a plan for launching a national campaign the all travel-related sectors encompassing both public and private domains. Supply is fundamental in a supply chain as it is the setting in which operations are conducted and the interactions are promoted between customers and suppliers are facilitated (Govindan, Fattahi & Keyvanshokooh, 2017). For overcoming the challenge of complex interdependence in the supply chain, it can be recommended that the supply network is modified by understanding the market competitiveness; focusing on the long-term issues and identifying the significant link in the chain. The effective amalgamation of the first tier second tier of suppliers and customers can be beneficial in overcoming the interdependency.
Considering the current scenario, it is crucial for the countries to currently stress on the domestic economy. A shorter supply chain decreases the cost of transportation of the goods from the supplier to the manufacturer. Having suppliers close by can ensure that the transportation costs are reduced and less usage of the inventory is done (Area Development, 2020). Amalgamating with the regional suppliers also means that flexibility is added to the supply chain especially in the automotive industry. Focusing on the manufacturing plants within the country can increase the suppliers 'ability to locate the nearby facilities and will, in turn, contribute to the strengthening of the domestic economy. Covid-19 has caused the firms to rethink the global supply chain (Deloitte, 2020). Amidst this crisis, a valid recommendation that can be suggested for overcoming the complexity and interdependence in the supply chain is to reorganize internationally.
An important characteristic is to ensure that the competent capital is assessed; this will make sure that competence is included in the firms and can be beneficial for the domestic economic system. It will also allow tailoring and strengthening the activities of the dominant sectors. Regionalization is an alternative development option for the economy; globalisation represents completely new qualitative phenomena in comparison with the traditional internationalisation (Isaksen, 1998). Regionalization basically encompasses the economic activities which are reliant on the source-specific individual places. It fosters asymmetric information and creation and absorption of unique knowledge which adds competitiveness to the local production systems and the firms. The extreme dependence and reliance on China's supply can be mitigated by regionalisation and its consideration as a realistic aspect and alternative to globalisation as an efficacious development tactic in the creation of internationally competitive industries (Supplychaindive, 2020).
The crucial factors to accelerate the regionalisation within countries involved; having mutual co-operation between the management, the employees and the firms, fostering the entrepreneurial spirit among small enterprises, facilitating the collective learning process and also allowing the free flow of information between different industrial sectors so that everyone can take part in the learning network and developing workforce competence (Deloitte, 2020). The interdependence and high reliant system in the supply chain can be weekend by reinforcing the screening protocols so that employees can be strictly educated regarding the symptoms of the disease and its prevention ultimately contributing to the overall development of the economy and the process of overcoming the situation and strengthening the economy (Deloitte, 2020).
Preparation of succession plans for the executive positions focusing on the cash flow, restricting the non-essential travels and building the information technology systems for supporting the working environment, fostering a flexible working and handling the labours planning are some of the key steps that organisations can consider for further building the regional supply chain system. A new supply chain model can be built by chain optimisation for minimising the costs, driving up utilisation of the local resources, removing buffers, adopting flexibility to absorb the destructions caused by the Covid-19 crisis and reducing the inventories (Deloitte, 2020).
By leveraging the technological interventions involving artificial intelligence, internet of things and 5Gs for anticipating and meeting future challenges is another effective method for promoting regionalization and diminishing the extreme complexities in the supply chain.
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Baldwin, R., & di Mauro, B. W. (2020). Economics in the Time of COVID-19. A VoxEU. org Book, Centre for Economic Policy Research, London., 26.
Chatterjee, P. (2020). Indian pharma threatened by COVID-19 shutdowns in China. The Lancet, 395(10225), 675.
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Shawn D., Christoph R., Joe D., & Ian K., (2020). A Covid-19 Supply Chain Shock Born in China Is Going Global. Bloomberg. Retrieved from: https://www.bloomberg.com/news/articles/2020-03-20/a-covid-19-supply-chain-shock-born-in-china-is-going-global
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The Japan Times. (2020). Japan aims to break supply chain dependence on China in light of COVID-19. Retrieved from: https://www.japantimes.co.jp/news/2020/03/06/business/japan-aims-break-supply-chain-dependence-china/#.Xq_Ha9R97Dc
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