eCommerce Brands Look to Diversify Their Supply Chain in the Wake of the Coronavirus
Not only is the coronavirus (COVID-19) a public health crisis, but it’s also having an impact on global supply chains. For many companies, the coronavirus crisis has highlighted the downside of their dependency on a single supplier or a certain country, such as China, and the need to diversify their supply chain to reduce risk.
Disruption Of Supply Chains
In wake of the outbreak, supply lines have been crippled by quarantines, factory closings, travel restrictions, and other measures taken by China and other countries. In a relatively short period of time, the virus has caused a major disruption certain to affect the supply of goods out of China for months to come.
In 2003, the SARS outbreak also affected the global financial markets. Yet in the past 18 years, China’s importance in the world’s economic system has changed tremendously. Then, China’s GDP represented 4.31% of the world’s GDP. Today, China represents 16% of the global GDP, an almost four-fold increase. After Mexico and Canada, China is our next largest partner, representing 21% of total U.S. imports.
Supply-chain managers know the risks of single sourcing but do it to secure their supply or to meet certain costs. Often, this provides limited options, and more than ever those options are located in China. With the current epidemic, look for U.S. producers to step up plans to reduce their reliance on China, who play a dominant role in the manufacturing network that ships parts and materials to different countries all over the world.
Businesses are moving toward localizing supply chains to be closely tied to final markets as opposed to extending them further away. Analysts report that companies in 10 out of 12 global industries have shifted, or plan to shift, at least part of their supply chain from current locations to more centralized sources. Rather than just using one location, sourcing from multiple suppliers (75%-25%) is a practical approach being incorporated more in today’s business landscape.
So, what else are companies doing to manage supply risk?
Companies will invest in 24x7 monitoring of their global suppliers. New technologies have made extensive supplier monitoring affordable, simple, and accessible. Companies simply cannot run a global supply chain in today’s fast-changing business environment without knowledge and information that could cause market chaos or disruption in the foreseeable future.
Mapping involves engaging suppliers to understand their global sites and subcontractors, as well as knowing which parts pass through those sites. When disruptions happen, companies are able to figure within minutes or hours how their supply chain could be impacted in the days, weeks, and months to come. When companies have advanced knowledge of issues, they can avoid problems and mitigate strategies immediately.
Amidst the outbreak of the coronavirus, online shopping has surged… inadvertently creating a boom for eCommerce as people avoid exposure to others by staying home and purchasing goods online. But the surge in online shopping has also put pressure on businesses to fulfill the orders. With such high demand and limited supply, this pressure is proving too much for some businesses to handle and threatens to upend their eCommerce operations. Smaller eCommerce brands may remedy the situation by spending quietly, holding inventory, and offering fewer discounts in the short term.
In Supply Summary
The coronavirus fallout is proof that when businesses concentrate too heavily on a single supplier, they expose themselves to a possible supply chain breakdown. Because of the crisis, we’ve seen the vital importance of companies diversifying their sourcing and closely monitoring their supply chain. If not, such circumstances can prove fatal to their business.