Impact of COVID-19 on the Supply chain of the Manufacturing sector

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The Coronavirus disease (COVID-19) was declared a pandemic by the World Health Organisation (WHO) on March 11, 2020. Apart from the substantial deaths and chaos, Pandemics can have severe implications on the economic and social landscapes of the world. The manufacturing sectors of various countries have taken a huge hit as they are labour intensive, and the current pandemic situation has called for nation-wide lockdowns and several restrictions all over the world. This has caused stagnancy in operations conducted in numerous manufacturing plants.

Today, the world is more connected than ever due to incredible technologies and globalisation. Hence, disruption in just one of the manufacturing hubs is more than enough to cause anomalies throughout the enormous supply chains spread across countries. For example, Greenland has 11 confirmed cases of COVID-19 and all of them have recovered. However, it relies on imports and supply of raw materials which are spread across Europe. 

 To understand the impact on the supply chain of the manufacturing sectors, lets first identify the key drivers of manufacturing. The primary factor is demand in the economy. Only if there is substantial demand for a commodity, it will be manufactured. After manufacturing, the commodity is required to be delivered to the customer/consumer. It is in this stage that the pandemic has had an adverse effect. Due to lockdowns and restrictions the logistics are in vain. Hence, the manufactured goods are not reaching the customers.

The Indian manufacturers have significant dependency on China for the supply of raw materials. The current situation has made supply difficult due to complications in logistics. Operations in manufacturing plants are incredibly difficult to carry out due to social distancing norms and lockdown restrictions that are essential to follow. This has minimized the use of human resources which is vital for carrying out operations. The demand for essential goods has skyrocketed in contrast to non-essential goods which has taken a hit due to inaccessibility. Considering this scenario, industries which manufacture essential goods have been able to continue with connections to e-commerce sites like Amazon and Flipkart. However, the automobile industry has been stagnant due to overwhelming inefficiency in the supply chain caused by the pandemic.

This pandemic has provided India an opportunity to be independent with regards to supply and imports. Realizing the Indian potential for raw materials would have a ripple effect in the future economy and reduce dependency tension. To stimulate the manufacturing sector and operations, logistics must be made more efficient. This could be done by eliminating/reducing the entities of supply chains. This would ensure minimal human involvement which is essential in the current situation. E-commerce websites could implement grouping of delivery to ensure efficiency. The government could take precautionary measures and incentivise demand for non-essential goods. This could stimulate the manufacturing industries of non-essential goods which have been stagnant.

How has the Pandemic affected the Supply Chain?

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Current scenario

The impact of Covid-19 across the world has been completely devastating. The nations across the world have taken steps out of ordinary. From putting ban on travel, closing borders, stopping business to complete national lockdown, the economic growth has downgraded tremendously. Several attempts have been made to “flattening the curve” which involves reducing the number of new COVID-19 cases on day to day basis.

For a country like India with high population density, it becomes necessary for the Government to take up vital steps to protect its citizens as high population attracts the virus to spread easily and rapidly. Therefore, keeping in mind, the limited infrastructure, the Government had to completely lockdown the nation from March 25. The lockdown was supposed to last for only 21 days but has been extended till further instructions. The impact of this has already begun by troubling the Indian economy resulting in slow growth and shrinking consumption.

Impact on supply chains

Even before the spread of Covid-19 across the globe and nationwide lockdown, there seemed to be a ripple effect on the global flow of trade due to disruption in China. Due to this many companies had started working to thin the supply chain from China. Because of Covid-19, the vulnerabilities of costs have been exposed and “just in time” deliveries with emphasis laid on minimization has led to decrease in inventory buffers and has left very small or rather no room for adequate buffers

However in India still there are certain industries which are heavily dependent on Chinese imports. Some of these industries are that of pharmaceuticals where about 70 per cent of pharmaceutical ingredients are imported from China for the requirement of industry. Automobiles which adds up to 10-30 per cent of imported raw materials from China for the base parts. The renewable energy sector especially Solar in the area of solar is heavily dependent on China for Solar panels which is 80 per cent of our renewable sector’s requirement.

Managing the crisis

To combat the current crisis, Directorate General of Foreign Trade (DGFT) imposed restrictions on the export of 13 Active Pharmaceutical Ingredients and 13 formulations made from these ingredients. Major actions were taken to quickly initiate customs clearances of imports from China.

The Apparel Export Promotion Council (AEPC) advised its members not to rely on Chinese products by diverging the source of raw materials as the supply from China has been cut off due to the pandemic. According to AEPC Chairman A. Sakthivel the industry body has approached the government on the matter who in turn has asked the Indian embassies to find the alternate sources of suppliers for India.

Due to crisis many companies want to move at least a part of their supply chains locally which would increase investment in India’s local industries and help to overcome economy in crisis. The Indian Government has decided to promote domestic manufacturing of critical Key Starting Materials (KSMs) and Active Pharmaceutical Ingredients in the country which will promote Bulk Drug Parks with investment of ₹3,000 crore in the next 5 years. This is a wake-up call for India to develop its own local sourcing units and adopt alternative strategies for reducing the dependency on China.

References:

https://www.thehindubusinessline.com/opinion/covid-19-exposes-indian-industrys-supply-chain-vulnerabilities/article31224928.ece