Supply chain challenges and its evolution during Covid-19 pandemic

November 04, 2021 12:43 PM

COVID-19 has revealed the weaknesses of a globalised manufacturing system and in order to respond we need to rethink supply chains.

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By Jayant Jha

The coronavirus (COVID-19) outbreak caused widespread concern and economic hardship for consumers, businesses and communities across the globe. The onset of the pandemic disconcerted the supply chain and the logistics industry. The supply shock that started in China in February 2020 and the demand shock that followed as the global economy shut down exposed vulnerabilities in the production strategies and supply chains of firms just about everywhere. In order to find new and contemporary ways to meet the desired supply chain goals the engaged companies need to address their existing exposures. The companies that were highly dependent on the Celestial Empire for the raw material were the ones that experienced the hardest hit.

As China plays the dominant role in the world’s manufacturing sphere, any major headwind would impact the entire global supply chain and risks the efficiency and productivity of the manufacturing and refurbishing sectors. The shortage of available workforce and inadequate protective supplies hampered their production volume and consequently, reduced the phone shipments for a short term. This short-term challenges comprised a hike in capital expenditures, operating expenses, revenue, and optimising supply chain, whereas the long-term challenges consisted of acceleration of digital transformations.

The smartphone shipment took a hit because of the COVID-19 where globally, the smartphone market dropped by 14% in FY22 Q2. However, the component suppliers managed to keep their heads above water. On the other hand, the smartphone industry’s was focusing majorly on 5G and according to Polaris Market Research Report, the global smartphone 5G market was valued at $13.4 billion in 2019 and is expected to grow by 122.7% by 2027. However, due to the pandemic, there has been a steep reduction in 5G growth and smartphone sales worldwide during the first two quarters of 2020.

However, rapid political developments, a shift towards consumers purchasing niche products and, now, the pandemics have exposed the weakness that lies at the heart of this model of manufacturing. There is a prerequisite for the logistics hubs to re-emerge at the regional level. To eliminate single-source dependencies, and to establish a flexible and adaptable supply chain, product integrators, subsystem suppliers and component suppliers will source, assemble and deliver from their own backyards.

India is undergoing a technological uprising, focus on domestic production of electronic goods has led to a surge in demand for electronic components. The domestic market for components is estimated to increase from $21 billion in 2019-20 to $119 billion by 2025-26. Although the domestic production of electronic components has been on the upsurge, more than 70% of the market demand is still met by imports. The total electronic component imports in FY 2019-20 were valued at $15.4 billion, out of which approx. 40% were from China.

Over the last five years the domestic production of electronic items has grown 2.5 times, whereas the local value addition is only around 7-8%. Although India is making advances into passive component manufacturing, there is a need for building capabilities in producing active components. Around 85- 90% of demand for active components is currently met through imports. This demands for the Indian electronics ecosystem to penetrate deeper in the supply chain – move from assembling to component manufacturing and achieve the vision of ‘Atmanirbhar Bharat’ in its truest sense.

Today, large electronic equipment manufacturers source about 40% of their parts from China including sub assembly. Given the exceedingly high number of parts required – each with different lead times – a return to regional supply chains presents an extraordinarily complex challenge. However, that challenge might be worth taking in the post-COVID world as the supply chain has become a main protagonist universally and has moved from playing a “behind the scenes” organizational role to being a prime driver of the company business.

COVID-19 has revealed the weaknesses of a globalized manufacturing system and in order to respond we need to rethink supply chains. Our goals in the medium term should be making them more regional, modifying the supply chain as a key business driver and putting back the human asset as the most important factor for an agile business to succeed.

(Jayant Jha is Co-founder & CEO, Yaantra; Views expressed are personal.)

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