The impact of the coronavirus on the supply chain

April 29, 2020
StoreShippers - Nienke van Meekeren
April 29, 2020
StoreShippers - Nienke van Meekeren

Since the first cases of the new type of coronavirus, officially called COVID-19, were detected in China in December 2019, efforts have been made to curb the spread of the virus. Unfortunately, the coronavirus appears to be spreading faster than predecessors such as the MERS virus and SARS, so that the number of infections worldwide is increasing rapidly. At the time of publishing, more than 3 million people have been diagnosed with coronavirus.

In addition to the huge impact on public health, the coronavirus outbreak and the drastic measures taken by governments around the world are also causing major global economic and supply chain disruptions. Quarantines, social distancing, travel bans and other restrictions make production and transportation of supplies and goods more difficult. This creates shortages, delays and suspensions in the supply chain.

Across the supply chain, consequences of the coronavirus are visible. These supply chain consequences can be divided into different areas.

A counter-wave of globalization may emerge

The fact that production and transportation of supplies and goods are more difficult during the coronacrisis has resulted in supply shortages of materials and goods coming from or routed through logistical hubs in impacted areas.

Companies are in the dark about their stock management and about their final demand in a few months. Moreover, it is difficult to estimate what and how much they must and can purchase. In certain places there are shortages, in other places there are surpluses. As a result, companies order a lot more for stocks that are falling quickly in order to build up a buffer and to meet the surge in demand due to panic purchases and hoarding. This can lead to a bullwhip effect, which arises when the supply chain is impacted by changes in supply and demand. The bullwhip effect refers to the increasing swings in inventory in response to shifts in customer demand as one moves further up the supply chain.

With regard to sourcing, there is currently a limited ability to discover, qualify and certify new suppliers. In the future, there may be a loss of trust in the world’s largest exporter, China. Many businesses will therefore reflect on diversifying their risk after the coronacrisis and will try to develop alternatives in other countries. In extreme cases, a counter-wave of globalization may emerge: a wave of protectionism and nationalism. In addition, the coronacrisis will result in manufacturers reconsidering their single-source supply networks.

The coronavirus completely disrupts the logistics process. Problems arise because hubs and supply networks experience limitations in capacity and availability. In addition, the coronacrisis gives online shopping a boost. As a result, the demand for online products is exploding, causing capacity problems in delivery and increasing delivery times.

The labour problem due to the coronacrisis is two-fold. On the one hand, some businesses are facing the problem of staff shortages due to quarantine or illness. On the other hand, businesses are experiencing declining sales and businesses that need to shut down during the coronavirus outbreak. As a result, employees are fired and contracts are not renewed.

As a result of the suspension of passenger services by the coronavirus, there is a loss of capacity in the belly of passenger aircraft. This increases the freight prices of fast modes of transport. In addition, prices of specific products may rise due to the increasing demand for these products. The extreme crowds online and waiting times of products ordered online are increasing. High demand and low supply can cause prices to rise.

Consumers change their buying behaviour because they prefer not to leave the house too often for fear of contracting the coronavirus. They panic buy and hoard, and are turning to online sales in large numbers. Research firm Nielson has discovered that the behaviour that consumers display during the coronavirus can be divided into six stages. These stages are the same for almost all countries.

The new normal

Businesses throughout the supply chain can emerge stronger from the current coronacrisis if they learn from their own approach during the crisis. The consequences of the outbreak shows the importance of visibility over the whole supply chain and not only the first-tier suppliers. It is also important that businesses build additional knowledge about what exactly the consumer wants, so that they can respond to this once the coronavirus has been defeated.

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Blog by: Nienke van Meekeren
Sources used: Johns Hopkins, Gartner, Jan Fransoo, Marketing Tribune, Science X
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