How Disrupted Value Chains are Being Forced to Transform

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value chain disruption for businesses

The Covid-19 pandemic has had far-reaching and devastating effects around the world. Aside from the health impact, manufacturing and global value chains have also taken a hard hit from this virus. Companies are in disarray as they try to protect employees, their supply chains, and handle the financial impact as they navigate a highly uncertain market.

These value chains are a vital piece of economic development, spurring GDP growth and positive competition. Without them, the economy would crumble. That’s why these disrupted chains are being forced to transform in new and interesting ways.

Past Crises and Modern Day

Global markets have suffered since the onset of this pandemic. Fear and uncertainty have driven oil prices to rise, demand for various goods to diminish, and caused individuals to spend less as workplaces struggle to remain open.

China, home to so many refiners and producers, is expected to see a 4.5 percent slowing of growth. This will be the slowest pace since the financial crisis of 2008. That slowing down directly impacts suppliers, trickling all the way down the chain of consumer goods.

Past crises like the SARS outbreak in 2003 or the Fukushima nuclear disaster in 2011 may show similar trends, but they do not stand as great instructions for the current dilemma the world’s market is in. Any given value chain today is more integrated with the world’s economy, as well as far more complex than a decade ago.

A Virus in the Market

The virus in this market is causing tier 1 and tier 2 suppliers impact 938 of the Fortune 1000 companies. The automotive industry has felt the impact with heavily decreased production rates, while other industries face severe delays.

The impact isn’t over yet, either, as the pandemic rages on and all too many are yet to be vaccinated across the globe. White- and blue-collar labor is limited with quarantines and illness. Other workers stay home out of concern for their safety.

These impacts are felt globally as industries no longer handle all operations within one specific region. They haven’t for a long time, and even if they did now there’s no guarantee they would have stayed afloat during the height of the pandemic. All of this is simply to say, the virus has as much economic impact as it does a health impact.

Transforming Value Chains

Four key elements create the transformations value chains are undergoing to stay alive. The first is visibility from primary to tertiary parts in the chain. Knowing who makes critical parts and seeking alternate sources, being transparent about inventory, and increasing inventory buffers has proven a great help.

Second, aggressive evaluations on options that allow for shortening of supply chains has been vital. The end goal being to increase proximity to any given chain’s consumers. Third, advanced technologies in manufacturing see sensing and pivoting capabilities, making them more resilient.

Finally, scenario planning techniques come into play. This process systematically evaluates the chain from end-to-end, creates actionable plans for disruptions, and works toward more rapid deployment when inventory is available. Together, these transformations are seeing signs of life return to industries facing near extinction and may just be the vaccine of sorts value chains need to overcome Covid-19.