If manufacturers questioned the strength of their supply chain before COVID-19, they are definitely questioning it now. The pandemic has exposed weaknesses in supply chains and may force businesses to reconsider where and with whom they do business.
“If one link of the chain is broken or weak, the whole chain falls apart,” says Amulya Gurtu, an associate professor in supply chain management at the University of Wisconsin-Green Bay.
Depending on the sector, manufacturers may have trouble getting the materials they need, says George Bureau, vice president of consulting services for WMEP Manufacturing Solutions. For example, the automotive sector has seen huge slowdowns due to supply chain issues.
“Ironically, because of supply chain concerns, some of our manufacturers are even busier,” he says, explaining that businesses that make critical supply components are buying extra now in case they lose access from any COVID-19-related shutdown.
“There is some worry right now. The worry can translate into being busier than normal, or it can be delays in parts coming in,” Bureau says. “In general, it’s not a serious concern yet. The bigger concern is the overall slowdown that we’ve seen.”
According to an Institute of Supply Management survey, 75 percent of companies have experienced supply chain disruptions due to COVID-19, and more than 80 percent believe their company will experience delays due to the pandemic.
Global companies headquartered in the region have already experienced supply chain issues. In announcing its lower-than-expected earnings and sales for its fiscal second quarter, Oshkosh Corp. President and CEO Wilson Jones cited COVID-19 and the impact the pandemic has had not only on sales but also “potential disruptions with supply chain continuity.”
“Our integrated supply chain is collaborating across the world to pursue alternatives with our supply partners and communicate frequently with our people to mitigate these risks,” Jones said in a statement.
Most Wisconsin manufacturers rely on a complex network to assemble the parts they need to make their products. Some items may come from China, while others come from Mexico, India, Europe and other parts of the United States. If there’s any kind of issue in any of those areas that slows commerce, a company could see the links fray or break in its supply chain, Gurtu says. “We may just be seeing the tip of the iceberg now in supply chain disruption,” he says.
That’s because it normally takes nine to 12 months from the time a business places an order with a Chinese supplier until it arrives on the shelves, Gurtu says.
“Companies don’t want to send a half-full container (from China), so they wait until it’s full before sending it (by ship). So, come late in August and early September, we will begin seeing the effects of the Chinese factories being closed earlier this year,” he says. “We could see some shortages then that we don’t see now.”
Before the onset of COVID-19, Brad Baumann, a principal with CLA, says many manufacturers were already taking a close look at their supply chains because of the ongoing trade war with China, which due to tariffs raised the cost of producing materials there.
“Many companies are looking to diversify their risk, including looking to other Southeast Asia countries, Mexico or here in the U.S. as places to move some of their manufacturing,” he says. “Setting up new supply chains cannot be done overnight. It’s something that takes careful planning.”
As supplies or demand dry up, Baumann says some manufacturers may limit their production, perhaps working three weeks and then taking one week off or working two weeks on and two weeks off.
“Between the tariffs and COVID, I think we will see some supply chains shift, but right now, the ability to look elsewhere is limited due to the pandemic,” he says.
Gurtu agrees, adding it can take two to three years to completely move manufacturing of parts elsewhere.
Adjusting to change
The economic slowdown also may contribute to changes in the supply chain. While the automotive industry is not doing well now, Baumann says the aftermarket for car parts is growing since consumers are opting to repair their vehicles.
“You look to where the demand is and focus in on that area,” he says, adding that it could lead to new supply chains.
As the world settles into its new normal, Gurtu expects companies to shift where they make products. Businesses, for example, may move their manufacturing from China to the United Kingdom or Germany since the parts may be more accessible. As for bringing manufacturing back to the United States, the challenge there is higher labor costs and, in some areas, a lack of qualified workers.
“I think the pandemic has shown businesses where the problems are, and many don’t want to go through this again, so they may begin to look at other options,” Gurtu says.
Baumann says diversification remains the key to manufacturers’ success. “Just like you don’t want one company to make up 70 percent of your business, you don’t want to have 70 percent of your supplies coming from the same place,” he says. “Companies who work this strategy will be more successful.”