Blog
18th August 2020
The supply chain is a vast network whose end goal is to deliver products to customers and ensure profitability. The main components of the supply chain are procurement of raw materials, manufacturing/production, distribution to wholesalers and retailers, delivering to the customer, and a post-purchase support system. The Covid-19 outbreak has shown how vulnerable the global supply chains have been. Today, we have 250k Covid-19 cases worldwide per day on an average, and there are still many countries where community transmission has not yet started. The cumulative count is over 22 million as of 18th August 2020. With many countries imposing strict lockdown and having restrictions on shipping and production, the entire global supply chain has been disrupted.
China is the leading manufacturing hub for the majority of the chemicals and their raw materials, which implies that the whole supply chain is highly dependent on the situations in China. Almost 40-45% of the Fortune Global firms have a presence in Wuhan (where the outbreak originated), a highly industrialized province. Many organizations have already faced heavy losses, especially those who depend on China to fulfill their need for raw materials and finished products. The pharmaceutical industry is having a significant impact as companies struggled to procure raw materials from China during the imposed lockdowns globally. Moreover, due to the pandemic, there is a massive demand for a few drugs, which creates a huge gap between supply and demand. China is also a global chemical producer of polyester, polyvinyl chloride (PVC), methanol, methyl tertiary butyl ether. The country also dominates the global petrochemicals market, and any impact on supply dynamics in China affects the entire supply chain of the global petrochemicals market. The supply chain of specialty chemicals is slightly complicated, and the production is mainly outsourced to Asian manufacturers. However, considering the current disruptions caused to their supply chains due to Covid-19, companies are planning to reorganize manufacturing strategies and shift production to their home countries or less risk-prone geography. Agrochemical manufacturers across the US and Europe are worried due to their dependence on India and China. While there is no immediate risk (due to buffer inventory), the industry may expect an impact in Q3 and Q4 if the situation does not get back to normal. Given the importance of Agrochemicals, governments worldwide are prioritizing aid to this sector.
India is dependent on Chinese imports across several sectors including pharmaceutical, plastics, pesticides, insecticides, etc. India is also one of the global exporters of generic drugs, however considering the shortage in India in these pandemic times, the government has stopped the export of almost 26 drugs for the time being, and the rules are expected to change further based on the situation.
The Chemical Activity Barometer (CAB) is a leading macroeconomic indicator developed by the American Chemistry Council (ACC). It is a critical tool for evaluating the US economy. Amongst the Covid-19 pandemic, the CAB has declined for a second month straight in March 2020, registering an 8.9% fall from its peak. A fall that is greater than or equal to 3% and a continuous decline for three months (consecutively) are indicators for an impending recession. Though there are many factors that are considered to bring back the economy, improving the supply chain network is one of the main factors because that will improve the profitability of the network.
Many companies are investing in developing more resilient (flexible) supply chains. This will help the companies adjust quickly in times of sudden change in market demands and develop appropriate production and marketing strategies such as alternative manufacturing sites and assembly nodes, which will help companies optimize costs and improve visibility. Advance data analytics will help companies resist shocks by taking measures like plant shutdowns, relocating inventory, looking for alternate trade routes, changing suppliers, etc. Cloud-based supply chain networks enhance information sharing and improve the quality and speed of decision making and ensuring that the data is secured. Industry leaders are applying robotics and automation to make their supply chain more autonomous. They are also adding more suppliers in their home market to ensure business continuity. Machine learning algorithms and Artificial Intelligence (AI) can be used for predictive and prescriptive analytics. This will help the companies to improve risk management strategies and develop pre-programmed responses.