16 Oct The Impact of China’s ‘Zero tolerance’ COVID-19 Policies on Global Supply Chains
The COVID-19 pandemic’s initial epicentre, China, very promptly put in place a variety of strict measures to restrict the virus. These measures included mass lockdowns, travel restrictions, and business closures. These decisions had immediate and significant effects on global supply networks. Since global supply chains are complex networks that link different phases of production, distribution, and consumption across many different countries, they promote successful commerce and economic progress by facilitating the efficient flow of products, services, and information. These supply networks must operate flawlessly in order to provide goods and services to customers throughout the world. In this article, we have conducted a brief analysis of the impact of China’s ‘Zero tolerance’ COVID-19 policies on global supply chains.
China’s Role In Global Supply Chains
China plays a vital role in global supply networks. Due to its industrial might, sourcing possibilities, export supremacy, technological breakthroughs, infrastructure, market potential, and trade connections, it has a significant impact on how supply chains operate internationally. Businesses need to be aware of and prepared for Chinese engagement in global supply chains since any interruptions or changes to Chinese policy may have a significant impact on a variety of sectors and economies. As the largest exporter and industrial giant in the world, China is a key player in the international market thanks to its enormous industrial capacity, competent workforce, and competitive manufacturing abilities.
China contributes significantly to global exports and has almost limitless export capability. Chinese exports are essential to the manufacturing and distribution operations of enterprises throughout the world. It has established itself as the “world’s factory” by attracting large amounts of foreign direct investment. Many worldwide companies rely on China for the production of items in a variety of industries, including electronics, textiles, automotive, and consumer goods. Businesses in the UK are likewise not exempt.
China is a significant provider of components, intermediate goods, and raw materials for the production processes of multinational corporations. Business processes may be streamlined and costs can be controlled by using China’s supply chain ecosystem.
China has achieved enormous strides in innovation and technology, notably in fields like telecommunications, electronics, and renewable energy. It has been able to contribute to the development of cutting-edge technologies that have an influence on global supply chains as a result of its increasing expenditure in research and development as well as its expanding pool of highly qualified engineers and scientists.
China has constructed ports, airports, a vast network of roads and rails, as well as other infrastructure for logistics and transportation. Building blocks for supply networks. This infrastructure makes it possible for products to be moved efficiently both domestically and globally, which results in successful supply chain operations.
China’s Role In The UK’s Supply Chains
A range of variables, including trade agreements, sourcing tactics, and industrial interdependence, have entangled the supply chain environment of the United Kingdom and China. Retailers, manufacturers, and business organisations in the UK routinely import products and components from China to meet local demand and support their production processes.
Chinese-made items are widely available on the UK market. From clothes and footwear to electronics and household goods, manufacturers provide a diverse range of products that meet the interests and demands of UK consumers. These goods are advertised and promoted across the UK via a range of retail companies.
Many UK businesses depend on Chinese manufacturers for the production of electronic components, semiconductors, telecommunications equipment, and other high-tech goods. China is the primary supplier of interior, electrical, and gearbox parts to the UK’s automobile industry. Chinese suppliers are crucial to the UK’s support of the automotive sector, highlighting the tight linkages between the automotive supply chains of the two countries. Any delays or changes to China’s supply chain might have a significant effect on businesses, industries, and consumers in the UK.
China’s Measures Against COVID-19 and It’s Effect On Global Supply Chains
Strong lockdown measures put in place in China in reaction to the COVID-19 outbreak, along with the temporary shutdown of enterprises, had a significant negative effect on global supply chains.
As a result of the lockdown, non-essential businesses had to close down, and people were told to stay at home and refrain from travelling. The lockdown measures led some Chinese businesses to temporarily suspend operations. This not only affects Chinese industry but also has an effect on global supply networks. Because China is a significant manufacturing base for many various industries, the closures had a cascading impact on businesses all over the world.
The closure of facilities and disruptions in production operations led to bottlenecks in the worldwide supply chain. As demand remained the same or increased, the lower supply from China led to shortages and delays in the availability of commodities. Electronics, vehicles, textiles, and pharmaceuticals are just a few of the sectors that were impacted by this.
During the pandemic, there was a lack of labour due to a variety of factors, such as quarantine regulations, travel restrictions, and the incapacity of afflicted workers to return to work. This led to decreased production, which exacerbated supply chain disruptions. The recovery of manufacturing activities was hampered by the inability to reopen operations due to a lack of suitable personnel.
As a result of China’s prolonged factory closures and production delays, both domestic and international supply chains have seen a decline in inventory stocks. Businesses that relied on Chinese suppliers had difficulty obtaining the necessary components and supplies, which resulted in inventory shortages and production restrictions.
The disruptions brought on by the rigorous lockdown measures and industrial closures caused turbulence for companies dependent on China’s supplies. Businesses had to adapt to changing circumstances by finding new suppliers and changing manufacturing schedules.
Different industries saw different effects on their businesses; some experienced substantial disruptions while others were able to at least partially offset the losses.
The challenges exposed the vulnerability of supply networks to unanticipated occurrences and the need for companies to diversify their sourcing tactics, enhance the resilience of their supply chains, and create contingency plans in order to reduce risks in the case of future outages.
China imposed strict restrictions on travel, including the suspension of foreign flights and the implementation of visitor quarantine procedures. Due to people’s restricted mobility, supply systems had trouble operating efficiently and faced logistical challenges, staff and expertise were dramatically decreased, making supply chain management more difficult. Key people involved in logistics, operations, and procurement were unable to travel to China or other countries, which caused delays in decision-making, coordination, and problem-solving. Due to a lack of labour and local knowledge, logistical challenges could not be resolved quickly and effectively.
Shipping and transportation were impeded as a result of the travel restrictions, which also had an effect on the flow of products across international boundaries. Logistics industries faced major difficulties as a result of problems including reduced air freight capacity, cancelled flights, and restricted access to ports and shipping lanes. Delivery deadlines were missed, there were delays, and shipping and other transportation expenses rose.
China imposed strict border and customs restrictions to stop the virus’s spread and procedures for customs clearance were put into place. Although these safety precautions were required for the public’s health, doing business at ports and border crossings became more challenging and took longer as a result. Higher administrative costs as a consequence of the extra inspection and health-related limitations contributed to lengthier lead times and possible delays in the flow of goods.
Due to travel limitations and logistical difficulties, the costs and uncertainties of global supply chains increased. Increased costs were necessary for extra safety precautions, different transport routes, and expedited delivery. Businesses found it challenging to adequately plan and anticipate since travel restrictions and logistical limits were unpredictable, increasing the complexity and risk of supply chain operations.
Supply Networks’ Interdependence
As a consequence of companies sourcing goods, resources, and components from other countries, supply chains have become more globalised. Due to this interconnection, a disturbance in one area of the globe may have a large effect on other areas.
Many supply chains follow the just-in-time inventory management approach, which encourages keeping inventory levels to a minimum in order to save money. The lean strategy aims to boost output while minimising interruptions. Disruptions like plant shutdowns or transportation delays have a greater effect since there isn’t enough stock to supply demand during the disruption.
Businesses often depend on certain suppliers for crucial inputs or components. If a supplier has problems or runs into production problems, it could affect the whole supply chain. Several companies that rely on the affected supplier may be impacted, which might result in production halts, shortages, or delays across multiple markets.
Future customers and consumers may suffer as a result of supply chain delays. For example, a delay in the creation of a component might result in a delay in the finished product’s delivery, which may have an impact on retailers’ inventory, customer happiness, and perhaps sales. This may have an influence on surrounding businesses and sectors in addition to the local supply chain.
Supply network dependency might have a negative financial impact. Disruptions may result in higher costs, such as expedited delivery fees or the requirement to source from more expensive suppliers. Companies may also suffer financial losses if they are unable to satisfy customer demands or have delays in manufacturing. Along with single enterprises, these financial effects may hurt entire economies and sectors.
Supply networks’ interconnectivity has highlighted the need for resilience and mitigation strategies. Businesses and governments realised they needed to diversify their sourcing options, build redundancy into their supply chains, and develop backup plans to deal effectively with interruptions.
Due to supply chain disruptions and China’s volatility, alternative sourcing options are more in demand, which prompted many businesses to investigate these options. By diversifying their supply networks, businesses attempted to reduce their dependency on a specific country or region. The way that businesses viewed global sourcing changed as a result of the increase in demand for alternative manufacturers and suppliers. Mexico, Vietnam, and India have become popular substitutes for China in terms of sourcing and production.
Businesses in the UK have used a variety of risk-reduction strategies to lessen the hazards brought on by disruptions in China’s supply chains. These strategies include strengthening connections with local suppliers, reassessing supply chain dependencies, and expanding sourcing options by looking into suppliers in other countries. Businesses have also focused on improving communication and coordination with suppliers, implementing inventory management systems, and expanding supply chain visibility in an effort to mitigate the consequences of any disruptions.
Reducing Risks With an ERP System
China’s COVID-19 ‘zero tolerance’ restrictions have had a significant impact on global supply chains. To mitigate the risks associated with these rules, many firms are turning to Enterprise Resource Planning (ERP) systems. Let’s consider how ERP systems may help to minimise these risks:
- Real-time data visibility: ERP solutions provide real-time visibility into the supply chain. This means companies can monitor inventory levels, production schedules, and logistics in real time. When any disruptions appear, businesses may respond quickly and make calculated decisions
- Demand forecasting: using historical data and predictive analytics, ERP systems may improve demand forecasting. This is crucial when dealing with supply chain delays because it allows adjustment of production levels and inventory levels to meet variable demand.
- Supplier collaboration: supplier cooperation tools are often integrated into ERP systems. Working closely with suppliers and sharing data enables companies to have a better picture of their current situation and collaborate on contingency plans in the case of an interruption.
- Inventory control: ERP systems may assist in optimising inventory levels. Having a clear view of your inventory and the ability to change it in real time may assist in managing shortages or surpluses more effectively during disruptions.
- Production scheduling: ERP systems help in the optimisation of production planning by accounting for interruptions and fluctuations in demand. This helps to maintain production efficiency in the face of interruptions.
- Logistics management: ERP systems may help in the management of distribution and logistics networks. Companies may use real-time tracking and route optimisation to adapt to changes in transportation and shipping.
- Quality control: with supply networks disrupted, it is vital to ensure product quality. ERP systems may help to manage and maintain quality standards and compliance, reducing the likelihood of errors caused by rushed manufacturing or supplier changes.
- Risk assessment and scenario planning: risk assessment and scenario planning may be aided by ERP systems. This allows to model the effects of disruptions and design mitigating strategies.
It is critical to acknowledge that, although ERP systems may be very beneficial, they are not a complete solution on their own. Companies should also develop comprehensive risk mitigation strategies, diversify sources, and have contingency plans in place to cope with a range of scenarios.
China’s COVID-19 ‘zero tolerance’ policies have sent shockwaves across global supply networks. While the severe measures helped to prevent the spread of the virus, they created significant obstacles for overseas businesses and the UK was not an exception. These restrictions had far-reaching implications, influencing not just manufacturing and production but also logistics, inventory management, and supply chain resilience overall.
Companies have been forced to react rapidly, using a range of risk-mitigation strategies to minimise the risks associated with these shocks, diversifying suppliers, improving inventory management, using technology such as ERP systems, and encouraging increased contact with partners and suppliers.
While these strategies have helped companies navigate the turbulent waters of supply chain interruptions, it is obvious that flexibility and the ability to respond swiftly to changing situations are more crucial than ever. It is clear that supply chain flexibility, real-time data visibility, and proactive risk management are vital for mitigating future risks and the challenges highlighted by China’s ‘zero tolerance’ COVID-19 rules.
In an unpredictable world, businesses must remain agile and resilient in order to thrive and meet the expectations of consumers worldwide. Navigating the ongoing consequences of COVID-19 and China’s stringent regulations requires not just technological innovation, but also strategic planning, extensive risk assessment, and collaboration with all stakeholders.
Lessons learned from this incident will very certainly have an impact on the future of global supply chains, ushering in a paradigm shift towards enhanced agility and readiness for unforeseen disruptions.
In the context of ERP, keeping a business agile is a strategic imperative. All of the challenges discussed here point towards the need for any international trading organisation to possess the ability to adapt to change. Acumatica Cloud ERP offers such an ability and if these issues reflect the challenges that your company is facing and you’re considering the role that ERP can play, reach out to Arcus Universe and we can discuss how our solution can help you.