Understanding the Global Supply Chain Disruption

Warehouses are experiencing labor shortage, manufacturers are surmounting operational bottlenecks, and the global scarcity of goods are nipping cash flows of automotive giants. These subsequent effects are trickling down to consumers, who are heavily reliant on the efficacy of intricate supply chains to sustain their economic activities. The global supply chain has entered a crisis mode, as various functional verticals and industries around the globe are scavenging for a lifeboat.
 
The global supply chain is an intricate concoction of the business, economic, social, and geopolitical processes that buttress the current global economy. As history has observed, these processes are collectively exhaustive, yet mutually unexclusive – each activity down the operational pipeline is critically dependent on the successful execution of a preceding process. Observing the status quo, the domino has already tipped.
 
Russia’s invasion of Ukraine exacerbated the already-beaten supplies of the automotive sector. The war in Ukraine further drove up the price of steel and various metals such as nickel, copper, and aluminum. The subsequent increase in commodity prices have decreased European automakers’ production projections for the upcoming fiscal year. Analysts have made positive predictions for a potential recovery in 2023 in production and sales, albeit the bleak forecast for the second half of 2022.
 
Black swan events like these cannot be avoided; however, the real problem persists within companies’ scope of awareness. A late 2021 study by McKinsey reported that companies are diversifying their production by geographically spreading out their supply chains in lieu of a centralized supply chain. However, merely 2% of the surveyed companies seemed to be aware of the supply chain challenges and risks faced by stakeholders in the initial phases of the supply chain.
 
Worsening geopolitical tensions between the U.S. and China coupled with extended lockdowns in Shanghai have also caused a shortage in silicon chips and strains in the Technology sector. China’s involvement in the current global supply chain crisis dates to early 2022. During the initial phases of the pandemic, a significant amount of protective equipment was produced in Chinese factories. However, with renewed lockdowns and restrictions in Shanghai and other major cities, the sudden shutdown and consequent reversals of factory productions have collectively created operational bottlenecks, with its collateral damage reaching the technology sector.
 
Blue chip companies like Apple that are heavily reliant on seamless manufacturing from Chinese factories were some of the primary entities to be hit by such a global supply chain crisis. The company observed a 26% drop in quarter-over-quarter product sales, and this drop is forecasted to continue for the rest of the year.
 
Consumers’ shift in purchasing patterns catalyzed by the global pandemic has forced companies to adopt newer and more resilient supply chain processes leveraging technology. Given the key pain point faced by companies to move goods without delay and stoppage, many companies have resorted to implementing IoT in their warehouses to improve monitoring of their flow of goods. Such extrapolation of data would allow internal operations teams to identify potential bottlenecks and predict production choke points. Other companies have started utilizing low-cost RFID tags to better track inventory movement down the supply chain, demystifying the plethora of factors that aggregate supply shocks.
 
Student Reporter Heeyeon Jeong 

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