The COVID-19 pandemic has wreaked havoc on global supply chains in 2020, beginning with lockdowns in key manufacturing regions in China in February. They then spread to buying regions across the globe, triggering dramatic and erratic drops in demand and supply.
As global trade enters the second half of 2020, it’s becoming evident that the pandemic hasn’t redrawn the maps of global sourcing as predicted, but rather has accelerated and deepened a number of pre-existing trends. Among them are a supposed decreased reliance on China, diversification of supplier portfolios, and more advanced use of digital and remote tools to manage quality and compliance.
After the initial stall during COVID-19 lockdowns in China, which saw a 33% decline in sourcing year-on-year in January and February, manufacturing showed signs of recovery until Western buying momentum collapsed due to rolling stay-at-home orders.
With restrictions easing in the West, it would appear that China sourcing is due for another — potentially more lasting — rebound. But the trajectory of this rebound will largely depend on how well second and third waves are contained in sourcing countries in Asia and in buying countries in the West.
It’s interesting to note that China’s rebound has shed light on how difficult it is for U.S. buyers who want to “break up” with China, despite the pre-existing turmoil that existed as a result of the ongoing U.S.-China trade war. While inspection demand was down 12% in Q2 from U.S. buyers, it was far from the expected drop anticipated, especially given the public statements made by many companies about moving production out of China. In a QIMA July survey that polled more than 200 businesses globally on their sourcing patterns, 87% of U.S. respondents still cited China among their top three sourcing geographies, and 60% did more than half of their sourcing from China.
In particular, the electrical and electronics category has seen an increase in reliance on Chinese manufacturers, with an uptick of 7.5% YoY in May and 15% in June. This is likely due to the surge in demand for TVs, tablets, screens and laptops, as more people were under stay-at-home orders in the U.S.
Sourcing diversification has remained an ongoing trend over the past two years, but the appetite for diversification is based on where a business is headquartered.
For example, in our survey conducted in July, over half of EU-based respondents indicated that they have no immediate plans to further shift their sourcing; the same was true for almost a third of respondents based in Asia (outside of China).
By contrast, almost 95% of U.S.-based respondents reported plans to diversify their suppliers and sourcing regions, with top destinations of choice being Vietnam (cited by half of all U.S. respondents) and South Asia, where 30% of respondents expressed a preference for Bangladesh or India.
The ongoing, truly seismic impact of the COVID-19 pandemic on global supply chains has kicked a number of major pre-existing trends into overdrive, presenting a slew of new risks. The supply-chain landscape is likely to remain turbulent until the pandemic is contained, with existing or reinstated lockdowns causing sharp fluctuations in both production and demand.
To respond to such fluctuations quickly, it’s now more important than ever for brands and retailers to evolve their supply-chain strategies for maximum flexibility and agility, as well as step up the use of digital supply-chain solutions to manage quality and compliance remotely.
Almost two-thirds of respondents to the QIMA survey reported that the pandemic has accelerated their company’s resolve to digitize their supply chains in 2020, including the use of new digital and remote solutions.
It’s important to note that, while there will be accelerated adoption of new digital and remote tools, these solutions should be used in conjunction with a “boots-on-the-ground” approach when possible. This will enable brands to get closer to full visibility in their supply chains, so that they can better manage quality, ethical and environmental compliance.
Sébastien Breteau is founder and CEO of QIMA, a quality control and compliance service.
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