The pandemic has delivered a business shock the likes of which was, hardly, if ever, witnessed by the Indian economy. Businesses all across the country have had their supply lines disrupted, and during the first lockdown and subsequent first wave, revenues of reputed multinationals, MSMEs as well as hole-in-the-walls stores came to a screeching halt.
Healthy, self-balancing demand and supply equations have been thrown into a tailspin, and several business segments are trying to read the runes now to better understand what the future holds in store, not just for their businesses, but for themselves as well.
Having said that, let us take a look back at how the first wave affected the intricate supply chains within the country, the lessons we learnt and how we can be better prepared to take on such crises in the future.
How Covid-19 stomped on the supply chains
Courtesy of the pandemic, words like ‘lockdown’, ‘social distancing’ and ‘quarantine’ have become commonplace around us. Words that were hitherto known only to a very small minority are now being belted out in everyday interactions. Similarly, ‘supply shock’, a term that was reserved only for some unpredictable crisis how now become a matter-of-fact term among businesses as supply lines remain choked during the stifling lockdowns imposed during the pandemic.
A supply shock is an unanticipated obstruction of the smooth flow of the supply chain which typically affects the transportation of goods in a negative manner. It is not just in India but throughout the global economy that the shudders of a supply shock have been observed.
Covid-19 birthed systemic demand shocks
During the first wave, supply lines were strained as people were still unaware of the cumulative impact of the pandemic and responded in panic by hoarding a lot of essential goods. This dramatically disrupted the demand-supply equation and added greater strain on companies to produce essential goods at a time when the inflow of raw materials was seriously hampered.
Businesses that had global supply chains had little option but to shut down as the fear of infections spreading further forced the government hand’s in shutting down the ports. Whatever products that were in the pipeline were shipped out by the companies. However, during the first wave, the global supply links were interrupted and consequently, companies were operating at less than half of their capacities.
Several national economies were gripped with fear that companies will not be able to match demand peaks that were surfacing in the aftermath of the pandemic. Thankfully, with time a few restrictions were eased and companies were able to replenish the supply chains once again.
Meanwhile, several economists were forewarning about the emergence of the bullwhip effect in supply chains. The bullwhip effect is a chain of events that is triggered at the level of the retailer and is further amplified at the wholesaler, distributor, manufacturer and raw material supplier level. The bullwhip effect is set off by rising demand from customers which puts pressure on the retailer to secure additional goods, and becomes pronounced along the supply chain till it reaches the manufacturer and forces him to procure raw material for additional production. It is called the bullwhip effect because it mirrors the physical effect of cracking a whip. When a whip is snapped, the whip’s wave movement continues to amplify as it travels down the length of the whip, just in the same manner as demand is amplified from the retailer to the manufacturer
Aftereffects of the pandemic on the supply chain
In the aftermath of the first wave, the global economy receded into recession territory for a brief quarter of two but recovered immediately. One of the immediate repercussions of the pandemic was to force manufacturers to decide between maintaining their existing level of supplies or scaling down their operations. It was only later on when demand resurfaced that manufacturers were once again called to calibrate their capacities and optimise their supply flow.
Manufacturers and companies have been incorporating lessons learnt from the pandemic into their supply chain management.
A few manufacturers have deliberately reduced the supply chain footprint which has helped them deliver a stronger bottom line. Some others have opted to replace their global supply lines with localised ones leading to lower outgo and increased net profits. This arrangement also catalyses local businesses to pull up their sleeves and match international standards. For the manufacturer, it makes sense as sourcing from local areas is a cost-effective trade-off.
Post the pandemic, there has been a larger push for digitizing the supply chain, and of acquiring deeper insights into the demand and supply scenario using data analytics and artificial intelligence. Companies are now better prepared to take on supply disruptions and many have a blueprint ready in case a third wave appears throughout India or only in some states.