Covid-19 and the global movement of goods
23 NOV 2020
Empty supermarket shelves, long delivery times and production stops – the Covid-19 pandemic has clearly shown us how much we depend on global supply chains that function properly.
The Covid-19 crisis has also been and still is a major challenge for our Electronics business at Merck KGaA, Darmstadt, Germany. However, thanks to the risk management processes we’ve established, we have been able to contain the effects of the pandemic on our business operations very well so far. Nevertheless, Covid-19 will definitely leave its mark on the global economy in the long term.
Interrupt infection chains, secure supply chains
While this phenomenon was mainly due to panic buying by the general public, shortages of many other goods occurred for a completely different reason. To prevent the spread of the virus, the international movement of goods was stopped in many places. Countries shut their borders, airplanes stayed grounded and ports were closed off. As a result, production temporarily ground to a halt in many companies owing to supply bottlenecks and the lack of materials needed for production.It was necessary to find solutions to continue economic activity without endangering people’s health in the process. It was a matter of keeping supply chains up and running and, at the same time, interrupting infection chains – a challenging balancing act for politicians and industry. The task was all the more difficult because of the global magnitude of the Covid-19 crisis. After all, unlike during a natural disaster, which is generally limited to a particular region, companies couldn’t simply switch to alternative suppliers or transport routes in this case.One of the most obvious side effects of the Covid-19 pandemic was the empty pasta and toilet paper shelves in the supermarkets in spring this year.
From theory to practice
As a global company, our suppliers and customers are also spread out across the world. That’s where our comprehensive risk management system comes in. Apart from risk analyses, scenario planning and emergency drills, it also includes crisis plans especially for pandemics. In particular, as a manufacturer of high-quality semiconductor and display materials in our Electronics business sector, where individual supply disruptions could quickly cause millions worth of damage, crisis plans are indispensable. And they have more than proved their worth in the Covid-19 crisis!When the first supply bottlenecks became apparent in China early this year, we could, for example, implement our “dual sourcing plans” very rapidly and quickly switch to alternative suppliers. Dual sourcing means that the procurement of required goods and components is shared between two suppliers. This is an important element of our risk strategy, so that we don’t become too dependent on particular sources of supply or regions.
Thanks to a strict hygiene concept, we were one of the first companies able to deliver to Wuhan again. In accordance with this hygiene concept, trucks were reloaded at the provincial border, for example, or completely disinfected before crossing the border.
The end of globalization?
Overall, we at Merck KGaA, Darmstadt, Germany along with many other companies, have successfully overcome the short-term global challenges presented by the crisis. It will now be interesting to see what long-term effects the Covid-19 crisis has on global trade.
We are already observing that our customers have developed a better sense of the reliability of supply chains and the availability of goods. Having stable supply chains available is an even more important competitive advantage today than it was before the Covid-19 crisis. This means the question of how successfully a country handles the pandemic also has an industrial policy dimension. Therefore, regions that are currently more severely affected by the virus have a clear location disadvantage.
However, unlike some people, I don’t see this as the end of globalization. Nevertheless, companies will have to think more intensively about whether and where supply chains should be sensibly regionalized and shortened in order to reduce risks. However, according to scientists, just one trend is intensifying as a result of this. This trend could already be seen before the Covid-19 crisis. Due to societal pressure for more sustainability and the increased risk of international trade conflicts in the last few years, many companies have been re-thinking their global transport routes for a long time.
Apart from increasing regionalization, digital tools could be another effective way of making sure supply chains are more resilient to crisis. For example, the German Research Center for Artificial Intelligence is developing an AI system that is meant to identify supply chain risks early, taking prices of raw materials, political analyses or weather data into account.
As a result of the Covid-19 crisis, pandemics as well as other threat scenarios, such as natural disasters, political conflicts and climate are coming into focus. Companies will pay even more attention to risk assessments in the future. At Merck KGaA, Darmstadt, Germany we are also refining our existing risk management concepts based on the experiences of the last few months. Not least because Covid-19 is far from being under control and the pandemic is continuing to develop dynamically.