“Extremely challenging” is how most business leaders are describing managing the impacts of the COVID-19 pandemic on their supply chain in the first half of the year.
We saw global trade activity fall off a cliff in Q2 across the Tradeshift platform, as large swathes of the global economy closed down to reduce the spread of the virus. The 14.8 percent drop is the biggest fall we’ve ever seen. And no sector went completely unscathed.
Source: The Tradeshift Index of Global Trade Health
The positive news is that the decline in trade seems to have bottomed out. Our data shows the early signs of a recovery emerge at the end of Q2 as lockdowns eased in certain parts of the world.
But we’re not out of the woods yet. Far from it, in fact,
Disruption defines the 'new normal' for supply chains
The first wave of the pandemic is gathering pace as health officials struggle to contain its spread in South Asia, Latin America, and the United States. While fears of a dreaded second wave and new lockdowns haunt those countries that have forced the virus to retreat.
As we head into the second half of the year, supply chain leaders have much to consider. The so-called ‘new normal’ is likely to be one of regular disruption as changing conditions create a ripple effect across the entire supply chain ecosystem.
Supply chain transparency is key
We saw from the initial impact of the pandemic how little visibility most businesses have into their supply chain. Delayed shipments of critical components that brought some production lines to a halt blindsided companies in every sector.
And with more disruption on the horizon, companies without full transparency over their global supply chain ecosystem are susceptible to this happening all over again.
The so-called ‘new normal’ is likely to be one of regular disruption as changing conditions create a ripple effect across the entire supply chain ecosystem.
The positive is that many businesses are better placed to deal with these disruptions than they were at the start of the year. They’ve acknowledged the cruciality of the supply chain to their business and began investing in technology to drive transparency and illuminate what’s happening in their supply chain.
But there is a long way to go. Many businesses are only starting their supply chain transformation projects. Their visibility doesn’t extend much beyond their tier-one suppliers, only providing a basic picture of the situation in their supply chain.
79 percent of businesses have increased their digital transformation budgets in response to the impacts of the COVID-19 pandemic.
Over the coming months, businesses must ensure they keep up the work they’ve started driving visibility into their supply chain, so they can make informed decisions and navigate the choppy waters forecasted for the rest of the year and beyond.
Get cash flowing through the supply chain
If disruption to supply defined the first half of the year, a cash crunch looks set to define the second.
The pandemic has already devastated many of the small and medium enterprises (SMEs) that power global supply chains. Economists at the University of Illinois, Harvard University and the University of Chicago, believe that over 100,000 SME have already gone out of business because of the pandemic.
Those hanging on are in a perilous situation. Data from Visa shows that 76% of SMEs have faced cash flow shortages in the last four months. Many small business owners tapping into their savings just to keep the doors open—even with governments pumping billions of dollars into the economy to support these businesses.
The coming months are crucial. Even as economic activity picks up there is a real risk that many of these businesses will fall by the wayside, especially if they’re left waiting months for payment. Most SMEs don’t have the cash—or access to funding—to keep the lights on for that long.
It’s therefore worrying to see the volume of invoices issues on our platform is yet to catch up with the volume of orders in Q2. And to hear stories of businesses pushing out their payment terms.
The pandemic has already put over 100,000 SME out of business.
The failure of these SMEs will have dire consequences for the supply chains of large enterprises. Businesses may suddenly find their production lines grinding to a halt because they’re unable to source key components or find that suppliers cannot meet orders.
To prevent this from happening, large enterprises and policymakers should explore all the options available to get liquidity back into the system. Our partnership with Denmark’s Export Credit Agency is a good example of how large organizations can facilitate this through early payment initiatives.
Supply chains must become antifragile
As the first chapter of the COVID-19 pandemic comes to an end, the next future is being written. Despite the optimism of central bank economists, our data indicates that a V-shaped recovery isn’t a sure bet.
As we head into the second half of the year, business leaders would do well to continue pressing ahead with their plans to drive more transparency and flexibility into their supply chains.
The goal, as I’ve said before, shouldn’t be just to build robust supply chains. Instead, businesses must focus on building their supply chains based around Nassim Nicholas Taleb’s concept of anti-fragility. That way the supply chain turns from a company’s biggest risk during times of disruption, and becomes its biggest strength.
Check out our inaugural Index of Q2 Global Trade Health to learn more about the impact of COVID-19 on global trade flows and what comes next.
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