Covid-19 has laid bare many uncomfortable truths regarding society's
overall preparedness for low-probability but high-impact events,
especially global ones. These range from issues pertaining exclusively
to pandemic readiness (like our domestic capacity to produce personal
protective equipment, ventilators, sanitizer and vaccines) to matters
that are considerably less esoteric, like the ability of global supply
chains to operate regardless of the various stresses put upon them.
The
latter goes far beyond the toilet paper supply issue experienced early
in the pandemic. It expands to include a whole range of products like
lumber and other building materials, tools, foodstuffs, seeds,
furniture, cleaning supplies, aluminum cans, jars, pools and pool
equipment, chemicals, bicycles, camping gear, household appliances and
replacement parts of all kinds.
In many cases supply chains have been simultaneously squeezed on both ends — supply and demand.
Production and distribution disruption
While
unscheduled closures of manufacturing and distribution facilities,
bottlenecks at borders and sick workers have caused choke points in
supply lines, people being cooped up in their homes for months on end
have driven up demand for a host of products.
There has also been a simultaneous shortage of labor, particularly in the licensed trades.
Throw
in other disruptions, like the massive winter storm in Texas in
February, the six-day blockage of the Suez Canal due to the grounded
ship Ever Given in March and the six-day closure of the Colonial
gasoline pipeline in the United States after a cyber attack in early
May.
Read more: Cyber attacks can shut down critical infrastructure. It's time to make cyber security compulsory
Also
include the fact that shipping containers are being lost in record
amounts for various reasons, with more than 3,000 going overboard in
2020 and the 2021 number already hitting 1,000 by the end of April.
The
pandemic has shown us that global supply chains are a huge house of
cards: fragile enough on a good day, but prone to come tumbling down
when there’s an unexpected breeze.
This has been particularly apparent with the manufacturing of computer chips.
The demand for microchips
Prior
to Covid-19, there was already great pressure on the production of
microprocessors, micro controllers, motherboards and the like due to
limited global production capacity and greater calls for product. The
pandemic has placed additional pressure on an already pressed segment,
as production and distribution bottlenecks have been met with increased
pandemic-driven demand.
Not so long ago, disruptions in the
production of microchips tended to impact only the manufacture of
smartphones, tablets, computers, external hard drives and, more
recently, flat screen televisions.
Today, however, such
disruptions also impact the production of automobiles, as chips are
increasingly being used in power steering and braking systems, car
infotainment systems and other components. Indeed, both General Motors
and Ford Motor Company have idled a number of plants in North America
due to the global semiconductor shortage. And being relative newcomers
to the microprocessor market, automakers don’t have the clout that other
buyers have, often leaving them out in the cold when supplies dry up.
The
situation for automakers is only expected to get worse as more and more
consumer goods get smart via wifi or Bluetooth connectivity.
The
growing list of items that require microchips is disconcerting, as
these components are almost solely manufactured in some of the riskiest
places in the world from a natural disaster perspective: China, Japan,
Taiwan, South Korea, Malaysia, Thailand, the Philippines and California.
This
has to change. We need more manufacturing facilities for microchips and
these must be located in places with low risk to natural and other
hazards.
Securing supply chains
But whether we are talking about
microchips, wood chips or potato chips, corporations need to get
intimately familiar with their supply chains if they aren’t already:
What they get, how often, in what quantities, from whom, from where, how
and why. Business continuity, contingency plans and workarounds must be
put in place ahead of time to deal with what-if scenarios. Risk
managers — either in-house or third-party consultants — need to be in on
these discussions, as do boards of directors.
Corporate
insurance buyers and risk managers must understand the differences in
key insurance coverage, like standard business interruption and
contingent business interruption, and ensure that they have proper
financial protection in place.
Finally, and from a big picture
perspective, society needs to get a better idea of where choke points
exist (both at the manufacturing and distribution levels and in the
physical world) so these can be addressed, eased or even eradicated.
Further, we need to do more research into understanding how consumers
behave in the face of crises. The emerging fields of behavioral
economics and decision science have much to contribute to this
discussion.
It’s a different world out there, a more
interconnected, and a more dangerous one. And we are currently learning
the hard way that global supply chains don’t operate on autopilot.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
