Updates from Georgia Tech

Why Restarting the Global Economy Won’t be Easy
By Jerry Grillo – As the world contemplates ending a massive lockdown implemented in response to COVID-19, Vinod Singhal is considering what will happen when we hit the play button and the engines that drive industry and trade squeal back to life again.

Singhal, who studies operations strategy and supply chain management at the Georgia Institute of Technology, has a few ideas on how to ease the transition to the new reality. But this pandemic makes it hard to predict what that reality will be.

“There is really nothing to compare this pandemic to,” he said. “And predicting or estimating stock prices is simply impossible, unlike supply chain disruptions caused by a company’s own fault, or a natural disaster, like the earthquake in Japan.”

But COVID-19 represents a new kind of mystery when it comes to something as complex and critical to the world’s economy as the global supply chain, for a number of reasons that Singhal highlighted:

  • The global spread of the virus and duration of the pandemic. “We have no idea when it will be under control and whether it will resurface,” Singhal said. “With a natural disaster you can kind of predict that if we put in some effort, within a few months we can get back to normal. But here there is a lot of uncertainty.”
  • Both the demand and supply side of the global supply chain are disrupted. “We’re not only seeing a lot of factories shutting down, which affects the supply side, but there are restrictions on demand, too, because you can’t just go out and shop like you used to, at least for the time being,” he said. “And all this is taking place in an environment where supply chains are fairly complex – intricate, interconnected, interdependent, and global.”
  • Longer lead times. “We get close to a trillion dollars of products annually from Asian countries, about $500 billion from China,” Singhal said. “Most are shipped by sea which requires a four-to-six-week lead time. The fact that logistics and distribution has been disrupted and needs to ramp up again will increase lead time. So, it will take time to fill up the pipeline, and that is going to be an issue.”
  • Supply chains have little slack, and little spare inventory. While manufacturing giants such as Apple, Boeing, and General Motors have more financial slack to carry them through a massive economic belt tightening, their suppliers, spread out across the globe, come in different sizes, different tiers, “and these smaller companies don’t have much financial slack,” said Singhal, pointing to a report of small and medium sized companies in China, “which have less than three months of cash. They’ve already been shut down for two months, and cash tends to go away quickly.
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“Many of these companies may go bankrupt,” he added. “So we need to figure out how to reduce the number of bankruptcies. Government is going to play an important role in this, and the stimulus package the U.S. has approved will be helpful.” more>

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