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Manufacturing & Distribution Insight: How COVID-19 Is Creating Supply Chain Disruption

5/1/20 – Beth Vice

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Co-authored by Janessa Stecker, Senior Accountant, CPA

If you’ve ventured to your local grocer in the past few weeks, you’ve surely noticed the bare shelves throughout the paper supplies aisle, as well as the critically low stock of other essential products such as cleaning supplies. This anomaly is a direct reflection of the current state of the global manufacturing and distribution (M&D) landscape. The novel coronavirus is taking its toll on the M&D Industry in the form of supply shortages, fulfillment delays, broken sales and operations plans, and increased prices across the industry.

Since the initial outbreak in Wuhan, and the subsequent crippling of the titanic Chinese manufacturing and distribution industry, imminent global disruption spread quickly Westward, into Europe. By that time and, before the virus had made landfall in the United States, the global distribution landscape was already in disarray. Months later, with China in a state of slow recovery, the pandemic’s effects on the M&D industry are at their peak.

The Current State of the M&D Indsutry

Prior to the outbreak, the U.S. M&D industry was already experiencing a slow down in global manufacturing growth and was simultaneously forced into a reactionary state as it responded to new government restrictions from U.S Trade Policy. With the effects of COVID-19 reaching full strength, the M&D industry is now burdened with severely limited resources in terms of workforce, air and sea freight options, and other product transportation methods. With only half of U.S distributors having a plan in place to respond to disturbance in the Chinese economy, nearly 75% of U.S. businesses are now reporting supply chain disruptions, per the Institute for Supply Chain Management (ISM).

Political Impact

An increase in global border control has further hindered distribution throughout Europe. Truck drivers in Italy and Spain are experiencing more frequent queues in their routes, particularly along borders. Some European countries have placed restrictions on the amount of traffic crossing their borders, as well as limiting the amount of time distributors are allowed within their territory.

The U.S.’s recent ban on foreign visitors has compounded the negative impact on the economy.  Air freight capacity has been greatly reduced, as has sea freight. As a result, goods are being rerouted through Canada and Mexico, creating additional delays and costs.

On a Good Note

While many retailers, restaurants and salons, among others, are left reeling, some companies have leveraged the increased demand for their products and/or services, and are experiencing considerable growth. Delivery service, software and technology, and home meal kit companies are just a few sectors that are benefiting tremendously from the containment restraints. It should be noted, however, that many start-ups who are benefiting from the current landscape are lacking venture capital funding needed to match the demand for their products and services.

Looking Ahead

For many companies, this unprecedented event has exposed the need for more accurate forecasting and estimating as it relates to ordering, manufacturing, shipping, and selling. This crisis may be the push these companies need to embrace the technologies available to them.  With the intricate and complex nature of this industry, it is imperative that companies leverage the technology that exists to solve critical supply chain issues. While many companies have access to data that assists them in making more informed decisions, the majority are not fully utilizing this information to their benefit. New technologies can be overwhelming, but their importance has been emphasized throughout the course of this pandemic. 

As Europe and Asia continue on their paths to recovery, and the U.S. begins to reopen, our team of manufacturing and distribution experts will keep you apprised of the current state of the M&D industry. For any guidance related to COVID-19’s impact on your business, contact Beth Vice at bvice@vlcpa.com or 800.887.0437.