COVID-19 continues to disrupt the global supply chain. In this QAD
Precision Report, Mark Gallivan looks at how automated trade and
transportation solutions can help enterprises respond to sourcing challenges.
COVID-19, as the world is now discovering, is a blistering advocate
in democratising pandemic fear. The virus has also caused an
unparalleled upheaval for global businesses dependent on fragile
This Monday, the Dow Jones Industrial Average dived
more than 1,000 points. Investors feared that COVID-19 will
depress global economic growth, making Monday the worst day for the
stock market in two years. Financial markets are likely to face
additional pressure if the virus continues to proliferate.
The Gaping Hole in the Supply Chain
The extension of the Chinese Lunar New Year holiday caused chaos for
factories depending on components from Chinese factories. So much so
Land Rover reportedly resorted to flying in parts from China in suitcases.
COVID-19 is also impacting the consumer electronics industry. Apple
iPhone shortages and warned shareholders that revenues will be
impacted. These are just two examples. Make no mistake, the world’s
supply chain is reeling from the enforced shutdown by the Chinese authorities.
A number of industries, including retail,
equipment manufacturers and, of course, the airline industry and
operations have all been negatively affected.
Nobody should expect the Vietnamese to step up and fill the void –
they simply cannot shore up the necessary manufacturing scale. As a
result, the longer the COVID-19 crisis continues, the larger the
gaping hole in the absent Chinese capacity will grow.
A Lesson From History
Dean Cheng, the expert in Asian Studies at the Heritage Centre put it
best: “Coronavirus [and the Trade War] is creating a double whammy in
China. Watch companies relocating to factories outside China, leaving
the original ones there. Diversification of parts for aerospace and
auto parts [will result in] moving away from the workshop of the world
to new regions.” There is a fundamentally good reasoning behind this —
there was a warning from history.
Back in 2011 the Tohoku earthquake rocked Japan to its very core. The
9.1 Mw undersea megathrust earthquake measures as the fourth most
powerful earthquake since record keeping began in 1900. The
devastation was profound. Reports suggest loss of life was upwards of
22,000 people from the destruction and ensuing tsunami.
Carmakers were badly hit too. The single manufacturing plant that
made the special pigment for car paint to shine shut down. The reason?
Its location, close to the stricken Fukushima nuclear facility. The
knock-on effect halted production lines at car global plants, leaving
idle workers twiddling their thumbs and forced to go home. The tsunami
turned the surrounding location into a twenty-first century Chernobyl
Today, a full nine years on, the hazardous decommissioning and
clean-up at the Fukushima site continues at a slow pace. Back then,
global manufacturers swore they would never find themselves so
geographically exposed ever again. Nevertheless, it appears we have
ignored this lesson. In 2003, China supplied 1 percent of parts to the
world. Today, it hovers around 8 percent.
Business As Usual?
What next? Irrespective of how far COVID-19 spreads, expect to see a
shift in the business-as-usual supply chain locating and sourcing.
While SARS and the 2011 earthquake and tsunami terrified the world,
COVID-19 may prove the catalyst that begins the untethering of
existing supply chains and the reshaping of globalization.
Implementing a trade compliance and free trade agreement strategy will
increasingly become essential for maximising protection and mitigating
risks for companies scrambling for new supply chain partnerships
outside of China and the surrounding territories.
How Automated Solutions Can Help
As you read this, global organisations are facing up the challenge of
sourcing parts and components from different territories. To do this,
the onus is forging new partnerships and alliances and quickly,
magnifying corporate risk.
Technological solutions help mitigate regulatory risk and navigate
delays. An automated trade
compliance solution for vendor and trading partner screening
speeds up this process. In addition, the solution should offer real-time
operational analytics for compliance processing. This minimizes
delays from transactions that are under review. Furthermore, the
solution provider should offer daily updates of trade content changes.
The added monitoring of permits that are close to their expiry dates
also ensures no exposure to unforeseen fines.
Of course, once you have sourced goods and screened your trading
partners, you might find that your existing transportation partners do
not cover the necessary geography. Consequently, you may need to
source goods on prepaid or delivered terms. As a result, you are
likely to be paying a premium for transportation.
A global, multi carrier, multi-modal transportation
execution solution to manage both inbound and outbound shipments
has built-in redundancy, allowing you to quickly respond to these challenges.
FREE TRADE AGREEMENTS
Protecting a global business reputation is one thing — navigating
the myriad free trade agreements (FTAs) holds further challenges.
For manufacturers, this necessitates the pulling of production bills
of material (BOMs) and performing the respective calculation. The next
hurdle occurs once the goods qualify — manufacturers must disseminate
endless FTA certificates of origin and repeat this process umpteen
times a year.
If you are an importer, the first step is identifying new sources for
parts in regions with pre-existing FTA agreements. This by itself is
not enough — goods must be validated to ensure they qualify. When
multiplied by thousands of goods, the challenge is enormous. Some
organizations simply do not have the staff resources or internal
expertise to take advantage of FTAs. That’s despite the fact that no
company wants to bypass FTA savings when they are on the table.
this process allows companies to take advantage of FTAs and
reduce duties while remaining compliant with thorny FTA regulatory challenges.
About QAD Precision – Trusted Global Trade and Transportation Execution
QAD Precision, a division of QAD Inc., provides industry-leading global
trade compliance, and multi carrier transportation
execution solutions from a single, integrated platform. An
ISO-certified company, QAD Precision assists companies to streamline
and transportation operations, optimize deliveries, and increase
logistics ROI. QAD Precision’s scalable and extensible solution easily
integrates with existing ERP and WMS solutions. Industry leaders in
every region of the world rely on QAD Precision’s global support
centers to leverage thousands of carrier services and manage millions
of global trade and shipping transactions every day. For more
information about QAD Precision, visit www.qadprecision.com.