Abstract:

The disruptions to global supply chains due to COVID-19 and some of the recent geopolitical events like the Russia-Ukraine Crisis have heavily impacted sourcing, logistics, production, distribution, and aftermarket services. Despite two years into the pandemic, the nations are still looking for new strategies to coexist with the Covid-19 virus and its new variants, without shutting down their economies due to lockdowns. As the vaccinations began, mostof the countries had reopened their borders. This prompted the reassessment of business strategies for sustaining this unforeseen challenge of the pandemic to the supply chain management that is here to stay. As a country like India depends heavily on imports of crude oil for over three-fourths of its energy needs, these events will have a significant impact on the cost of production, warehousing, and transportation. Hence, it is important to assess the challenges and implications of the Global Supply Chain Crisis that emerged due to pandemics and can be seen getting worse with the Russia-Ukraine war. This paper tries to assess the overall impact of the global supply chain disruptions and then attempts to provide solutions from an Indian perspective.

Keywords: Global Supply Chain Disruptions, Covid-19 pandemic, Russia-Ukraine War, India

Introduction

The disruptions to global supply chains due to COVID-19 and some of the recent geopolitical events like the Russia-Ukraine Crisis have heavily impacted sourcing, logistics, production, distribution, and aftermarket services. Despite two years into the pandemic, the nations are still looking for new strategies to coexist with the virus and its new variants, without shutting down their economies due to lockdowns. As the vaccinations began, most of the countries had reopened their borders. This prompts the need for reassessment of the strategies in order to sustain this unforeseen challenge of the pandemic which is here to stay as well as any other geopolitical scenario.

During a Commerce Ministry webinar, Indian Prime Minister Narendra Modi expressed concern regarding the impact of the disruptions to supply chains on the global economy. i As the uncertainty grows in the global economy over the Russia-Ukraine war and disruption of trade and shipping services following sanctions on Russia, the Brent Crude Oil futures soared to $120, before easing back to around $114.ii As the country depends heavily on imports of crude oil for over three-fourths of its energy needs, these events will have a significant impact on the cost of production, warehousing, and transportation. Hence, it is important to assess the challenges and implications of the Global Supply Chain Crisis that emerged due to pandemics and can be seen getting worse with the Russia-Ukraine war. This paper tries to assess the overall impact of the global supply chain disruptions and then attempts to provide solutions from an Indian perspective.

The Global Supply Chain Crisis 2021: An Overview

Global supply chains are networks that can span across multiple continents and countries to source and supply goods and services.iii A supply chain is a linkage sector that involves the management of the entire process of creation to consumption right from supplying the raw materials, their movement and processing to the work in progress inventory, followed by the delivery of finished goods.iv The Covid-19 pandemic affected activities worldwide, among which the supply chain disruptions are significant. Global supply chain disruptions started after the World Health Organization (WHO) declared the coronavirus disease outbreak as a global health emergency at the end of January 2020.Around 75% of companies in the West have had negative or strongly negative impacts on their businesses.v The pandemic turned out to be a Black Swan event bringing some of the geoeconomics vulnerabilities to resurface. Here, China's dominant role as the 'world's factory’ has emerged as the weakest link in the global supply chains.vi The greatest risk facing global supply chains has shifted from the pandemic to the Russia-Ukraine military conflict and the geopolitical and economic uncertainties it has created. Moody’s Analytics points out that the weight of the economic impact the Russia-Ukraine military conflict will have on global supply chains will hinge on how long the conflict stays.vii The report further says that the Global supply chains have been in a fragile state since the start of the pandemic, and the military conflict will only exacerbate the situation for companies in many industries, particularly those heavily reliant on energy resources. Inventory and reserves can help mitigate short-term supply-chain disruptions, but shortages will be inevitable should the conflict persist.viii

These recent events alarmed the global businesses to look for alternate and more geopolitically risk-free supply chains. One of the means to achieve this could be adopting a China Plus One Strategy for manufacturing hubs, where resilience could be attained without antagonizing China. As we discuss this, the prospects for India to be the “Plus One” can be explored. Hence, it is first essential to see what the challenges have been faced by India during this crisis.

India in the Global Supply Chain Disruptions:

India has been no exception to the global supply chain crisis. Ninety-three percent of Indians feel that the supply chain issues are here to stay for a longer period than thought while more than Eighty-Six percent feel the rise of the Covid Delta variant is going to further disrupt the global supply chain, further increasing their supply chain concerns.ix According to a survey by Cloud major Oracle, several Indians have been unable to purchase certain items due to shortages (45 percent), forced to cancel orders due to delays (53 percent), and even rationing essential items out of fear of running out (41 percent).The current global logistics disruptions due to the COVID-19 pandemic continue to impact businesses and consumers as the flow of consumer goods into Southeast Asia, India is restricted by the continued shutdowns of major global ports and airports, mainly in China, South Korea, and the U.S.x Such disruptions have further created a ripple effect across global supply chains that ultimately caused the goods to pile up in storage, impacting those ships passing through the Southeast Asian and Indian ports through diversion or being slowed down as they arrive at major transit hubs in the region.

These disruptions restricted global trade flows by constraining businesses’ ability to import products and refill their stocks of inventory, prompting the need for horizontal and vertical expansion of the warehousing capabilities.

• The speed of escalation requires continuous end-to-end assessment, optimization, and monitoring.

• Companies need to respond rapidly and confidently to shape and execute a short-term tactical plan that will mitigate the risks to human health and protect the functioning of global supply chains. In doing so, strong data and analytics capabilities are crucial in understanding complexity, anticipating potential disruption, and quickly developing a response.

• Optimizing the decision-making processes within the company and taking immediate actions to sustain business operations to avoid disruptions or lags in the services to their customers

• Repurpose and reshape supply chains that will be characterized by both resilience and responsibility. This will help companies manage the short-term crisis and enable businesses to build around their customers and help the Indian economy recover the losses incurred during earlier disruptions.

• Adopting more flexible business models to meet the changing customer demands.

• The current supply chain disruptions are not only multi-country in nature but also depict the lack of global reliance. Companies need to identify some key strategies at the organizational level and then coordinate with the other linked businesses to effectively implement them.

• Last but not least, this is high time for India to build its own supply chain for facilitating the end-to-end order fulfillment from point of origin to point of consumption, at the regional as well as global level.

In the past few years, India has revamped its legal, regulatory, and policy framework (e.g., indirect tax, insolvency & land laws) that rapidly improved its global index of ease of doing business. India has also transformed its labor laws.xi India has received a copious amount of foreign capital in various sectors, despite the pandemic. In recent times, Japan has offered incentives to Japanese companies to shift their manufacturing base from China to India, among others.xii

Conclusion:

Neither the pandemic nor the Russia-Ukraine Crisis can be categorized as a typical risk event. The pandemic has tested the ingenuity, resilience, and flexibility of supply chain leaders globally while seeking the maintenance of essential operations amidst the pandemic. Although the challenges posed by the Russia-Ukraine Crisis are different in nature. Supply chain and operations are becoming more costly (e.g., less global and eCommerce fulfillment costs) – and can often represent a company’s highest costs.

Based on the present challenges, the factors in the business model adoption that can ensure the adaptiveness and resilience of the Indian Businesses can be identified as:

• How effectively a company can adapt to a more scalable business model, and can the company expand the production and warehousing to the higher demand regions and shrink where demand is less, especially considering the Ease of doing business and cost of labor and production varies from place to place within the country

• The cost of building the warehouses for increased availability of goods

• Adapting to the new product lines- to meet the higher demand goods and limit the production of goods for which the demand has reduced

• Feasibility of building micro supply chains within India to meet the raw material needs and its transportation.

These factors not only make the Indian businesses more resilient towards global disruptions but also strengthen India’s image as a leading manufacturing hub in the region, creating positive interdependence between various sectors of the Indian economy.

References

i Mishra, H. S., & Karunakar, R. (2022, March 3). PM Modi warns Supply Chain Disruptions Will Hurt Global Economy. NDTV.com. Retrieved March 10, 2022, from https://www.ndtv.com/business/pm-modi-warns-oil-jump-above-116-a-barrel-will-hurt-global-economy-2800756

ii Ibid.

iii Home. CIPS. (n.d.). Retrieved March 10, 2022, from https://www.cips.org/knowledge/procurement-topics-and-skills/procurement-technology/digitalisation-in-procurement-and-supply/future-of-procurement--supply-chain/

iv Ians. (2021, November 25). 9 in 10 Indians feel supply chain issues are here to stay: Report. Business Standard. Retrieved March 10, 2022, from https://www.business-standard.com/article/economy-policy/9-in-10-indians-feel-supply-chain-issues-are-here-to-stay-report-121112500714_1.html

v Supply Chain Disruption & How to respond. Accenture. (n.d.). Retrieved March 10, 2022, from https://www.accenture.com/us-en/insights/consulting/coronavirus-supply-chain-disruption

vi Singh, N. (2020, October 27). Supply Chain Disruption Post covid–19 - coronavirus (COVID-19) - India. Welcome to Mondaq. Retrieved March 10, 2022, from https://www.mondaq.com/india/operational-impacts-and-strategy/998440/supply-chain-disruption-post-covid19

vii Luthra, S. (2022, March 7). Russia-Ukraine conflict to impact global supply chains: Moody's. mint. Retrieved March 10, 2022, from https://www.livemint.com/companies/russiaukraine-conflict-to-impact-global-supply-chains-moodys-11646599826335.html

viii ganguly, G., Kovar, K., Bychkova, O., Rogers, J., & Pinel, G. (2022, March 3). March 3, 2022 two possible scenarios. Moody's Analytics. Retrieved March 10, 2022, from https://www.moodysanalytics.com/-/media/article/2022/reputational-damage/the-russia-ukraine-military-conflict-two-possible-scenarios.pdf

ix Ians. (2021, November 25). 9 in 10 Indians feel supply chain issues are here to stay: Report. Business Standard. Retrieved March 10, 2022, from https://www.business-standard.com/article/economy-policy/9-in-10-indians-feel-supply-chain-issues-are-here-to-stay-report-121112500714_1.html

x KPMG. (2021, December 3). Evaluating post pandemic supply chain disruption. KPMG. Retrieved March 10, 2022, from https://home.kpmg/in/en/home/insights/2021/12/evaluating-post-pandemic-supply-chain-mantra.html

xi Singh, N. (2020, October 27). Supply Chain Disruption Post covid–19 - coronavirus (COVID-19) - India. Welcome to Mondaq. Retrieved March 10, 2022, from https://www.mondaq.com/india/operational-impacts-and-strategy/998440/supply-chain-disruption-post-covid19

xii TNN / Nov 6, 2020. (n.d.). Japanese companies in India: Japan to offer aid to 2 companies moving manufacturing base from China to India: India Business News - Times of India. The Times of India. Retrieved March 10, 2022, from https://timesofindia.indiatimes.com/business/india-business/japan-to-offer-aid-to-2-companies-moving-manufacturing-base-from-china-to-india/articleshow/79071600.cms