The Three Major Risks Facing The Manufacturing Industry Are The Global Supply Chain.

"In the medium to long term, the new crown pneumonia epidemic will have a huge impact on the global supply chain." "In the future, there will be a heated debate on the underlying design of the supply chain, and we will see a rebalancing of the global manufacturing supply chain," said CEO Razat Gaurav of LLamasoft company in an interview with the twenty-first Century economic report.

LLamasoft is a software company focused on supply chain analysis and optimization design solutions. Its headquarters is located in the United States and operates in many cities and regions around the world including Shanghai. Because Razat can collect data from manufacturing, retailers and distributors, he expressed his views on the global supply chain to reporters.

"For different industries, the answer to the rebalancing is different," Razat said. "There are the following factors as a whole, including the overall production cost, the impact on the level of service and the quality of products."

The supply chain of manufacturing industry is under impact.

Based on the analysis of data from different industries, Razat believes that the new crown epidemic has caused impact on different industries, and there are three obvious risk points in the supply chain.

The first risk point depends on the quantity of production facilities in the epidemic area, including the relationship between supply and demand. The second point is whether there are other alternatives for the relevant enterprises, whether there are other suppliers or substitutes for components, and the third point is whether there is enough buffer stock in the current inventory of enterprises.

Therefore, since the outbreak of the epidemic, the most obvious industries are consumer electronics, automobile industry, pharmaceutical industry and garment industry.

"The biggest impact is the consumer electronics industry," Razat told reporters. "For the automotive industry and the pharmaceutical industry, the impact of the future will be more from the global spread of the epidemic, and the impact of the clothing industry is not particularly obvious at the moment."

In the past few years, these companies have taken many measures to ensure that the impact of the epidemic is minimal. On the one hand, these companies are asking the carriers to rush their shipments. On the other hand, they are looking for alternative sources of supply to ensure normal operation.

"The good news now is that many factories in China are beginning to resume work, and factories are starting to work. This is a very positive and inspiring piece of good news for companies that rely on China's supply chain. " Razat says.

In Europe and North America, where the epidemic is spreading rapidly, the situation is somewhat different. The focal point of the local government is to provide corresponding test reagents, medical equipment and hospital construction, as well as public food supply, epidemic prevention articles and living materials.

Faced with such a situation, enterprises need to balance the cost, the services provided and the risks they face, and make corresponding changes. These changes are also the most fundamental in the design of their entire supply chain.

In fact, the root cause of these risks lies in the fact that many decisions in the past are based on the lowest cost and the highest efficiency of liquidity. This leads to the concentration of their supply and production is very high. In case of emergency, a single point of failure will affect the overall problem.

At the same time, we can see that some companies want to keep their inventory at a relatively lean level, but once there is a global pandemic, there will be many changes in the supply and demand relationship. In terms of logistics, there are bottlenecks and obstacles in trucking, port, container and air transport in emergencies.

"Finally, the epidemic also exposed many consumer products companies to a very serious pain spot," Razat said. "These companies often only know their first tier suppliers, but they have very little knowledge of the two and three suppliers."

This defect prevents them from effectively controlling their supply chain after the outbreak, because the source of the shortage may not be a primary supplier, but a two or three level supplier. The absence of these suppliers will result in the collapse of the supply chain as a whole.

Global supply chain faces remodeling

In the future after the end of the epidemic, the answer to the global supply chain change is not just one.

"China will still be a big manufacturing country in the future, and many enterprises will choose China as a centralized production capacity," Razat said. "At the same time, these enterprises may also consider other countries, such as India, Eastern Europe and Mexico, or part of their capacity to move back to their country."

From the perspective of the pharmaceutical industry, pharmaceutical companies are developing contingency plans to explore alternative sources of supply of raw materials and other materials for pharmaceutical products. "They need to find the right resources according to the total cost and the cost of serving customers," Razat told reporters. "Since the bulk of China's supply is raw material and other raw materials (China supplies 370 essential drugs), and considering the longer delivery time of the pharmaceutical industry, the current alternative supply will take weeks to months to take effect in the supply chain."

The purpose of this process is to reduce the risk of supply chain and ensure that the whole supply chain will not collapse because of the single link problem. Faced with this process, China can still take some measures to integrate into the future global supply chain.

First, implement the global expansion strategy of China's finished products and expand the scope of its entry into the global supply chain. M & a strategy is a viable option to enhance the global layout.

Secondly, China is the most populous country in the world and has the advantage of large consumer groups. This is a good reason for many companies to maintain their manufacturing capacity in China, and the government's incentives can play an important role in promoting the development of China's manufacturing industry.

Thirdly, with the continuous integration of information technology into products, network risk will be increased correspondingly, and trust will become more and more important in trade relations. China should do its best to commit itself to information security of enterprises and ensure that any privacy and intellectual property rights related to technology that is manufactured and outsourced to other countries in China is protected.

Finally, improving the convenience of doing business in China will certainly help. "As of December 2019, the global ranking of China's business environment has risen to thirty-first. Improving this position will help to integrate into the global supply chain." Razat told reporters.

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