No, I’m not talking about the impact of climate change on supply chains (it’s humongous) or the impact of Ukraine’s plight on supply chains (equally humongous but perhaps slightly less long lasting). Here is a recent headline – “The biggest risk to the global economy no one is talking about” and what they are talking about is the extreme lock down in Shanghai because of another surge in COVID – yes, that darn thing is still around.
Here are some of the factoids that are being reported everywhere that we need to be aware of. The lockdown (currently being relaxed a tad as we speak) involves 400 million people across 45 cities (it’s not just Shanghai) and that represents 40% of China’s GDP. It is hard to imagine the scale of this and therefore even harder to comprehend.
Shanghai is a major city and a significant center for manufacturing and exports and has the largest port in the world (it handles 20% of China’s shipping) and I’m sure you’ve seen the videos of people screaming on their balconies because thy cannot even leave for food leading to food shortages and lack of medical care. The port is not functioning, and incoming cargo wait time has doubled and increasing. Cargo airlines have cancelled all flights in both directions and almost all trucking has stopped. Sony and Apple supply chains are already hurting, and the biggest MacBook producer has shut down production entirely. So has Tesla.
“Global markets may still underestimate the impact, because much attention remains focused on the Russian-Ukraine conflict and US Federal Reserve rate hikes,” says Lu Ting, Nomura’s chief China economist and that is a big concern. Category Management strategies must be fluid and dynamic and react to a host of simultaneous “black swan” events.
You should be prepared for a new buzzword soon to be added to our professional lexicon – decoupling. It refers to the integrated economies of the US and China and a movement to start separating – a lot easier said than done. However, every Category Manager needs to ensure that they incorporate that in their strategies and be prepared to move their fulfillment around the globe as nimbly as possible.
“The impact on China is major and the knock on effects on the global economy are quite significant,” said Michael Hirson, Eurasia Group’s practice head for China and Northeast Asia. “I think we’re in for more volatility and economic and social disruption for at least the next six months.” And while Michael talks about six months, that’s only for this particular event, even if he is right in his projection (and I think he is grossly underestimating the time frame). The WTO estimates a global shrinkage of % in GDP from this and all the other events going on at the same time.
The gist of this is that the tools and techniques of yesterday are simply NOT prepared for what we are facing and will continue to face (reference last blog- old stuff won’t work). There has to be a fundamental shift in in thinking about Supply Chains and how we manage them. JIT and every other technique like that is simply outdated. I know we called for the death of Strategic Sourcing a few years back (I still have fond memories of that😊) but it may be time to make sure of it because the tradition of beating down suppliers for the last nickel (and we can deny that we do that all we want 😊) just won’t work today. You do not want to be at the end of the line as a customer for critical suppliers today – it will have a huge impact.
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