COVID-19 and its Butterfly Effect on Supply Chains and the World Economy

Rating

COVID-19 and its Butterfly Effect on Supply Chains and the World Economy

🔥 In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. In simple wording, when applied to business, the butterfly effect means that small events sometimes yield large consequences. Compare also Black Swans.

China, the biggest factory on earth, is confronted with the current outbreak of the deadly nCOV found in Wuhan. And the world is witnessing a global decline in sales, stock markets, oil prices and a well-noticed shortage in supply chains and aviation activities that have a wide impact on the trade exchange across the globe.
COVID-19 exposed a weak link in the global drug supply, automotive manufacturing, and other sectors.

Being global has become the objective and goal of a lot of businesses. But the question now is: how can we strengthen the resilience of our supply chains while maintaining the value and cost chains intact?

Modern Portfolio Theory stands as a suggestion for a solution in the future for such an epidemic; though it is a suggested solution for VCs when investing in new capitals.
Nonetheless, the essence of the theory reminds me of my grandma's idiom: "Don't put all your eggs in one basket".
Diversification and not counting on one supplier/source should balance the risk and maximize the return of the business decisions within value supply chains. See also Kraljic Purchasing Matrix

⇨ What other mechanisms can be put in place to avoid or mitigate such supply chain risks and consequences in the future?

		Comments by date▼ Comments by rating Rating
		7 Nita CEO, United States
	Corona Impact In my opinion this comes at a particularly strained time for the United States, whose president is just announcing new trade agreements with China. Any nation or company that is dependent upon China right now had best look for alternative supply solutions. The idea of diversification is an old one. Notably, Porter considered the importance of supplier power in his business calculations. Giving any one supplier too much power is never a good idea. Every time I watch or listen to the news, Porter seems to be a smarter man.

		3 Anonymous
	Accumulation of Problems in China Corona also comes at an already strained time for China. Like the USA, China has a immense debt burden, caused by many attempts to fight the slowdown of the growth of its economy. Add to that the still ongoing pig/swine disease and the more recent trade conflict with the USA and now the Corona virus. It's a lot.

		4 Manoj Rambajan (MBA) Mauritius
	Mitigating the Effects of the Coronavirus (Covid-19) The Coronavirus (Covid-19) and its butterfly effects is no doubt to have a great impact on the world economy. A global decline in sales, shortages in supply chains and price fluctuations are to be expected. China is a big market and is highly integrated in the world economy with impressive transportation worldwide. The consequences could be very catastrophic. Lots of questions on strategic management and industry analysis are being raised to mitigate the impact. There is a chaotic situation in many businesses, threatened by disruptions in supply chains. This confirms the importance and relevance of Porter’s Five Forces in determining a strategic business position in the market place. Those business organizations which are heavily dependent on China for their supply chains and markets are bound to suffer the most. Diversification of markets and supply chains as well as transfer of technologies are strategies that global firms could adopt to mitigate the impact of such crises and strengthen the resilience of their supply chain in order to maintain their markets.

		4 Prof. Arup Barman Professor, India
	COVID-19, Chaos to Cha-ordic and India The Indian philosophy of handling chaos is different from other philosophies of the world. No doubt, COVID-19 is impacting the whole Chinese economy. This was prognosticated because of the chaos pattern of economic growth trajectory adopted by China after its economic resurgence. The Chinese adoption of business model was chaotic, the way adopted like power based imperialism or political imperialism. This is the Asian century i.e. 21st century. India no doubt has potential to be the best economy of the world by 2035-40. For that, India must lead by its old Indian philosophy. The embedded philosophy of India in the midst of chaos is: "Be cool. Don't panic. Chaos is good. Chaos creates infinite possibilities". Let India see the infinite possibilities in this chaotic situation of business, trade and development. If India exercises with this spirit, no doubt it may enjoy the benefits of order in the midst of chaos.

		4 ELIJAH MUSILI Entrepreneur, Kenya
	Fivver Freelancer Think it all comes down to how efficient you can switch your suppliers. Otherwise, seems the tigers will be slain this time round.

		7 sebas Student (University), Netherlands
	The Death of One, is the Bread of Another This supply crisis creates opportunities for local suppliers. If you need to meet demand for your products and supply is hard to get from for example Asia (because of the lack of output from production or lack of distribution options because of the shortage of containers), you are forced to look into supply channels that exist and operate stable. In this case European companies are forced to look into finding suppliers locally that have a stable supply network. Another plan to execute is to decrease sales and/or advertising to minimize the chances of having to sell "no" to the customer because of empty warehouses due to shortage of supplies from suppliers that are being slowed down because of Corona. This can be achived by shutting down marketing, raising sales prices etc.

		1 Heba Strategy Consultant, United Arab Emirates
	Creating Opportunities for Local Suppliers @Sebas: Imdeed, I personally witnessed local market getting revived when a supply crisis happened around the Gulf blockade to Qatar. The market used to completely rely on UAE and KSA for supplies and logistics. But after the blockade started, the local market found a way to establish itself and provide enough supplies to the consumers.

		4 Heba Strategy Consultant, United Arab Emirates
	Revisit your Supply Chain's Design There is little to do in a reactive mode to the supply disaster caused by the Corona Virus now. For the future, we might look into our Supply Chain designs "locally and globally" and design them for ...

		0 Heba Strategy Consultant, United Arab Emirates
	How to Manage the Impact of Coronavirus on Supply Chains (Short and Long Term) Five things buyers must do in the long term: Carry out lessons-learned debriefings to highlight critical areas of supply that could cause a problem in the future and build in mitigation plans. L...

		1 Nita CEO, United States
	'I'll Trade You' @Heba: Heba, I would agree with you. Our President has wisely advised that we need to begin making other arrangements for foreign-made products. While he specified China, the intent was clear that we...

		3 Prof. Arup Barman Professor, India
	Deglobalization through COVID-19 We got the tastes and distastes of globalization since 1990. There was an extreme run and move for competition and global presence by countries, nations, businesses, individuals at their own level of ...

		1 Prof. Arup Barman Professor, India
	Post Covid-Reverse Thinking For many countries, societies, businessman, individuals that were aggressive to capture others' rights, the COVID-19 is surely going to teach a lesson. Any country wanting to capture the world through...

		3 Jaap de Jonge Editor, Netherlands
	Corona is not About Butterflies But About Grasshoppers @Prof. Arup Barman: We humans have been behaving over the last century like the grasshopper (locust) swarms in Africa. Anthropologists and sociologists might argue that following our greed is simply ...

		2 Nita CEO, United States
	Why CAN'T we Stay Home? @Prof. Arup Barman: So many companies are still fighting the mandate to have employees work from home. They act as if it is a sin to have employees who may be working in comfortable clothes while the...

		1 Prof. Arup Barman Professor, India
	We Can Stay at Home- if Situation Compells @Nita: I understand your point. You are prone to sustainable thinking and are proactive for what globe and women folks required. But leaders and administrators of companies are usually looking to extr...

		1 Prof. Arup Barman Professor, India
	The Consumption by Prosumption @Jaap de Jonge: Mr Jaap! I found it interesting to think about your sentence/statement "...and we need to ask ourselves the question: Are we indeed like unrestrained self-propagating grasshoppers, dyi...

		3 Maurice Hogarth Consultant, United Kingdom
	Pandemic to Prevent Prosumption @Prof. Arup Barman: If difficulties are really opportunities in disguise, what opportunities does the Covid 19 crisis offer? Representing pandemic disruption from any form of global disaster, it may ...

		0 Paramathmuni srinivas Kumar India
	Implementation of Technology to Mitigate Risks in Supply Chain It is a good time to put the new technologies to test and develop them. Technologies like semantic enabled applications and other artificial intelligence applications have the potential to analyze the...

		1 Prof. Arup Barman Professor, India
	Global Pandemic - can we Draw a Full Stop? @Maurice Hogarth: Yes, human must put the full stop. Man proposes but the culprit disposes. Let understand who are those man eaters, is it a virus, or is it common men? We know that there are men eat...

		1 Gary Wong Consultant, Canada
	COVID-19 is NOT a Black Swan. It's a Black Elephant COVID-19 is a black elephant. A black elephant is a cross between a Black Swan and the proverbial elephant in the room. The black elephant is a problem that is actually visible to everyone, but no one...

		0 Prof. Arup Barman Professor, India
	Heinous Intention-Black Elephant Rearing and Human Sufferings One should not rear an elephant so that the elephant is forced to become uncontrollable within a room. Any human having a sense of humanity would obviously consider his/her responsibility for his/her ...

		2 Maurice Hogarth Consultant, United Kingdom
	The Survival of Supply What can we do to avoid or mitigate disruptions to supply chains? Much of the response seems to be along the lines of not putting all one's eggs in one basket, strengthen what exists, create parallel...

		1 Jaap de Jonge Editor, Netherlands
	Recommendations for Post-Pandemic Supply Chains If you are interested to learn more about how companies can make their networks more resilient in the post pandemic world, have a look at the interesting article by Professor Shih about this key Suppl...