A supply chain is an interconnected network of individuals, companies, and resources involved in manufacturing, distributing, and selling a product to the final buyer. Supply chain management is a crucial process: an optimized supply chain results in lower costs and a faster production cycle for a company. The three national lockdowns have proved to have a detrimental effect on the UK’s economic performance. The pandemic presented unprecedented challenges to global supply chains, disrupting every part of the economy. Demand for certain goods greatly diminished, while others surged – to take a trivial example, demand for regular testing has transformed the diagnostics industry. As supply chains have struggled to adapt to the problem, there have been shortages in critical medical equipment, cars, consumer electronics and other goods worldwide. A survey by Ernst & Young LLP on 200 senior-level supply chain executives in late 2020 found that 72% of companies had a negative effect. However, the virus has not necessarily created new challenges for global supply chains. In some cases, it has shown previously unseen weaknesses. But overall, it has accelerated problems already existing in the supply chains.

Covid-19 has adversely affected many markets, such as automobile and electronics. The pandemic led to a sudden drop in manufacturing due to cancelled orders. However, the demand for silicon chips rose because many people now had to work from home, so consumers increased their use of computers, 5G, and gaming systems. By the 3rd quarter of 2020, the demand for semiconductors had surged. Hence, foundry companies aimed to ramp up production but could not meet the consumers’ demand fast enough. During spring 2021, lead times, the time taken to create and deliver a product to the consumer, for semiconductor chips were extended to 15 weeks on average and in Autumn 2021 the average lead time was around 21.9 weeks. These worsening lead times meant a continuing and prolonged squeeze on the supply chain. This halted assembly lines worldwide, as the long lead for the chips slowed production of everything from smartphones to driver-assistance systems. Carmakers announced a significant rollback in their production, lowering expected revenue for 2021. This highlights the fragility of these supply chains, which largely rely on Asia, particularly Taiwan which is the hub of semiconductor manufacturers . This challenge was the latest in the automotive industry in a series of blows, which began at the start of the pandemic when sales had plummeted by about 80% in Europe, 70% in China and almost 50% in the US. The lack of demand for new cars wreaked havoc among automotive factories, sending millions of workers home. CNN reported, “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.”

While Covid has significantly impacted markets and supply chains, comparing these shocks with other factors, for instance, the recent conflict between Russia and Ukraine is essential. The Ukraine crisis has created new strains on global supply chains, most notably on the energy supply chain. According to a new report by Dun & Bradstreet, “The international domino effect on global dependencies on businesses in the Ukraine region is already being felt.” This is because 374,000 businesses rely on Russian suppliers, 90% of which are in the US. And a further 241,000 businesses rely on Ukraine suppliers according to Dun & Bradstreet. This report observed that businesses around the globe are already trying to grapple with the inflation brought on by Covid as well as commodity price increases. Therefore, the new consequences arising from the conflict may leave the world facing extended reductions to energy supply. On top of this, the sanctions placed on Russia will most likely impact food security and rare materials; fewer materials will be supplied causing the price to be driven up, given that Russia and Ukraine are vital producers.

Research shows that European gas storage levels are at a critically low levels of 33% capacity. Because of EU sanctions, Germany has placed a hold on the Nord Stream 2 gas pipeline, halting what was meant to be 30 billion metric cubes of gas that were meant to enter the continent in 2022. These issues,  geopolitical tensions, and supply shortages have underpinned high gas prices in the short term. This is just one of the many sectors that will feel the strain of sanctions on supply chains. The ripple effects from the sanctions are further weakening already struggling supply chains. The disruption of trade routes, freight costs and inaccessibility of raw materials may thwart any potential economic growth and add to inflationary pressure. The reduction in energy supply will lead to cost-push inflation. The impact of a high, volatile inflation rate will mean uncertainty for businesses and consumers, affecting the real standard of living and the competitiveness of producers in international markets. This will cause reduced export orders, lower profits and fewer jobs. As well as this the uncertainty over a potential nuclear war means there is a lack of confidence in the market.

The looming question on these supply chain issues is, will they be permanent and if not when will they be resolved? The executive supply chain survey, mentioned earlier, indicates that efficiency and reskilling supply chain workers will become top priorities in the upcoming years. The survey also shows that supply chain visibility will become a high priority.

The pandemic has accelerated many pre-existing trends including the supply chain, as it showed the weakness and its need to be fixed. 64% of the survey executives believe digital transformation will accelerate due to the pandemic. Businesses will need to make trade-offs between efficiency and reliability. This would be re-shoring their business; while this might simplify supply chain issues and result in a firm being less uncertain and less vulnerable to outside shocks, it can result in the economy operating at lower efficiency in the future. A race is on for the digital enablement and automation of the supply chains. This can be achieved by robots in warehouses and stores, driverless forklifts and trucks, and even the idea of delivery drones. Many believe that this is either here or will be by 2025.

Unfortunately, utilizing new and exciting digital technologies does not equate to creating a digitized supply chain; there also needs to be technology across the planning, procurement, manufacturing and logistics that work beyond the factory and warehouse. Ultimately, autonomous technologies will make supply chains more efficient and better equipped for when problems do occur.

To conclude, Covid-19 has had incredibly sizeable impacts on the global economy. For at least two years, there has been a substantial supply-side shock resulting in lower output levels and higher prices in key sectors. Although potentially being resolved incrementally, supply chains now face a further shock from the Russo-Ukrainian conflict: regarding sanctions and energy shortages. One potential outcome is a move towards re-shoring and building more resilient supply-chains. This could involve the global economy operating at lower efficiency going forwards, resulting in a lower level of output and hence a lower level of utility for consumers.