The COVID-19 pandemic has been infectious economically as it is medically. Since the outbreak expanded from China, the largest world manufacturer, it has caused supply and demand shock.
Both have given the impact on international trade in goods and services. As the pandemic grows exponentially outside China, many countries are in lockdown. Companies’ shutdown are disrupting the global supply chain.
Trust for America’s Health stated that pandemic flu is inevitable. It occurs three to four times each century. UCL Research also predicted that the pandemic occurs seasonally. The next health crisis might occur and again hit the supply-side. Moreover, the threat for international trade does not only come from the pandemic but also the rising tension between countries and trade war. However, the recent global supply chain management is not resilient enough due to these facts.
As of April 2020, the nations with the most reported cases of COVID-19 include China, the US, Italy, the UK, France, Canada, and Germany. The disease has propagated earlier in Japan with fewer cases. Based on the World Bank’s Data Bank, these G7 nations plus China account for about 60 percent of world supply and demand, 65 percent of world manufacturing, and 41 percent of world manufacturing exports. Supply disruptions and demand shocks in these nations will have global repercussions.
The Observatory of Economic Complexity showed that trade in imports from these countries to Indonesia accounted for 40,42 percent of Indonesia’s total trade with the largest exporter being China with a number 24 percent. Indonesian’s trade-in imports with those countries totalled US$60,074 billion include US$34,3 million from China. Due to the hard-hit with almost 1,9 million reported cases, China and those G7 countries except Japan are in lockdown. As a consequence, it hit Indonesia’s supply chain as well. Also, Indonesia’s total trade is down between 1-2 percent from 2018 because of the US-China trade war. This means that the supply chain in Indonesia is also vulnerable as the impact of globalisation.
Also Read Your 2020 Guide to Importing Food & Beverages and Medical Devices into Indonesia
The fact showed that The Great Trade Collapse in 2009 had caused a greater impact on durable goods than on non-durable goods. In short, the manufacturing sector gets a triple hit in every crisis. Direct supply disruptions hinder production because the pandemic focuses on the industrial giants. Subsequently, the manufacturing sectors in less-affected nations find it harder and more expensive to acquire the necessary imported industrial inputs from the hard-hit nations. At last, demand disruptions because of dropping in aggregate demand or wait-and-see demand will also hit the manufacturing sector, even after the COVID-19 pandemic ends.
The Ministry of Industry also claimed that the first quarter Purchasing Managers’ Index (PMI) of manufacture in Indonesia dropped to 45,3 percent as the decreasing of output by 50 percent. IHS Markit Data presented that almost all of PMI’s manufacture sector in Asia dropped under 50 percent. The PMI in the Philippines went down to 39,7 percent, 44,8 percent in Japan, 44,2 percent in South Korea, and 41,9 percent in Vietnam – identifying as the worst level since the global financial crisis a decade ago.
As the factories are shut down, a negative supply shock can trigger a demand shortage that leads to a contraction in output. This Keynesian supply shocks will lead to a higher price as the goods become rare. At some point, the demand will drop since people are not able to buy the goods at a certain high price and the increase in unemployment. Hence, these supply-chain disruptions will give an amplifying and reciprocal impact for the aggregate demand and the macroeconomic factors.
Based on the EIU projection, the economic growth in Indonesia will drop to -2,2 percent. Even the IMF predicted that it will be -3,0 percent in 2020. The more dependent country is to the global supply chain, the more vulnerable the country and worst the impacts on the economy are. The reason is that the developed countries experienced both the trade crisis and the financial crisis. The economic growth in advanced economies is projected to plunge to -6,1 percent according to the World Economy Outlook of 2020.
As the global supply chain has given a streak impact on the economy, companies all over the world, including Indonesia, should create the new scheme of global supply chain management in preparing for the next crisis. Many research has been conducted to the effect of technology enablers in changing the manual supply chain with 3D printing technology, artificial intelligence, and virtual reality are the solution for the more resilient global supply-chain especially for manufacture industry.
3D printing is a disruptive innovation for global supply chains. A prototype can be easily made by using this additive manufacturing. Thus, it will reduce costs, improve customer service, overcome geopolitical risks and tariffs, and reduce carbon footprint. This technology has been applied in some sectors.
By 2020, the US Air Force has installed seventeen 3D printed parts on the C5 Super Galaxy which could produce 100,000 additive parts and save tens of thousands of dollars. In the medical industry, open Bionics, a UK-based producer of 3D prosthetic arms in 2019 secured £4.6 million in investment. Ford has been using 3D printing technology for automotive prototyping since 1980. In a construction sector, Russian 3D printing, Apis Cor printed a house in just 24 hours.
Artificial intelligence (AI) has been given major impacts on the supply chain. AI is broken down into two parts those are augmentation and automation. Augmentation in AI assists humans with day-to-day tasks such as virtual assistant, data analysis, chatbot, and machine learning. AI enables procurement and transaction between supplier and customer can be done remotely and effectively thus it will reduce lead time.
Meanwhile, automation means that AI works completely autonomous without the need for human intervention. For example, robots performing key process steps in manufacture and logistic. According to the International Federation of Robotics, the number of industrial robots in worldwide usage has increased to around 2.6 million units in 2019. Hence, the role of humans in this area should be transformed into the IT development, user experience, and design thinking area.
Virtual reality (VR) and Augmented Reality (AR) are among the fastest-growing technologies and can be applied in supply-chain technology. Consumers use AR and VR technology for shopping purposes. Retailers are also using AR technology to provide an exciting shopping experience for their customers. For instance, the amazon AR app lets customers view a virtual version of hundreds of real-world products and visualise what they would look like in their home.
As a conclusion, technology enablers in the global supply chain are crucial in preparing the world for the next pandemic or crisis. It will make the supply chain especially in the manufacturing sector more resilient which will lead to a better aggregate supply-demand and increase in economic growth.