New research predicts that the hardest-hit manufacturing sectors will also be the first to recover from the COVID-19 crisis, and supply chain resilience will hold the key.
The report from Baker McKenzie and Oxford Economics forecasts that global manufacturing will contract by 5 per cent in the first six months of 2020 compared to 2019, due to the widespread emergence of ‘manufacturing deserts’ in cities and regions worldwide where output has dried up.
The automotive sector is set to lose out the most, with output expected to fall by 13 per cent in the first half of 2020, followed by textiles (8 per cent) and electronics (8 per cent). However, these sectors are likely to see the swiftest recovery as pent-up demand is released later in the year, the report notes, with all manufacturing sectors expected to reach 2019 levels by early 2021.
Mattias Hedwall, Global Chair of International Commercial and Trade at Baker McKenzie, argued that risk management in supply chains was the key to recovery:
"It is clear that the extended shutdown of parts of the world’s economy is now feeding through to impact supply chains as existing stocks are depleted. Businesses need to focus on how to minimise supply chain disruption and to adjust rapidly to a changing landscape.”
According to the report, disruption to supply chains is likely to remain well after the immediate threat of COVID-19 is over. Companies can mitigate the impact through measures such as altering prices to shift demand towards less affected lines, reviewing inventory purchasing, and relocating production where possible.
Longer-term, the digitalisation of supply chains through big data analytics and cloud computing will increasingly be the way forward. Anne Petterd, Technology, Communications and Commercial Partner at Baker McKenzie, explained:
“Enhanced supply chain management and adoption of digitalisation has never been more important. Companies with well-considered supply chain risk management processes will be better placed to identify the impact of disruptive events on their supply chain and product-offering, providing them with an opportunity to assess how to best respond in tough circumstances.”