Companies are bracing for another round of supply chain disruptions as China, home to 1/3 of global manufacturing, imposes sweeping lockdowns in an attempt to keep Omicron at bay. The measures have already confined tens of millions of people to their homes. At least 20 million people, or 1.5% of China’s population, are in lockdown, mostly in the city of Xi’an.
The country’s zero-tolerance policy has manufacturers — already on edge from spending the past 2 years dealing with crippling supply chain woes — worried about another round of shutdowns at Chinese factories and ports. “Additional disruptions to the global supply chain come as companies are already struggling with rising prices for raw materials and shipping along with extended delivery times and worker shortages,” writes The New York Times (Jan. 17, 2022). If extensive lockdowns become more widespread in China, their effects on supply chains could be felt across the U.S.
China used lockdowns, contact tracing and quarantines to halt the spread of the coronavirus after its initial emergence in Wuhan. Now four of China’s largest port cities — Shanghai, Dalian, Tianjin and Shenzhen — have imposed limited lockdowns to try to control virus outbreaks.
The combination of intermittent shutdowns at factories, ports and warehouses around the world and American consumers’ surging demand for foreign goods has thrown the global delivery system out of whack. Transportation costs have skyrocketed, and ports and warehouses have experienced pileups of products waiting to be shipped or driven elsewhere while other parts of the supply chain are stymied by shortages.
The spread of Omicron is foiling hopes for a fast recovery, highlighting not only how much America depends on Chinese goods, but also how fragile the supply chain remains within the U.S. Delivery times for products shipped from Chinese factories to the U.S. West Coast are as long as ever — stretching to a record high of 113 days in January– up from fewer than 50 days in 2019. Continuing problems exist at other stages of the supply chain, including a shortage of truckers and warehouse workers to move the goods to their final destination, and an only partially successful push to make the Port of Los Angeles operate 24/7.
Airfreight could also become more expensive and harder to obtain in the coming weeks as China has canceled dozens of flights to clamp down on another potential vector of infection. That could especially affect consumer electronics companies, which tend to ship high-value goods by air.
Classroom discussion questions:
- What strategies can operations managers in the U.S. take at this point?
- Summarize all the factors contributing to SCM woes.