Latest Report analyses the impact supply chain disruptions has had across multiple sectors
Citi has today launched its latest Global Perspectives & Solutions (Citi GPS) report titled: Global Supply Chains: The Complicated Road Back to “Normal.”
The report details the challenges that have emerged for supply chains as a result of the COVID-19 pandemic and highlights the hardest hit sectors and what their road to recovery looks like.
The report identifies a number of macroeconomic factors that came into play during the pandemic to disrupt supply chains including supply-chain management practices, shifts in consumption towards goods, monetary and fiscal stimulus by the public sector spurring aggregate demand, the emergence of the Delta variant, and commodity shocks that have amplified other supply-side pressures. It also acknowledges the speed at which these disruptions have cascaded around the world.
Nathan Sheets, Citi’s Global Chief Economist, commented: “The pandemic brought a sustained substitution in consumer spending towards goods. Coupled with the sizable macroeconomic stimulus, this has driven the demand for goods well above supply in many sectors. The recovery from the pandemic, as well as the actions taken to support the economy, have created a situation where the demand for goods has run well ahead of their supply. The resulting supply-side disruptions are, at least in part, the result of firms desperately trying to catch up.”
The report goes on to say that supply-chain pressures are at a point where they have stopped getting worse; however, there is currently no sign of any substantial improvements. It argues that the global inventory system was not designed to absorb the highly uneven stops and starts in demand and production that the pandemic has caused, and notes that the ongoing global vaccination campaign is a critical contributor to an eventual easing of supply-chain pressures.
Shahmir Khaliq, Global Head of Citi’s Treasury and Trade Solutions, commented: “The supply chain disruptions globally are the byproduct of multiple events including national lockdowns, port congestion, and labor and energy shortages, layered on top of rising geopolitical tensions. As different parts of the world reopen their borders, lift restrictions, and resume manufacturing operations, we see an imbalance of supply and demand in the market. Suppliers and sellers are struggling to keep up with the demand from reopened economies.”
The report advises that corporates will need to review their supply chains based on lessons learned from the pandemic. Doing this will likely lead to a further embrace of digitization and electronic tracking of inventories and logistics, greater emphasis on long-term alliances and partnerships with suppliers, inventory management strategies that shift towards holding larger inventory buffers, simplifying supply chains and bringing them closer to home, as well as a reduction in global integration, as nations try to protect their national economies from the next shock.
Shahmir Khaliq continues: “Even before the pandemic, we had witnessed a major acceleration in the adoption of technology, including digitization, data analysis, and tools like application programming interfaces (APIs). COVID-19 has emphasized the benefits of this adoption on many levels. Citi has continued to push innovation, investing in digital solutions to enhance the client onboarding and implementation experience, develop new self-service capabilities, and leverage data to empower clients.”
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