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Sébastien Breteau

Management

Long-Lasting Impact of Pandemic on Supply Chain Quality

Some surprising pros and cons are emerging from the global chaos

Published: Wednesday, March 17, 2021 - 12:03

It’s been about one year since the Covid-19 impact intensified from a seemingly isolated health scare to a worldwide, ubiquitous tragedy that has upended daily life as we know it. Ever since consumers first faced widespread product shortages of essential items during the early days of the pandemic, ranging from toilet paper to medical supplies and PPE, there has been an unprecedented spotlight on supply chain management.

Although much of the conversation has focused on responding to waves in supply and demand, supply chain data suggest that the pandemic is triggering long-lasting supply chain trends that present both pros and cons for quality measures in supply chains.

Quality control

Pro: Overall quality measures are improving
In concluding a year unlike any other, some might be surprised to learn that overall quality measures are on the rise. The total “beyond acceptable quality limits” (BAQL) rate registered 10 percent lower in 2020 compared to 2019, according to supply chain data included in the “QIMA Q1 2021 Barometer Report,” coming in at 19.9 percent globally vs. 22.1 percent in 2019.

Qima supply chain

This double-digit improvement is great news for the supply chain landscape, suggesting that businesses were likely able to save money in chargebacks on the products they produced, and found themselves in a better position to protect quality measures throughout their supply chain.

Con: Quality drops amid supply-side disruptions and abrupt diversification
Even though quality measures did improve overall globally in 2020, data show that businesses tend to struggle with upholding quality measures when production and sourcing in their supply chain are disrupted and they are forced to diversify to suppliers in new geographies.

When China, the world’s largest manufacturing country, shuttered factory doors during Q1 of 2020 as it dealt with the initial phases of the pandemic, QIMA, a quality control and compliance service provider, tracked an uptick in BAQL within popular alternative sourcing regions. For example, in Vietnam, which saw a sharp influx of business during the first quarter as part of the diversion from China, the BAQL rate skyrocketed by 31.3 percent year-over-year during that time. In Indonesia, which also saw a rise as businesses looked to circumvent production and sourcing disruptions in China, this number registered at 24.6 percent, representing a more than 50-percent spike year-over-year.

Meanwhile, globally, the BAQL rate during this time came in at 19.9 percent, offering a comparison for how quality struggles when order volume suddenly increases in a region.

Overall, the data paint a bleak picture for what happens when production and sourcing are interrupted in supply regions. For U.S. buyers, this means that they’ll need to continue to pay close attention to the virus’s ongoing trajectory wherever it has sourcing presence, especially in Asia Pacific as the region alarmingly lags behind North America and Europe in its vaccine rollout.

Supply chain reliability

Pro: Some U.S. buyers are pivoting back to China
As ground zero for the virus, it was initially expected that China would be the hardest hit by the pandemic in terms of both health and economic impact. Following a catastrophic first quarter with production volume paralyzed by factory shutdowns and demand shocks, China’s Covid-19 case numbers came to a near standstill by March 2020. And when the world’s second largest economy began to reopen during the second quarter, sourcing in China shocked the world and began its gradual yet steady upward path toward recovery throughout the rest of 2020.

Heading into the third quarter, China made its mark as an anomaly against the widespread global slowdown. Sourcing volume in China quickly shot back to 2019 levels and even exceeded them in some industries. From there, sourcing volumes continued to grow throughout the second half of the year, only somewhat hesitating in December 2020 after lockdowns were reinstated in multiple countries in the West. 

What’s perhaps more staggering is that China’s surprise recovery is being pushed, at least partially, by U.S.-based buyers. When 2020 kicked off with “phase one” of a new trade deal between the United States and China in January 2020, trade tensions were finally letting up. Although there were factory shutdowns during the first part of the year, American businesses had already become less anxious about leaving China. In total, inspection and audit volumes in China contracted in 2020 by just -2.8 percent year-over-year in 2019, compared to 2020. During a year of unparalleled disruptions, this sourcing volume drop is remarkably smaller than the larger –3.3-percent year-over-year drop observed in 2019 compared to 2018, when businesses were looking to dodge newly implemented tariffs from the U.S.-China trade war.

As the pandemic woes and shutdowns continue to plague other parts of the globe, China finds itself back on the sourcing hot list of many U.S. businesses. This is significant because, historically, China’s more advanced manufacturing infrastructure has enabled its suppliers to maintain stronger quality measures than many of its developing neighbors. In 2020, it saw BAQL drop by –15.5-percent year-over-year down to a net BAQL rate of 20.2 percent, again flexing its quality strengths as many of its regional neighbors weakened.

Con: Mounting compliance risks suggest that some suppliers are cutting corners
While the world faces an extensive public health emergency, we also confront an economic crisis, and poverty is on the rise. In fact, global job losses are four-fold what we saw during the 2008–2009 global financial crisis, according to a report released in January 2021 by the UN International Labour Organization.

Adding more fuel to the fire, supply chain data show that supply chains are more prone to risks in modern slavery, child labor, and miscellaneous labor violations at third-party factories. The ethical audit data collected by QIMA at reopened factories and through remote audits confirm a dire situation on the ground, with the share of factories ranked “red” for critical noncompliances more than doubling during the second half of 2020 compared to the first half of year.

Notably, in China, where the sourcing and manufacturing recovery has surpassed expectations, as previously discussed, 14 percent of the factories that QIMA audited received a failing grade after recording critical violations in the areas of working hours and wages. Violations included factory workers being imposed with additional sanitation duties as unpaid overtime, as well as workers being forced to put in excessive hours to meet tight deadlines and overflows. This is particularly true in factories that produce high-demand items like PPE, medical supplies, and cleaning products.

As historical data suggest, compliance and quality measures go hand in hand. With suppliers clearly willing to cut corners in an increasingly challenging business environment, this presents an imminent risk not just for human rights and labor violations but also for product quality and safety.

Risk management

Pro: Businesses are deploying digital solutions to achieving multitiered supply chain visibility
In the face of a global recession and mass changes in business operations, liquidity and cash flow have become a centerpiece of boardroom discussions. But smart businesses know that, if cash is king, then quality is among its closest comrades. Above all else, high-quality measures in the supply chain serve to secure the bottom line.

Businesses that want to stay ahead of the curve will not accept quality risks in their supply chains. To offset limited ground access to factories and escalating supplier risks, more businesses are turning to digital solutions for inspections. In a QIMA survey of more than 200 global brands, two-thirds of respondents reported that the pandemic has accelerated their company’s resolve to digitize their supply chain, including the use of new digital and remote-inspection solutions. The digital capabilities being favored by businesses include remote audits, worker voice interviews, and integrated quality control and compliance platforms.

Despite its many challenges and calamities, the pandemic’s mass digitization movement may prove to be a boon for supply chains. When implemented alongside traditional inspections and audits, enhanced digital capabilities help empower safe supplier diversification strategies. In particular, digitization offers end-to-end supplier mapping, helping businesses achieve multitiered visibility so they can assert strong quality standards and thrive in today’s unpredictable supply chain landscape.

Discuss

About The Author

Sébastien Breteau’s picture

Sébastien Breteau

Sébastien Breteau is the founder and CEO of QIMA, a quality control and compliance service provider that partners with brands, retailers and importers to secure and manage their global supply chain. Breteau has more than 20 years of experience in supply chain management, founding his first sourcing company in 1997. 

Founded in 2005, QIMA has become a leading player in Asia and has expanded its operations globally to more than 35 labs and offices, 3,800 employees, and operating in 85 countries. In 2020, the company launched QIMAone, a collaborative platform that digitizes quality and compliance management for global brands, retailers, and manufacturers.