The Take: Omicron Threatens to Halt Progress on Supply Chain Issues

What's News

Global supply chain issues blamed for disrupting the flow of goods and sparking higher inflation may have finally peaked, according to a new gauge from the Federal Reserve Bank of New York, but the rapid spread of the omicron variant of COVID-19 has already caused a new wave of labor and supply chain problems.

Background

As the New York Fed noted in a blog post published on Tuesday, supply chain disruptions have become a major challenge for the global economy since the start of the COVID-19 pandemic.

Factory shutdowns, particularly in Asia, along with widespread lockdowns and mobility restrictions have resulted in disruptions across logistics networks, increases in shipping costs and longer delivery times.

In the post, the New York Fed unveiled a new gauge, the Global Supply Chain Pressure Index (GSCPI), which integrates a number of commonly used metrics with an aim of providing a more comprehensive summary of potential disruptions affecting global supply chains.

Based on the new tool, the New York Fed notes that supply chain pressures surged at the beginning of the pandemic period, when China imposed lockdown measures, disrupting the flow of goods and sparking higher inflation.

More recently however, the authors note that the index "seems to suggest that global supply chain pressures, while still historically high, have peaked and might start to moderate somewhat going forward." Purchasing manager surveys in Europe and the U.S. also suggest that supply chain bottlenecks were easing in December and factories in China and the rest of Asia began to reopen following lockdowns.

But the spread of the highly transmissible omicron variant poses new challenges, exacerbating labor shortages in key sectors - including healthcare itself - and forcing governments to implement, or consider implementing, new lockdowns and quarantine requirements.

SAP's Take

"The harsh reality is that constant disruption is the new norm," says Darcy MacClaren, SAP's SVP for Digital Supply Chain and Manufacturing in North America. "It's now omicron, but it will be something else going forward. Companies just have to be prepared to be resilient and agile for whatever the next thing is that is coming."

At the moment, the biggest problem is that so many people are sick with the new variant that it is causing supply chain problems across the board. "It's really a people issue and it's global," she says. As a result, manufacturers cannot get the raw materials they need and even if they do get supplies, they don't have the people to do the manufacturing and the logistics.

What's Next?

Looking ahead, MacClaren says companies that have visibility into their entire ecosystem and the technology necessary to respond quickly and cost-effectively to the next supply chain issue will be in a much better position than those that are left scrambling from one disruption to the next.

In the meantime, in the U.S. in particular, a new round of omicron-fueled labor shortages have compounded problems caused by a lack of key components, ranging from semiconductors to lumber, and helped drive a spurt in consumer price inflation.

U.S. administration officials and central bankers have been left hoping that inflation will subside over the next few quarters as the omicron wave subsides and the immediate supply chain issues are resolved - averting the need to raise interest rates precipitously, which could stall the nascent global economic recovery.

Contact:
Joellen Perry, Head of Global Public Relations, SAP
[phone], [e-mail], PST

Tags: COVID-19, Supply Chain Management, The Take