Global manufacturing will rebound in 2021
The manufacturing supply chains hardest hit by the effects of the coronavirus pandemic will be the first to recover next year, according to new research.
A report from law firm Baker McKenzie and Oxford Economics forecasted global manufacturing will fall 5% in the first six months of 2020, compared to 2019.
The report looked at four sectors: automative, textiles, electronics and aerospace, and said the rate of impact and recovery varied depending on the manufacturing sector.
It predicted the automotive sector would see the biggest output falls globally in the first half of 2020, down 13%. This was followed by textiles (8%) and electronics (7%).
All four manufacturing sectors were predicted to start recovering in the second half of this year, but the strongest recovery will be from the automotive and textiles sector, growing at 10% and 8% respectively, relative to levels in the first half 2020. All sectors will see at least some output growth on 2019 levels by 2021.
However, the report added: “The key factor governing how quickly these manufacturing sectors recover will be the ability of companies to re-mobilise complex multi-country supply chains, which in turn depends on their supply chain mapping and risk management”.
The research also noted manufacturers and retailers could switch suppliers if textile supply chain disruption is prolonged, leading to increased production elsewhere.
“This is particularly relevant for established textile markets such as Bangladesh, Turkey, and North Africa,” the report said.
The unprecedented supply chain crisis is mainly due to temporary “manufacturing deserts” where lockdown conditions imposed to tackle the outbreak meant cities, regions or entire countries become no-go zones for sourcing anything but essential items.
A release in pent-up demand as sentiment recovered would see production increase to make-up for previously lost output, it predicted.
The report forecasted global manufacturing value-added output will recover to reach almost $13.8bn next year. This would be moving from a 3% drop in 2020 to a 6% increase in 2021.
Although supply chain risk management has become a high priority in the wake of the pandemic, it is likely to remain higher up the agenda for many companies after the immediate threat of Covid-19 begins to recede, the report concluded.
It added that in the long term digitalisation of supply chains will increasingly be the way companies begin to strategise and achieve business resilience against supply chain disruption including the use of big data analytics, automation and robotics.
“This means structuring their supply chains, ramping up on digital transformations, which could lead to an even stronger commitment to sustainability goals alongside building resilient businesses,” the report concludes.
“As we begin discussions about what the new normal will entail, it is clear companies can help shape it through robust planning and more holistic risk management scenarios.”