The Effect on the Supply Chain of China’s Removal of the Covid Lockdowns

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China’s Government just removed the strict Covid lockdown policies it has had in place for three years. Unfortunately, the abrupt change led to a dramatic increase in cases of Covid throughout the country. Estimates say that Covid will peak at about 400 million infected people, resulting in over a million deaths. 

The effect on the supply chain has been dramatic and immediate. Many factories in China have seen spikes in Covid cases, reducing their workforce to a fraction of their full capacity. This happened during the peak production season right before the Chinese New Year.

The Chinese Government is pushing to get back to economic growth. They have been encouraging workers to get back to work. However, with the recent lockdowns and quarantines, there is an element of distrust. 

Foxconn’s recent labor issues indicate the present situation and question what percentage of labor will return after the Chinese New Year. At the very least, we expect a significantly longer gap before production resumes.

The effect on the supply chain will be to increase lead times and cause shortages in the market. Many US companies have recently been trying to readjust orders to accommodate the temporary slowdown in the economy. With the tightening in the supply chain, a better strategy may be to increase orders so the limited factory resources are allocated to your company.  

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