COVID-19 Insights | Supply chain

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Manage.
Mitigate.
Move Forward.

By Tim Cronin

Tim Cronin

The novel coronavirus (COVID-19) was first reported in Wuhan, China in December 2019. With more than 108,000 confirmed cases and more than 3,800 reported deaths reported globally by 9 March 2020, government, airlines and healthcare agencies globally have taken decisive actions in response to this health crisis, for example, quarantining people in affected cities, issuing import/export restrictions on goods/products and airlines taken precautionary measures by cancelling or/and suspending some of their flights, which is impacting both their own business and tourism.

In a global economy, virtually every organisation is connected to or dependent upon others. Australia may not be directly affected by a pandemic, but may be impacted if a vendor at a critical point in your supply chain is. To mitigate the risks of supply chain disruption, there are some key concerns that organisations should be preparing for. Understanding your dependence on entities outside your organisation is critical.

Are your critical third parties (e.g., suppliers, vendors and service providers) prepared?

To protect your operations and ensure continuity of services or products to your customers, it is important that you:

  • Map your dependencies to understand where disruptions might impact your value chains.
  • Review the preparedness of your critical third parties (suppliers, vendors, service providers, etc.).
  • Identify single points of failure in your ecosystem.

When assessing the impact of a disruption to your ecosystem, it is important to recognise the amount of time before the actual impact occurs.

During both the supply shortage and recovery period, Australian companies will be competing against global competitors for the supply. Impact of this issue needs to be assessed for Australian retailers, with lower bargaining power to secure their share of supply in comparison to the retailers working in bigger markets.

Supply chain leads need to quickly assess their exposure to suppliers in China and develop strategies to source the products from alternate suppliers, if available. Also, working with the commercial leads, promotion and sales plans should be revisited based on the projection of supply from original and alternative sources.

What industries/sectors are expected to be impacted?

  • China is Australia’s biggest exports 30% of goods sold overseas, with disruptions in export to China, Iron Ore price per tonne has dropped by more than 11% from average AUD136/t in March 2020.
  • Brent crude has fallen nearly 37 per cent so far this year. On January 8, 2020, the crude oil, which had touched $71.75 per barrel, dropped to $45.19 per barrel on March 6, 2020.
  • Airlines taken precautionary measures by cancelling or/and suspending some of their flights, impacting both their own business and tourism. Airlines have cancelled more than 200,000 flights, mostly within China as the government steps up measures to curb the spread of the virus.
  • The education system is also being impacted. Students who have travelled to mainland China would be considered on a case-by-case basis and those who were successful would be subjected to a 14-day self-imposed quarantine on arrival in Australia

These are just a few examples of what has happened since the outbreak. Companies need to assess the risk of exposure to the potential disruptions over the short, medium and long term, and prepare for mitigating the disruption risks to their supply and / or demand. This is not just limited to the organisations with direct suppliers in China, the risk is also present for companies with extended supply chains in China or shipment routes through Chinese ports.

How do we as organisations safeguard our supply chain against forthcoming interruptions?

The most similar event to the COVID-19 outbreak is the SARS Pandemic in 2003 and earthquake and tsunami in Fukushima, Japan in 2011 about the supply chain weakness. Supply chains have come a long way since then and lessons learned from those two events should inform but not dictate business decisions today. Those organisations with robust contingency plans for closures and supply chain disruptions will have a head start for co-ordinating their next steps for business continuity.

The concept of supply chain resilience is not new but as supply chain optimisation has become a norm, in achieving greater resilience through integral adaptability, improved monitoring and proactive reporting has taken on increased significance. With supply chains being exposed to potential business interruptions and disruptions in their supply chain sourcing, there is a clear and present need for companies to re-evaluate their resiliency and business continuity capabilities.

Want to know more?

If you would like to find out more about how this could impact  your business, please contact Tim Cronin, our Assurance & Risk Advisory Director, for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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