COVID-19 and its effect on global supply chains
COVID-19 (a member of the Coronavirus family) is a newly discovered strain of virus which predominantly attacks the respiratory system. The World Health Organisation (WHO) writes, “Common signs of infection include respiratory symptoms, fever, cough, shortness of breath and breathing difficulties. In more severe cases, infection can cause pneumonia, severe acute respiratory syndrome, kidney failure and even death.”
As most of us are most likely aware, the COVID-19 outbreak was first reported in China, but has since been declared a global pandemic, with Italy being the hardest hit region so far.
This outbreak has had a profound impact on supply chains around the world. In fact, we believe that COVID-19 is going to reshape the global supply chain model entirely - as many companies rely heavily on China for both raw materials and production. Deloitte writes, “China’s dominant role as the “world’s factory” means that any major disruption puts global supply chains at risk. Highlighting this is the fact that more than 200 of the Fortune Global 500 firms have a presence in Wuhan, the highly industrialized province where the outbreak originated, and which has been hardest hit. Companies whose supply chain is reliant on Tier 1 (direct) or Tier 2 (secondary) suppliers in China are likely to experience significant disruption, even if, according to the most optimistic reports, conditions approach normalcy in China by April.”
As Monday 23 March, President Cyril Ramaphosa announced that South Africa will undergo a lockdown period to enforce social isolation from midnight on Thursday, 26 March 2020 until 16 April 2020.
The only organisations that will be exempt from the lockdown will be:
- Health workers
- Emergency personnel
- Security services
- Production and distribution
- Essential banking services
- Core infrastructure (e.g. electricity)
- Hygiene services
The government has stressed that the next few days and weeks will be critical in order to slow the infection rate and prevent overwhelming the healthcare system. This means staying home and avoiding gatherings as much as possible.
Lack of supply vs. increased demand
The biggest lesson from COVID-19 is that modern supply chains are vulnerable. With dwindling supplies and increased demand for goods, the economy will feel the effects of COVID-19 for months to come. Not only has the spread of infection slowed activities such as freight forwarding (which are now only operating at between 60-80% of their usual capacity due to travel lockdowns), it has brought production in China to a grinding halt. Deloitte writes, “A decades-long focus on supply chain optimization to minimize costs, reduce inventories, and drive up asset utilization has removed buffers and flexibility to absorb disruptions and COVID-19 illustrates that many companies are not fully aware of the vulnerability of their supply chain relationships to global shocks.”
While no one could have predicted the severity of the COVID-19 pandemic, businesses were not prepared to deal with its consequences.
To make matters worse, the panic caused by COVID-19 caused shoppers to stock up on items such as toilet paper and non-perishable groceries. With the slow turnaround times to import and export goods, as well as reduced production capacity, this means stock will take time to return to empty shelves around the world.
How freight forwarding has been affected
COVID-19 has had a huge impact on freight forwarding. Air freight in particular has been most hard-hit, as a lot of cargo travels aboard passenger aircraft which have been grounded to reduce the spread of infection. There is also currently a huge backlog of stock in China which traditionally travels via sea freight, but now needs to move via air freight to speed up delivery time. Due to the limitations on air freight and urgency to deliver goods faster, freight forwarding costs are increasing. This will have a knock-on effect for consumers, as retailers will be forced to increase their prices once stock returns to their shelves.
Managing risk and disruption to your supply chain caused by COVID-19
The best thing you can do for your business during this time of uncertainty is to keep your ear to the ground and stay in touch with your supply chain management provider or freight forwarder for advice. We are in touch with our global suppliers who provide us with information to help our clients mitigate risk and establish a way forward.
An article published in the Engineering News quotes SAPICS saying,“Covid-19 – or novel coronavirus – has put supply chains and supply chain management smack bang in the spotlight! Supply chain management is front and centre and has the opportunity to be the hero,” contends Tonya Lamb. “Coronavirus is forcing us, as supply chain professionals, to surpass agile, adaptive and innovative. It is vital that supply chains keep moving, and new thinking is the order of the day.”
News24 is providing live updates from South Africa and globally, which you can access here.
Additional steps you can take to ensure business continuity
As tempting as it is to continue with a “business as usual” mindset, this is not an option. The following steps will help your business weather the storm:
Protect your human capital
President Cyril Ramaphosa announced a national state of emergency, urging businesses to enable staff who can work remotely to do so to reduce their risk of infection. Where staff are unable to work remotely, we need to make provisions to keep them safe. This includes educating people about COVID-19 and how it spreads.
The health of employees such as drivers or factory workers who cannot work remotely should be of utmost concern. We need to be doing everything in our power to protect these individuals by putting in place stringent health and safety measures.
Anyone showing symptoms of illness should be sent home immediately so that they can self-isolate and monitor their symptoms. The National Institute for Communicable Diseases (NICD) has set up a hotline for anyone who is concerned that they may have COVID-19. You can send the word ‘HI’ to 0600 123 456 on WhatsApp or alternatively visit this link: https://wa.me/27600123456?text=Hi.
Set up a COVID-19 task team within your organisation
Keep clear communication with your staff and customers, and nominate a team of employees to champion health and safety. Education is key - make sure that staff know to keep their distance from one another, wash hands regularly and self-isolate if they think they have come into contact with anyone who is infected. The task team will also need to create an incident management process to attend to a crisis quickly and effectively.
Initial Hygiene South Africa have provided a number of free resources to assist COVID-19 task teams in educating staff on how to practice good hygiene to mitigate the risk of contamination in businesses that are unable to operate remotely.
Invest in technology and processes to evolve and future-proof your business
Investing in alternative ways to service your customers (such as eCommerce) will help maintain a flow of revenue and future-proof your business. You will also benefit from investing in internal communication systems and productivity tools that allow your staff to work effectively from home.
Following the COVID-19 outbreak, supply chains will never be the same again. Businesses will need to re-examine their sourcing of materials and not rely so heavily on one source alone. Organisations should diversify their supply chain to include a list of approved raw material substitutes (both local and international) and develop a list of multiple approved suppliers (rather than having all your eggs in one basket).
A global pandemic like COVID-19 will take months to respond to and possibly years to recover from. The global stock market has already taken a nosedive and the economy will suffer as a result. The best thing South African businesses can do right now is plan for the future, take proactive steps to stabilise their supply chains and review their long-term business strategy to guard against future threats.
Feel free to contact us during this time of uncertainty if you need advice to help you stabilse your supply chain over the coming weeks.
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