ECA

COVID-19 recovery requires changes to global supply chains

28.07.2020 Arnold Jorge

The global trading landscape is shifting dramatically. Previously disregarded potential crises are now all too real. To succeed beyond Covid-19 and future catastrophes, Australian traders will need to take account of the risks seriously and make operational changes that allow them to adapt to short-term disruptions and stay competitive in the longer-term.

Australian businesses experienced a major blow as a result of authorities’ efforts to control the spread of COVID-19. They experienced supply chain disruption, as suppliers temporarily shut down operations, deliveries were constrained due to transport and border restrictions, and buyers withheld purchases.

While many businesses failed to foresee the risks or plan for such a crisis, many impressively were able to adjust their operations and adapted.

Following a recent survey of its members, Procurious (an online network of procurement and supply chain professionals) found that COVID-19 impacted on 97% of respondents’ supply chain, and 73% intends to make large-scale changes to their supply chain in the future. As part of that change, 34% intends to shift from foreign to local suppliers, and 21% plans to increase inventory levels.

Risks, such as those posed by health-or natural-disasters, or trade wars, need to be reassessed by globally exposed enterprises, and as appropriate rethink their supply chain strategies.

Some will argue that a significant change in their supply chain will be near impossible. They point to a lack of competition among suppliers, including in terms of reliability of quantity and quality, as well as value for money. Moreover, existing partnerships may be tied with market access.

However, for those willing and able to adapt, a new balance will need to be found between cost effectiveness and security, and between control and cooperation among supply chain partners.

Improved sharing of information (including on performance measures) between parties in the supply chain will be necessary, as well as improved partnership and integration for better coordinated response.

So what, if any, changes could be made?

At the firm level, these might include blending of supply chain strategies to find a compromise between cost efficiency and resilience (such as allowing for increased inventory). This may be influenced by a recalculation of risk weightings and extension of product life cycles.

Also, firms will need to build better systems for efficient and fit-for-purpose information flow, including functions, such as disruption alert warnings and coordinated response to disruptions.

At the government level, initiatives might include increased investments in facilities that reduce transport and storage costs, extending funding assistance to SME traders (specifically for supply chain related activities), and increasing international development assistance to trade partner countries to undertake reforms that strengthen global supply chains in the region.

Issues in relation to a secure and sustainable global supply chain will continue to preoccupy both business and government, at least in the immediate term. ECA will monitor deliberations, engage with stakeholders, and where appropriate facilitate prudent action.

 
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