COVID forces supply chain rethink for businesses

It’s hard to believe that as 2020 slowly draws closer to an end we will mark nearly 12 months since the world began to grapple with the impacts of the COVID-19 virus.

Having reached every corner of the globe, indiscriminately wreaking havoc on populations and economies, the virus has forced many to change their ways of working and for some accelerated plans to diversify and pivot.

That need to revisit the business as usual mentality extends well into supply, production and distribution as a recent survey from Toll Group revealed.

The survey, commissioned by Toll in an effort to gauge the pandemic’s impact on global supply chains, sought insights from more than 340 businesses across Australia, Asia, Europe and the USA with results revealing organisations expect the global pandemic to have long-lasting implications on the way they source product and manufacture goods.

One of the most compelling findings was that nearly two-thirds of businesses surveyed said they have experienced problems with their supplier base as result of COVID-19. Furthermore, since the pandemic struck, more than half of the respondents said they have had problems with their production and distribution activities forcing them to consider alternate arrangements as they plan their operations post COVID.

Additionally, the data revealed that more than half of businesses surveyed source and manufacture their products in China, and a further 43 per cent are sourcing only from China. In what can be viewed as an attempt to spread the risk, a quarter of customers said they are planning to transition some of their operations out of China in the next three years.

Other key highlights:

  • 32 per cent of businesses were considering Vietnam as an alternative market for product sourcing and manufacturing, with India, Malaysia and Indonesia also being considered.
  • Businesses in the retail (25 per cent) and healthcare (55 per cent) sectors are looking to regionalise their supply chains;
  • 23 per cent of industrial manufacturers and 29 per cent of technology customers are looking to source more products from local suppliers; and
  • While business plans for a post-COVID world vary from industry to industry, half of all participants said that diversifying their supplier base and increasing inventory of critical products is a key priority.

Thomas Knudsen, Toll Group Managing Director, said the impact of COVID on companies’ operations has varied according to business size.

“Although the impact of COVID has been far-reaching, our Asian-based customers have told us that they have felt the impacts more acutely than most. Country-wide-lockdowns, manufacturing delays, limited international flights, international travel bans, and remote working conditions have all combined to create extremely difficult operating environments for businesses small and large,” Mr Knudsen said. 

“With more than half of all the businesses survey currently sourcing product or manufacturing goods in China, 38 per cent are now considering alternate geographies including South Africa, Europe and other parts of Asia to diversify risk and meet customer demands,” he said.

“Vietnam should re-emerge quickly in the post-pandemic period given its effective response to the virus. Unlike neighbouring countries, its stringent lockdown measures contained COVID quickly making it a safe place for international firms to do business. Supply chain and logistic industries that have strong operations out of Asia will reap the benefit of this trend,” Mr Knudsen said. 

Mr Knudsen added that he has seen first-hand how organisations are pivoting their operations for a post-COVID world.

“We’re working closely with our customers to support them through the changes they are making to their sourcing and supply chain arrangements. For some, we anticipate this will be a gradual process over the coming months while smaller, more nimble businesses have already begun the process of diversification”, he said.

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