Diversification the new normal in supply chains post Covid-19
Volume, variety and type of suppliers will increase to offset growing risk and price dominance
Johannesburg, 9 April 2020 – The financial impact of the coronavirus pandemic on local supply-chain markets is still unknown although early indications are that it is harrowing. With the country sliding into its third recession since 1994 – growth contracted by 1,4% in the fourth quarter of 2019 – ratings agency Moody’s downgrading South Africa to junk status a week ago, and halfway through a 21-day nationwide lockdown aimed at slowing the spread of the virus, local supply-chain service providers are scaling their operational capacities to reduced income, relying on dwindling cash reserves, and strengthening capacity in essential-services sectors such as food manufacturing and distribution and pharmaceuticals.
“Diversification of supply chains is probably going to be the new normal going forward,” says Stephen Smith, head of warehousing and storage at Bidvest International Logistics (BIL), one of South Africa’s largest logistics businesses. “Companies will be wary of putting all their eggs in one basket, so we expect that products will be sourced from numerous suppliers as opposed to one or two, which is currently the norm.”
BIL, which provides an end-to-end supply-chain solution across a number of different industries, including essential services in the retail, healthcare and perishables sectors, is beginning to see some clients increase stock levels in preparation for future supply constraints, while volumes for clients providing non-essential services is lessening. It says the automotive industry has been particularly hard hit, with a number of major manufacturers closing their production facilities in South Africa. New-vehicle sales statistics for March 2020 released by the National Association of Automobile Manufacturers of South Africa reflect a decline of almost 30%, with 14 150 fewer sales compared to the 47 695 vehicles sold in March last year. Equally significant were the number of export sales, reflecting a decline of 21,5% compared to March last year.
“We’re continually assessing the situation, and it’s very fluid at the moment,” says Smith, noting that the most obvious overall concern is when normalcy will return once the “flattening of the pandemic’s curve” has occurred in South Africa. “This is the big question and is requiring us to continually reassess, remain agile and responsive, and do all we can to meet immediate challenges.” BIL, across all departments including road freight and international logistics, is rotating staff where possible, operating with a skeleton complement for essential-services clients, and upholding strict safety and preventive measures. All employees have been issued with masks, gloves and sanitisers, while offices are disinfected regularly.
“We’re focusing more on the little things that require immediate, crucial attention, like strong safety and risk protocols,” says Marcus Ellappan, head of road freight for BIL. “The business as a whole is also looking at how we can leverage technology in these times of crisis to overcome some of the challenges we face.”
As part of its digitisation journey roadmap rollout, the company is increasingly using a combination of data analytics, automation, blockchain and the internet of things (IoT) to help reduce the cost of business while at the same time curbing corruption and ameliorating the problem of non-reliability of suppliers. To have meaningful in-depth sight of the full chain, a move away from paper to digitisation is needed, along with an assurance to upstream suppliers that their data is secure and private and therefore more easily shareable only with parties with whom they agree to share it. Most importantly, the digitisation or technological up-capacitating of supply chains needs to happen sooner rather than later, with an assumption that crises like Covid-19 may happen again.
Says Ellappan, “We as a nation, but as an organisation too, are resilient – and this should be reflected in how our businesses respond to an ever-changing environment and crises like Covid-19, and their impact on supply chains.”
Not only does the situation encourage clients to consider diversifying source markets, who they source from in those markets and how, but it provides an opportunity for supply-chain service providers to adjust, strengthen and adapt how they do business. Visibility and a greater level of transparency across the supply chain will allow both clients and supply-chain service providers to optimise efficiencies and increase agility to withstand the highs and lows of a volatile trading environment or the impact of crises.
“Regardless of how tough the operating environment may be, we will do the right thing during this crisis, legally, ethically and morally,” says Ellappan. “All industry bodies are in agreement that their members have to do the right, honourable thing, and most of us are supporting the lockdown rules. We’ve seen an improvement among the relevant authorities to enforce rules, and we as a company are applying a pragmatic one-day-at-a-time approach.
“Despite the enormity of the challenges we face, crises like these present us with opportunities to potentially reinvent ourselves, and I’ve no doubt that we as a business and an industry will pull together to see a better future.”