Webinar recording: COVID-19 Australian Supply Chain Impact Assessment

GRA hosted an invitation-only webinar to discuss the impact COVID-19 is having on Australian supply chains and the overall economy.

This is a video recording of the event.

Extra Video: GRA Partner Carter McNabb and GRA Director Shanaka Jayasinghe discuss the webinar and its outcomes in this video.

Background

Coronavirus cases globally are now well above 3 million—with more than a million in the United States alone.

Focus for businesses is shifting to resilience AND efficiency. Resilience equates to successful bounce back looking at previous crises. We believe the investment community will likely take note and devise ways to incorporate resiliency more systematically into their valuations.

Governments across the world will be reviewing what constitutes critical infrastructure, and this may lead to policy changes that will change the economic landscape. Corporate boards will likely focus more on long-term viability, scenario planning and supply chain resilience.

We are witnessing the rise of the contact-free economy–online shopping, telemedicine & virtual health.

There is also more Government intervention in the economy. As of April 10, Governments across the globe had announced stimulus plans amounting to $10.6 trillion—the equivalent of eight Marshall Plans.

We are seeing changing industry structures, consumer behaviour, market positions, and sector attractiveness.

Currently there are two trajectories – health and the economy

Trajectory 1: Health – Australia took rapid action and successfully flattened the curve. Economic indicators have remained strong and optimism has returned, however...

Trajectory 2: Economy: other countries with similar caseload trajectories to Australia who experienced early peaks have seen a drop in key economic indicators.

The IMF is forecasting GDP reduction of -6.9% and an increase in unemployment to 10% by the end of the year. There is a lag effect due to panic buying and strong government stimulus, but we are not immune locally or to the larger global economy. Keep the USA in mind.

Scenario planning is absolutely fundamental

a. Multiple global scenarios - Oxford Economics & McKinsey developed a nine-scenario grid based on intervention effectiveness. The scenarios have vastly different outcomes, even the ones that appear to be remarkably similar. In one scenario, GDP returns to pre-crisis levels by Calendar Q4 2020. In the other, GDP returns to pre-crisis levels in Calendar Q3 2022, approximately two years later than the previous scenario. What are our options and action plans under these scenarios? What will demand look like, and how will my suppliers be positioned?

b. Multiple local scenarios – the Australian Government's 3-step restart plan. It may go 1-2-3, but the timing might vary – and it might go 1-2-1-2-3 or 1-2-3-1 for example. So, there is an interplay between the global economic outlook and the local process.

c. Multiple supply chain scenarios – Again, this highlights the need for scenario planning and a roster of options with implementable action and plans based on key possibilities. Considering sourcing, stocking, and service to the customer. What are the possibilities, what are the requirements and where are our gaps? Effective and efficient communication plans with supply chain stakeholders is also key.

d. How are Australian companies placed? Our bi-annual FMCG Supply Chain Survey conducted with the Australian Food & Grocery Council showed 89% of respondents had a formal S&OP Process in place but 60% identified their capability in Scenario Planning as non-existent or insufficient. Why? The key ingredients to successful Scenario Planning are a strong foundation of effective culture and information which enable “one version of the truth”. Information that is accurate at a granular level and integrated top down / bottom up, coupled with capable forecasting, planning, optimisation and decision support tools. There are still broadly lacking industry despite the investment in corporate ERP systems. And the culture is one where psychological safety, clear decision rights & accountabilities, trigger points and clear communication channels exist.

e. The four dimensions of the OODA Scenario Planning framework, and the rise of the “nerve centre” – The four horizons and dimensions of are OODA are Observe, Orient, Decide and Act. The key to success is to be able to make appropriate decisions faster than the rate at which the environment evolves. Fundamentally, this is similar to the as yet largely unrealised vision of an evolved, integrated S&OP process. And we’re seeing “nerve centres” and “control towers” being formed which bring a strong interdisciplinary, integrated and analytical view of supply chain to be able to support rapid response Scenario Planning.

f. What was once seen as future vision by most companies, and enjoyed by a select few as a competitive advantage, is now a mission critical capability. Resilient vs Lean vs Agile supply chains – a new balance

Let’s take agile first – agile is always desirable, and a flexible, responsive supply chain is possible with both resilient and lean supply chains. So, the real balance is between resilient vs lean with questions around the viability of “just in time” and narrow, low cost supply bases. Shareholder demands, capital efficiency and profit targets, coupled with a view of certainty & stability have driven supply chains leaner and leaner.

But perhaps too lean, and the shortages in what are now seen as critical supplies, will be calling this into question at a governmental level, whilst boards and shareholders who have been alerted to the risks may now be looking to bring more resilience into supply chains.

Summary

  • In Australia the health trajectory has been well managed to date, but expect a lag effect on the economy.
  • There is still much uncertainty, so effective scenario planning is now a mission critical capability. Australian organisations are not generally well positioned in this respect. The time to build on this capability is now.
  • Lean will be balanced with increased resilience in supply chains moving forward. Australian organisations need a clear understanding of the options and risk versus return trade-offs.

Notes

  • GRA's Carter McNabb and Shanaka Jayasinghe discuss the webinar and its outcomes in this video.
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Testimonials

Personally, it has been a really positive experience to work with GRA and I know that the 7-Eleven team shares the same feeling. A special thanks to Nathan with his technical and business skills and his attitude towards continuous improvement.

– Didier Vaillant, Supply Planning Manager, 7-Eleven

Typical results

  • 20-40% inventory investment reduction
  • increased service levels ranging up to 99.9%
  • 10%-15% reduction in supply chain operating costs
  • 5%-20% spend management savings
  • the ability to fund business initiatives from operating cash flow (OCF) improvements
  • improved return on capital employed (ROCE)
  • a minimum 3:1 ROI (10:1 to 30:1 typical)