Whitepaper: COVID-19 Supply Chain Navigation Series - #2

Industry Assessment

In this second of our three-part series, we examine how some industries have fared during the recent COVID-19 period.

This includes a reflection on what sectors have responded well and what lessons we can take from their experiences. 

In our next paper, we delve into detail on specific steps you can take to prepare your business for the path forward, both in terms of the immediate future and for a post COVID-19 world.

KEY POINTS

  • There is demand uncertainty, both within and across industry sectors, highlighting the need for scenario planning and the capability to respond
  • Industries with high rigid cost bases have struggled to adapt to the fluctuation of the market
  • There have been significant industry and supply chain adaptations – businesses need to consider their supply chain operating models, both in the short and long-term
  • Online retail is thriving, and there a glimpses of opportunity for the Australian manufacturing industry
How has COVID-19 changed industry?

In the previous paper in this series, 'Global Story to Date', we discussed the unprecedented impact COVID-19 has caused on our way of life, and that as we look forward it remains unclear just how long, or in what form, these impacts will last. In this paper we explore some of the lessons  learnt regarding supply chain resilience and agility across specific industries in the last several months. 

Impact of COVID-19 on Australian Supply Chains - Global PPE Challenges

In recent decades we have seen the increased adoption of globalised, lean supply chain models in order to minimise cost bases. However, COVID-19 has challenged these systems overnight, with significant trade fluctuation causing some industries to see demand disappear abruptly, whilst others experienced significant spikes and struggled to navigate the disruptive environment.

Most critically this sudden shift impacted our medical, pharmaceutical and PPE manufacturing industries. Not only did the early shutdown of China disrupt supply for many institutions, the unprecedented rise of transmission rates promptly exhausted many existing stockpiles. 

This period exposed a fundamental supply chain talent and capability gap in many organisations.

FMCG suppliers and retailers also experienced sudden shocks as spikes in consumer demand resulted in the hoarding of essential items. According to the ABS, retail turnover increased by 8.5% in March 2020, compared to just 0.6% in February. The result of this was clear to many of us as we saw shelves absent of toilet paper, pasta and other household essentials for several weeks.

These sudden demand shocks may create a ‘bullwhip’ effect where variation in customer demand creates ever increasing hedging behaviour across the supply chain from retailers, wholesalers, manufacturers and suppliers.

We recommend businesses that have or may experience this effect review and update their forecasts to anticipate how demand may trend over the coming months as hoarding behaviour likely declines.

'Bullwhip' Effect

COVID-19 Australian Supply Chain Impact - Bullwhip Effect

The hospitality and travel industries have struggled perhaps even more; 88,000 hospitality jobs are estimated to have been lost, and Virgin Australia went into administration on the 21st April 2020.

Broadly, the industries that have suffered the most as a result of the virus are those with rigid cost bases as they struggle to scale expenses according to fluctuating demand profiles.

As the future remains unclear - and there is no concrete indication that demand will stabilise - we recommend all businesses conduct effective scenario planning to prepare for the multiple disruptive forces that may arise in the upcoming period. This can allow organisations to prepare and embed the necessary capability to navigate this uncertain environment.

We will explore this further in our next paper.

As consumer behaviours change, there is also an opportunity for businesses to refresh their offering, re-engage their market and position themselves well for the post COVID-19 world.

Arguably the most effective adopter to this new environment has been the large FMCG retailers who have quickly scaled up their online capacity to meet sizable demand.

A Woolworths pop-up hub in Melbourne has contributed to a doubling of their online capacity, facilitated by new last-mile partnerships. More broadly, the scale of increased demand for online services may prove to be the catalyst for automation of online trade for many businesses, and prompt further integration of their store network to enhance their online offering. 

COVID-19 Supply Chain impact on Manufacturing contribution

This period can also provide an opportunity for businesses to review how their online offering may be best configured to provide a unique customer experience differentiated from a business’ physical levers.

When pursuing these opportunities, it is important to be aware of your existing capability and its ability to adapt, flex and respond to changes that may arise as the situation evolves.

Recent months of supply chain disruption has also provided new opportunities for the domestic manufacturing sector. During the peak weeks of COVID-19 acceleration, the risk of exhausting PPE supply was promptly flagged as a concern. As a result we have seen a renewed focus on supply agility, as some local manufacturers have sought to meet demand by adapting their operations to produce sanitisers, ventilators, face shields and other critical items. This has included rapidly produced 3D printed equipment and supplies.

Historically, the domestic manufacturing industry has declined from approximately 30% of GDP in the 1960s to 6% more recently. Overall, Australia’s proportion of GDP attributable to manufacturing is also much smaller than that of other countries.

We anticipate that as corporate behaviours become increasingly focused on the resiliency of supply chains, a real beneficiary will be local manufacturing. The global nature of this challenge has already caused many CEOs to review the risk position of their global sourcing strategy.

Likewise, the Australian Federal Government is reviewing the nation’s sovereign capability to support its critical needs, with the new Federal Manufacturing Taskforce an opportunity for existing players to leverage in this area. We recommend businesses keep abreast of the recommendations that result from this taskforce in order to best position their future sourcing strategies.

Ultimately, as industries have experienced a spectrum of impacts, one consistency is clear, looking forward supply chain resilience will feature more prominently in board room strategy conversations than ever before.

In our next paper we will explore tangible actions that businesses can take to embed enduring supply chain resilience and equip themselves to navigate this uncertain time.

Notes:

Read the first paper in this series 'Global Story to Date' and the third paper 'Supply Chain: Today and Tomorrow'

COVID19 Supply Chain Navigation Whitepaper 1 Cover


2. Watch the live recording of GRA's webinar on COVID-19 and the impact on Australian Supply Chains

 

 

 

 

 


3. Watch a recap of the webinar by GRA's Carter McNabb and Shanaka Jayasinghe.

 

 

 

 

 


4. Watch a webinar from our COVID-19 Supply Chain Navigation Webinar Series - on Healthcare and Aged Care Sectors

Webinar on Covid 19 impact on Healthcare and Aged care sectors Australia

 

 

 

 

 

Download this whitepaper via the button below:

Download – PDF (2.0 MB)
Reproduction of GRA whitepapers and articles

GRA permit the reproduction of GRA authored whitepapers and articles so long as all the following conditions are understood and met:

  • Entire credit details must be included:
    • Author's name(s)
    • GRA name and contact details
    • GRA URL link to the original article
  • All hyperlinks within the article must also be retained
  • Articles must not be resold
  • GRA retain full copyright.

If you have any queries about reproducing a GRA article or whitepaper, please contact GRA Marketing

Testimonials

“GRA worked closely with our team to design, develop and deliver an end to end supply chain transformation. This involved implementing a demand-led supply chain that today drives a disciplined, integrated and effective S&OP process. Culturally, our organisation with help from GRA has significantly increased its awareness and appreciation for supply chain decision-making. The above has allowed us to improve our service levels & customer experience albeit whilst reducing inventory and supply chain operating expense.”

– Zel Medak , Regional Business Director (ANZ), Allnex

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)