The impact on supply chains of the Covid-19 outbreak and the closure of ports of entry can be mitigated through the identification of potential impacts and early communication among affected stakeholders, says advisory firm Deloitte Africa restructuring services leader Jo Mitchell-Marais.
The impact of the virus outbreak is unprecedented and businesses must keenly look at managing their liquidity, possibly even on a daily basis, to potentially mitigate any impacts. A key unknown that complicates planning and mitigation efforts is how long the impact will last, but a potential indicator is when recoveries exceed infections, which occurred about after four months in China.
“South Africa is only at the start of the journey. Companies must stay on top of their cash position and aim to preserve assets where possible. Matching production with demand in a lean model, managing the working capital cycle and forecasting liquidity are important, as is pre-emptively communicating with suppliers, customers, funders and shareholders.”
There have already been impacts on local exporters, for example, with the delay of shipments of fresh produce to China. Negative impacts on supply chains will depend on the product being shipped and the inputs required to manufacture products, but companies should develop mitigation plans, including looking at alternative markets and suppliers.
The outbreak has highlighted the vulnerability of the global supply chain, says Mitchell-Marais.
She adds that the domestic economy should see an increase in local food supplies, while a reduction in imports will provide opportunities for local suppliers and service providers. Local suppliers and producers may become increasingly prominent in supply chains, and this may change their roles in global supply chains into the future.
Different ProductsSome manufacturers are tweaking their machines to produce slightly different products, and opportunities are emerging for local companies to produce products that will fulfil certain needs. Companies can take advantage of the gaps opened in local supply chains, but the businesses most likely to benefit are the ones that are on the front foot, actively seeking out well-defined and identified opportunities, she points out.
The movement of goods across borders may be impacted on to a lesser extent. However, the impact on regional supply chains is currently unknown, she notes.
“Given the potential impact of the virus outbreak on countries in Africa, there [may arise] a need that cannot be met by resources within a country. Countries should cooperate to meet pressing or humanitarian requirements,” she advises.
The outbreak does pose a keen threat to the existence of smaller businesses and retail businesses, as their revenues may come under pressure and potentially dry up. These businesses should communicate early and pre-emptively with their suppliers, banks, landlords and shareholders to mitigate a negative cascade along the financial value chain.
Additionally, there should be an understanding by stakeholders all along the value chain of the impact of demand disruption. Mitigation plans, strategies and agreements among stakeholders can lessen the impact and preserve valuable assets, but only if the businesses were not in distress prior to the outbreak and their models were proven and viable, says Mitchell-Marais.
“There is a need for cool heads and cooperation along the value chain because each supplier, funder, shareholder and employee is affected. “Transparency along the supply chain and having all stakeholders communicating and cooperating can limit the impact and create a space for recovery once economic activity normalises.
“This may be a new normal for supply chains, as one thing the outbreak has highlighted is the vulnerability of the global economy and the ways in which businesses seek to mitigate such impacts. It is clear that supply chains, and the global economy, need a more robust Plan B.