COVID-19 disrupts supply chains
The first months of 2020 opened with all Nordic countries enjoying healthy and strong economies, with a future set for growth and continued prosperity. However, in February and March the coronavirus COVID-19 reached Europe, virtually shutting down the continent over the course of few weeks.
One of the outcomes of the coronavirus COVID-19 outbreak has been the impact on global supply chains. These disruptions have impacted economies around the world and put companies at serious risk, interrupting the flow of goods and services in the global economy.
This unexpected and unforeseen pandemic has dramatically changed the global economic landscape. As companies struggle to get back on their feet, the world continues to seek solutions and answers to regain control of their supply chains and get back on track, or as close to normal as possible.
The economic slowdown and following fluctuations paint a grim picture, exposing just how volatile global dependencies can be.
Resilience demands flexibility and creativity
Before the outbreak, global supply chains were commonly disrupted by, for example, political interests (e.g. trade tariffs), as well as natural hazards or severe weather events.
In a recent seminar, If´s clients reported that the key to surviving and recovering from global supply chain disruptions included:
- Careful preparation for disruptions to minimise the impact of business interruption risks
- Decentralisation, having contact with additional and alternative suppliers
- Warehousing of inventory and emergency stocks of critical components
- Temporarily or permanently transferring supplies to separate locations or other factories
- Working closely with suppliers to prevent risks from materialising
Some notes to the above included having a thorough Crisis Management Plan and including contractual technical provisions.
By being flexible and creative, companies can overcome disruptions. However, what about today, in the face of a global pandemic?
If has supported clients in assessing risks as they transitioned production to manufacture products that are in high demand due to COVID-19.
Working through the pandemic
According to Kristine Birk Wagner, Head of Underwriting, Industrial, If P&C Insurance, “This pandemic is truly exceptional. In January 2020, we could perhaps on a theoretical level have understood that this type of situation could occur – however finding it very unlikely that it would ever happen.
For many companies, planning and preparing for potential disruptions in the event of serious business interruption has been a part of their emergency preparation. They have envisioned these scenarios and created alternative solutions as to how they can overcome such risks. However, perhaps no one was prepared for something like this, where the global economies would be so severely impacted.”
There are ways in which companies can prepare for emergencies that may disrupt their supply chains. For example, companies will conduct regular supplier audits, follow standardised processes and document service chains companies to monitor their operations for any vulnerabilities.
Normally, when setting up contracts with suppliers, all potential risks should be considered early in the negotiations. The aim should always be to establish long-term partnerships with contracts that are clear and well understood by all parties involved. Evaluating supplier risks includes the monitoring of the financial condition of critical suppliers or customers. All this information will help a company assess how their suppliers can withstand an emergency, such as a natural disaster, or a pandemic.
Global supply chains also benefit from digitalisation, which brings possibilities to monitor and collect data on how the supply chain is performing. With sensor technologies and added connectivity, companies can secure data on their products relating to the reliability of the supply chain.
A common enemy
During the COVID-19 pandemic however having good working relations and a high level of digitalisation, or even a reliable business continuity plan, has not been enough. In the end, the coronavirus outbreak has hit some industries harder than others.
As national governments began to react to the crisis, borders were closed, air travel was restricted, and essential steps were taken to protect citizens from the rapidly spreading disease. From ports to air cargo, the focus has now been on reducing the spread of the virus and securing the flow of goods and materials.
These dramatic measures have had an impact on various industries, as well as consumer behaviour. For example, while cities around the world went into lockdown, people began to stock food and essential goods as they prepared to stay at home for the coming weeks, even months. The race for food, hand sanitiser, fever medicine and toilet paper sparked shortages of supply and overwhelmed manufacturers and retailers alike.
As a result, the Pulp & Paper industry saw rising demand for cardboard packages and toilet paper, while the travel industry faced an entirely unprecedented situation where international travel restrictions were enforced, all but stopping tourism completely.
Creativity and new opportunities
For many businesses impacted by COVID-19, the surge in demand for certain products, such as PPE clothing, pushed for creativity and opened new opportunities. Re-purposing existing production lines, alcohol distilleries began to manufacture hand sanitiser while factories that produce clothing were retooled to make face masks.
These transitions have helped governments in their struggle to respond to the high demand for these products, while offering companies a way to avoid layoffs and maintain business operations.
It is clear that no one really knows what the future will look like, however the entire world is coming together in these challenging times to face a common enemy. At the time of writing, the world is slowly beginning to recover from the coronavirus outbreak, though it remains to be seen if global trade will truly ever return to ‘business as usual’.
Having a proactive approach to preparedness goes a long way when business interruption occurs, and If has been working hard to support its clients, helping them to assess risks and prepare for possible losses.
Article by: Kristian Orispää
Contributors: Hannu Hirvonen, Juha Jantunen