EY: Businesses should prepare for unexpected events


BUSINESSES will have to build a resilient supply chain to contain major unpredictable events, such as the current Covid-19 outbreak, according to Ernst & Young (EY).

EY Asia-Pacific and Greater China supply chain and operation leader Rodrigo Cambiaghi said it is time for companies to rapidly assess, recover and respond quickly through numerous obstacles and challenges that still stand in the way.

“There is a call for action for companies that are currently not set up to withstand a major unpredictable event, such as the current coronavirus outbreak, to build a resilient supply chain in preparation for future disruptive instances,” he said in a report yesterday.

He noted that the current Covid-19 pandemic has caused disruption through all sectors with various degrees of impact.

“Undoubtedly, building towards a resilient supply chain will be at the epicentre of future discussions for years to come,” Cambiaghi added.

The disease, which started in Wuhan, China, has since spread to dozens of countries around the world, infecting more than 95,000 and killing more than 3,000.

It has since then severely disrupted nearly every link in the global supply chain, from raw materials to components to finished goods, which could lead to curtailed production, product shortages and financial stress across a range of industries.

“A pandemic outbreak of this magnitude has caught companies and whole industries off guard, with a shock wave of ripple effects tearing through their supply chains and businesses.

“From a consumer angle, many companies suddenly do not have a clear demand signal as the outbreak has completely changed buying behaviours and patterns. In numerous industries, demand has dropped substantially or moved to online channels,” he added.

He believes investing in more collaborative, agile planning and fulfilment capabilities is key to building supply chain resilience.

EY noted that certain industries have been profoundly impacted more than others, among which are the auto and manufacturing, retail and consumer, and airline segments.

Car manufacturers may need to shut down its factories due to qualified vendors’ inability to deliver components to produce vehicle components.

“For manufacturers, labour shortage and replenishment serve as focal points for operations to manage as factories ramp up production after temporary shutdowns.

“The travel restrictions and health impact from the coronavirus have led to reduction of available migrant workers to return to work. Even after the reopening of factories, most sites are still struggling to achieve 50% of their previous capacity,” Cambiaghi said.

Focusing on management of spare parts availability will be critical as it is likely the company will forego maintenance strategies for more production time to catch up demand, he added.

In terms of changes in consumer behaviour which impacts offline businesses in retail, Cambiaghi noted that retail companies can boost online business supported by agile internal collaboration for ad-hoc marketing events and enable a seamless connection between online and offline inventory to mitigate the loss of its offline business.

He also emphasised that the airline industry has taken one of the heavier blows during this crisis.

To put things into perspective, China represents the largest outbound international market and the world’s second-largest overall aviation market.

“With travel restrictions in place, the Chinese airline industry has been estimated by industry analysts to be down significantly versus historical figures.

“Asian jet fuel prices have declined, and refiners’ profits have slumped to their lowest levels in the last 2½ years over concerns that the novel coronavirus will hurt demand. Crude oil companies are now reviewing options to execute emergency production cuts,” he explained.

Among key pillars to help companies build a resilient supply chain are conduct an end-to-end supply chain risk assessments and prioritise critical focus areas; develop a robust risk management process and diversify supplier network; and implement digital and automated manufacturing capabilities paired with strong manufacturing excellence.