How COVID-19 is disrupting supply chains in North America-What manufacturers are saying? – Part 2
Supply chain disruptions identified by manufacturers
North American companies remain heavily reliant on Canada-US-Mexico supply chains, which have been highly disrupted during the first 2020 quarter – and continue to be seriously affected- amidst the COVID-19 Pandemic. This is part 2 of our blog post entitled: How COVID-19 is disrupting supply chains in North America-What manufacturers are saying? -Part 1
1- Lack of detailed guidance for specific company questions
The volume and frequency of government announcements in Canada, the US and Mexico have been highly problematic for industries to keep on top of, including where to seek more detailed guidance for specific company questions.
In Canada, the United States and Mexico, authorities at the Federal and State/Provincial levels have been providing with daily updated on the COVID-19 situation to the population. However, as new guidelines, rules, exceptions are announced at a very fast pace, it is difficult for industries to keep up with the news. And at the same time, as information keeps evolving, industries demand answers to their specific needs.
2- Additional costs / alternative suppliers
Finding alternative suppliers comes with additional costs and times. First, finding new suppliers is not a fast process. Second, if found, they can cost more. “We always have Plan B and Plan C on the books. The reason that you operate on Plan A is it’s the most efficient one from a cost perspective,”… “The coronavirus is not causing anyone to stop production yet, but it is making us incur additional costs. Costs we have to eat.” Said an automotive spoken person to CBC Canada.
3- Reduced customer demand
While some sectors are facing challenges to fulfill orders on time, other suppliers such as the automotive aftermarket sector are facing reduced demand for materials and components.
“The decline in industrial activity has reduced demand for energy products such as crude oil, causing prices to drop sharply, which negatively affects energy producers, renewable energy producers, and electric vehicle manufacturers”.
4- Need to evaluate inventory levels
“Inventory safety stock parameters will most likely need to be updated to reflect the increased demand and supply-side volatility, which will have the effect of increasing overall inventory levels, assuming that’s possible. At the same time, businesses will be thinking about securing additional inventory, or strategic stock, as a further buffer against the potential impact of a prolonged or much broader supply chain disruption. Also at the same time, from a cash flow perspective, companies may be considering actions to reduce finished goods inventories, especially in perishable products, where waste is an important consideration and markets remain difficult to access. ”
5- Implementing “business continuity” response plans
Businesses need to plan for workplace sanitation and restricted face-to-face interactions as well as for staff absences due to a number of reasons, such as personal illness, ill family members, among others and remote work.
Sources:
COVID-19 Canadian Supply Chain Issues
Global Economic Effects of COVID-19
https://www.wto.org/english/news_e/pres20_e/pr855_e.htm
Click to access d4fe3a6c-4ecb-4d96-a8d8-389c59ec0268.pdf
https://www.jornada.com.mx/ultimas/economia/2020/05/08/covid-19-desploma-produccion-y-exportacion-de-autos-en-abril-inegi-6226.html
https://www.bls.gov/iag/tgs/iag334.htm
https://www.bls.gov/iag/tgs/iag336.htm
https://www.cbc.ca/news/politics/coronavirus-supply-chains-1.5488730
Click to access gx-COVID-19-managing-cash-flow-in-crisis.pdf
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