Overcoming the COVID-19 supply chain disruption

Thousands of businesses around Australia are re-assessing their supply chains, inventories and financing options to deal with future shocks in the wake of disruptions caused by the pandemic.

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When global supply chains started breaking down in February and March as countries went into lockdown, hardware and garden tool company Ames Australia was well prepared. “All of our factories within China were closed down for a period of time so the result of that was delays from anywhere from two weeks up to six weeks,” said Chief Executive Simon Hupfeld.

“Then we saw the flow-on to other countries as the virus spread. We were facing some serious stock shortages as a result, but we were able to navigate our way through that shortage quite successfully. We invest a lot in inventory and see this as a fundamental component of our offering for customers, so we keep our five warehouses around Australia well stocked,” Hupfeld said.

Many companies, however, were not in such a strong position, and couldn’t secure inventory and goods to keep their businesses going as first China and then other parts of Asia and the world locked down daily life to try to contain the COVID-19 pandemic. Sectors including construction, car parts, clothing and general retail were particularly hard-hit.

To cope with shortages, Ames – which manufactures and supplies hardware and garden equipment to retailers around Australia including Bunnings – offered retailers substitute items from its broad range of inventory.

It was also able to secure alternatives from existing suppliers, and find new ones. “We had to go to the world and explore all options, so we were casting the net locally and internationally, working with new suppliers in new parts of the world,” Hupfeld said.

For instance, when its Italian maker of pottery planters closed for a period, Ames turned to other suppliers in Pakistan, Vietnam and Malaysia. And when the usual supplier of garden shovels shut, it turned to one of its local Victorian manufacturers to expand its product range and help meet surging demand for garden equipment.

Rethinking inventory management

As Ames rushed to meet demand from lockeddown Australians turning to gardening and home improvements, it accelerated plans to broaden its network of suppliers as a result of the global supply crunch.

It is also looking to bring more manufacturing onshore and will likely acquire more local manufacturing capability to add to its Wonthaggi and Grafton plants, Hupfeld said.

Ames is just one of thousands of businesses around Australia that are reassessing their supply chains. “What COVID has highlighted to a number of businesses in Australia is just how reliant they were on China, and reliant in some cases on a single supplier in a single country,” said Casey Morecroft, Head of Corporate in Victoria and South Australia at National Australia Bank. “That put a lot of pressure on people when that supply chain was disrupted, and it triggered a process around assessing alternatives.”

Businesses have adopted a range of strategies both to help manage the immediate supply chain crunch but also to bolster their supply chains to deal with future disruptions.

They are seeking out low-cost manufacturing destinations in Asia other than China; broadening their range of suppliers; and seeking to bring more manufacturing and supply on-shore where feasible.

Companies are also rethinking just-in-time inventory management and the wisdom of keeping costs down by holding as little stock as possible. “There’s a lot more businesses now that are willing to pay the extra cost to hold additional inventory, so if that disruption does happen again, they’ve got supply on hand so they can continue to service their customers,” Morecroft said.

Companies are also trying to control more of the supply chain, for instance, dealing directly with manufacturers rather than relying on importers or wholesalers.

Demand for trade financing

The crisis highlighted the importance of payment terms, with some businesses offering faster payment to ensure they were at the top of the pecking order when supply chains reopened and manufacturers struggled to meet pent-up demand from around the world.

Each of these options brings its own financing needs, and that’s where NAB stepped in to support customers. “More customers are using trade finance or supply chain finance in the wake of the COVID-19 pandemic,” said Anthony Zweck, Director, Trade and Working
Capital, at National Australia Bank.

The bank has been helping customers pay their suppliers sooner, a goal that has become important among large businesses. Early payment can also ensure supply and may allow the buyer to receive supplier offered discounts.

In some cases, customers have been paying their smaller suppliers sooner to support them through a tough operating environment. Under a
supply chain finance facility, NAB pays the supplier and provides extended payment terms to the customer to help them preserve cash.

For businesses that are building up levels of inventory, NAB is extending funding against the inventory.

Other companies, which typically issue invoices to clients and have a delay in receiving payment, are funding their working capital with
receivables financing, where NAB extends cash against the value of their receivables, said Zweck.

The bank has also provided increased funding for business wanting to hold more inventory, particularly as the price of warehousing and distribution facilities has increased sharply.

It’s one of many ways businesses have had to adapt in an extraordinary year.

 

This article was first published in our Corporate & Institutional magazine ‘Beyond 2020: Creating opportunities”.  Read more articles from the magazine, below.

 

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