Supply chain transparency can mitigate Covid disruption

10 June 2020

Around two thirds of Asia Pacific manufacturing and supply chain executives believe it will take at least six months to recover from disruptions caused by Covid-19.

A survey by McKinsey of 200 manufacturing and supply chain executives in the region found 61% thought it would take six months or more to recover from the pandemic while 39% believed it would take two to three months.

Respondents’ views tended to vary depending on where they were based and at what stage that country was in dealing with the pandemic.

Whereas nearly half of respondents in China expected rapid recovery, responses from Southeast Asia, Japan and South Korea, which are mostly still tackling cases and easing lockdown measures, were notably less confident.

When asked what challenges their business it had faced due to the effects of coronavirus disruption, 45% of respondents cited materials shortages, 41% a drop in demand and 30% worker shortages.

A minority of respondents also cited a significant increase in demand as a challenge.

Respondents in advanced industries were most likely to be affected by materials shortages due to interconnected supply chains crossing multiple geographies.

A respondent from an auto company in Southeast Asia told researchers: “We are facing raw-material shortages from tier-two companies, including aluminium and imported chemicals.”

On the other hand consumer-facing companies were seeing decreased demand, above all in categories such as apparel, fashion and luxury goods.

Labour-intensive industries were most likely to suffer from worker shortages due to restrictions on work capacity and physical distancing measures.

Respondents widely reported cash flow challenges, both in their own organisations and across multi-tier supply chains.

However the research revealed that in some cases automotive original equipment manufacturers (OEMs) were partnering with other organisations to jointly manage risks for suppliers.

“For example, a leading auto OEM provided a lower commercial discount rate and multichannel financing support to its suppliers,” said the report.

However, McKinsey said there was an opportunity for companies to leverage data to create transparency to better address supply chain constraints and therefore minimise disruption.

When asked what measures they were taking to minimise materials shortages, 49% of respondents cited increasing end-to-end transparency.

Almost half (47%) held daily war room meetings to ensure quick decision-making, while 41% qualified additional supply sources and 36% qualified additional distribution logistics options.

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