Founder: Turnaround Talk
We have spoken extensively about the level of disruption that many businesses have been facing since the onset of the Covid-19 Pandemic. The Pandemic has enforced many changes in the business environment. Some of them have been welcome, others have proven to be a significant challenge for companies who are hoping to return to some level of normality; especially when addressing the supply chain crisis.
However, this status quo is very far from being achieved. With increased lockdowns in China, and the Ukraine War which is showing no signs of ending, companies will need to think on their feet and adapt to more disruption rather than focusing on a resolution which is nowhere to be found.
Here to stay
A recent survey conducted by UK Law Firm TLT shows that UK retailers are focusing on returning to basics to manage the crisis as it stands rather than preparing themselves for a resolution.
the survey points out that, as much as we would like to see things settle down quickly, 87% of retailers do not believe that things will go back to how they were before the crisis began.
The vast majority (89%) of retailers are doing something in response to the crisis. However, the nature of their response varies considerably.
This is hardly surprising. Finding new efficiencies, for example, often requires significant capital expenditure and retailers need to think carefully about where they’re investing.
The survey adds that the choices they make now and the way they respond will come under intense scrutiny in the months and years to come – from investors, customers, regulators, environmental campaigners and so on.
Their response breaks down as follows:
- No changes (11%)
- Small, reactive changes (24%)
- Incremental changes (38%)
- Significant changes/restructuring (27%)
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Cost management
the survey points out that when we get into the details, we see the sheer scale of challenges that retailers face, from the environmental impact of increased reliance on air and road transport to rising input costs, recruitment difficulties and a lack of suitable warehousing space in the UK.
The data reveals that retailers have grown (29%) rather than consolidated (20%) their supplier base – with a significant focus on the UK and the rest of Europe.
The survey adds that the data also highlights which technologies retailers see as their immediate priorities, including robotic process automation (61%) and the cloud (59%).
Turnaround talk will focus on the survey in more detail on Friday.
Disruption is the new normal
So how do companies – particularly those in financial distress – go about addressing and mitigating the impacts of the supply chain crisis? A 2020 report from Ernst & Young (EY) provides some insights.
The report points out that, deeply worrying as Covid-19 is, Pandemics are just one of the many disruptive events that can hit supply chains unexpectedly, to the detriment of business performance.
For example, over the past decade supply chains have been disrupted by natural disasters such as the 2011 Tōhoku earthquake, which halted production for vehicle manufacturers in Japan. Supply chain resilience has also been tested by terrorist attacks and by civil unrest, such as the mass protests in Chile in 2019, which led to a slump in production at the country’s copper mines. Other threats to supply chains in recent years have included large scale cyber attacks, trade barriers and suppliers of essential commodities falling into distress.
The report adds that supply chain disruption is a perennial risk to companies, especially in our highly globalized age where businesses commonly have long, complex and opaque supply chains. These supply chain structures are fundamentally ill-equipped to cope with increasing numbers of unplanned disruptions.
Transforming supply chains
So, how can businesses boost the resilience of their supply chains? The EY report points out that, fundamentally, they need to move away from having rigid, linear supply chains to operating within agile, networked ecosystems by focusing on five key areas:
- Assessment and strategy. Conduct an end-to-end supply chain risk assessment to stress test the supply chain, identify critical risk scenarios and define potential responses.
- Capability build-out. Invest in key supply chain capabilities, including visibility and monitoring, alternative business operating models, alternative supplier sourcing strategies, network flexibility and agile planning.
- Intelligence monitoring. Implement risk monitoring and reporting tools, as well as an early warning system that enables a rapid early response to risks or disruptions. Undertake new product risk assessments and look for changes in demand and supply. Conduct ongoing risk and controls assessments, including systems and facility risk and cyber reviews.
- Operating procedures. Put in place a Plan B for disruptive events, covering operating procedures and responses to predefined supply disruption triggers, such as a natural disaster or terrorist attack. Work to ensure there is clear delegation of authority and decision-making and that external and internal communication protocols are in place.
- Major crisis management. Put in place a crisis management framework for major events where predefined responses will be inadequate. This should be accompanied by governance procedures, a desired operating model and standard ways of working.
No one can predict the full social and economic impact of the Covid-19 outbreak – or, indeed, of any event with global impact. Nevertheless, it has served as a reminder to businesses that the risk of an unexpected disruptive event is ever-present and if they want to continue to serve their customers and communities during a period of disruption, they need to be proactive in their planning.
The report adds that these are steps companies can take now to help ensure their supply chains are transformed in ways that help them function effectively, even when stressed and stretched by unexpected global events. It’s not simply about protecting profits. The resilience of supply chains is critical to securing the health and well-being of people all over the world.
How does South Africa respond?
So where does South Africa fit into the global supply chain crisis debate? For a long time, South Africa was seen as a continental innovator with robust economic policies that were replicated across Africa.
Despite the fact that South Africa is facing massive structural economic challenges, we are still considered a key role player on the continent. Recently, Minister of Trade, Industry & Competition – Ibrahim Patel – delivered an economic presentation to Government on South Africa’s role as a supply chain hub. His thoughts were shared with Business Day by the Deputy Minister of Trade, Industry & Competition, Nomalungelo Gina.
She pointed out that the war in Ukraine has resulted in fuel price increases and rising costs of fertiliser, wheat and other foodstuffs. It is now by far the biggest drag on the domestic economy. We are confronted by weak growth, extreme fiscal pressures, deepening poverty and a real threat of food shortages.
There are fundamental lessons that we can take from the Covid-19 pandemic and the war in Ukraine in relation to our battered economy:
- Economies and supply chains are vulnerable and building greater industrial resilience needs to be given prominence in policymaking.
- Societies need a capable state that is responsive and able to marshal what is needed to address the fallout from shocks.
- The absence of economic justice places the burdens of climate, social and geopolitical shocks on those in society who can least afford it.
An unexpected gift
Gina pointed out that if there is anything these phenomena have gifted us, it is the debunking of the old ways of conducting commerce which was necessary to survive the economic Armageddon. Our baptism by fire during both the Covid hard lockdowns across the world and because of the Russia-Ukraine conflict are the consequences disruptions to global supply chains have had for trade and economic growth.
Across the world policymakers are internalising these lessons and beginning to make deep changes in energy technologies, in supply chains and sourcing markets, and the development of innovation and industrial capacity.
She adds that old certainties are dissolving and new challenges are emerging, but there are also new opportunities. The old model of globalisation — with its ruthless focus on just-in-time inventory, efficiency, convenience and low-cost production — is being scrutinised and found wanting in a number of areas.
From the US to Europe, Asia, Latin America and other parts of the African continent, policymakers, elected representatives, business leaders and the public at large are questioning whether the old model still makes sense, and whether it serves the greater good.
Businesses and governments are more aware now of the price of disrupted supply chains. Derisking and diversifying supply chains is becoming a business imperative for multinational corporations. Policymakers are talking about the regionalisation of supply chains to tackle geopolitical risk, as part of risk-proofing their sourcing locations.
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The South African response
Gina points out that the question is how South Africans will respond. As a loud democracy we can either choose to remain trapped in the debates about the suitability and desirability of this new path while the world marches ahead, or we can shift drastically and build consensus on such concrete things as growing the economy and its capacity to create jobs.
Our new thinking as government is to position South Africa as a base for the regionalisation of global supply chains. The government is addressing infrastructure challenges from road freight to rail and ports, to return it to the global standard of the past.
She adds that despite our enormous potential, South Africa remains a small economy in an uncertain and changing world. Our economic vulnerability stems mainly from overdependence on offshore sourcing for our economy, and the risks of relying on a few products — mainly commodities — to drive our growth. These leave us as price-takers and with our economic performance overdependent on what happens in global commodity markets.
We risk losing out on the enormous opportunity the new wave of diversification and regionalisation can bring. But as small as we may be, with agility we can weather the shocks and turn challenges into opportunity for our own growth and development.
“South Africa can play a more prominent role in this world of regionalised production hubs. But we can only do so if we step up our focus on improving the dynamism and capacity of our industrial economic base and create opportunities for firms in our market to grow. It is time to talk less and do more in the economy,” said Gina.
The role of the turnaround professional
By now, you should all be used to this section in my articles as turnaround professionals play a major role as key drivers of value and of economic growth.
One of the biggest challenges that companies need to address is the growing impact that the global supply chain crisis is having on their businesses.
Not only has the Pandemic exposed the fragility of global supply chains and the desperate need for innovation when it comes to supply chain management, it has highlighted that companies need to be agile when it comes to their supply chain management and that the world needs to be smaller (and not bigger) than they realize.
This provides South African companies with the opportunity to be key regional and continental business partners. Yes, international growth for companies is key as the local market is very constrained. However, the world is bigger and smaller than the US and the UK. Africa needs our help, and this is where turnaround professionals should be focusing the growth of their clients.
