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  • Writer's pictureCaroline Langston

Some good news from the Proco Group regards market recovery from Covid 19

Updated: Apr 24, 2020

Proco Global APAC Market Update April 2020

1) Covid 19 - The Effects on Industries so far   The entire world has been thrown into chaos as a result of Covid-19. Supply Chains have been disrupted and nearly every functional leader across the value chain has had to react quickly to an unprecedented situation. From our viewpoint the immediate effects of Covid-19 have been the following:   Retail / Fashion • Luxury and travel retail, which had been booming over the last few years as a part of an increasingly connected world, has been affected by losses of double digits for most companies. • Major businesses such as VF Corp, the GAP and Macy’s have drawn down substantially on revolving credit lines to store up enough cash to weather the customer fallout that is likely to ensue. • Suppliers everywhere are struggling, as brands big and small are cancelling orders and reneging on their supplier commitments. In just 1 week in March US$ 1.5Bn worth of already placed orders were cancelled in Bangladesh. • Last week the Bangladesh government closed all factories putting more than 4 million workers at risk. • Many in the textile and apparel sourcing industry are moving to produce surgical scrubs and masks.

FMCG/Ingredients • The FMCG industry has remained relatively robust in the wake of panic buying for basic food and personal care items. Businesses specializing in hand sanitizer, PPE, masks and antibacterial items have seen a huge surge in demand, which has in turn placed considerable stress on supply chains globally to produce enough to meet the demand. • Many FMCG companies, in particular those in the alcoholic beverage industry, are now producing hand sanitizer to help with the demand. • Despite a spike in sales in Q1, most Consumer companies are viewing the situation with caution and anticipating challenging times to come over the next two quarters. • The Ingredients and Chemical sectors have felt the effects of the virus less dramatically but are also anticipating challenges over the next two quarters as a knock on effect of the downstream clients they serve. • The QSR and restaurant industry were one of the first to be affected in Asia which has now been mirrored across the world. Starbucks closed nearly half their stores in China during the peak of Covid-19 but as of April are now operating at 95%.

It's Not All Doom and Gloom: -The exemplary handling of the crisis by China so far has put Asia at the forefront of the recovery and this week leaders of Global Sourcing operations raised that this could be an opportunity for supply chain decision making to shift more towards Asia in the future. -The Medical and Life Sciences industries remain robust and given the current climate regarding health, these businesses will continue to grow. -The e-commerce industry has boomed with firms like Amazon hiring on mass for the increase in consumer orders. -The Tech industry is expected to emerge from this crisis stronger than ever given the importance technology has played throughout. -MNCs everywhere have been playing their part to help in the midst of this pandemic: o Unilever has provided more than 100 million in bleach and hand sanitizer. o Nestle has donated 10 million CHF to the IFRC and has donated food, medical nutrition and bottled water. o Danone North America has donated 1.5 million to support food banks o Dyson has committed to manufacturing more than 10,000 ventilators for the U.K.

2) Our expectations for the future........ -There will be huge Investment into diversification of supply chains, whilst some may consider this a significant upfront cost, the medium to long term benefits will be a more resilient and robust supply chain. -We expect an increase in the number of multi product factories, especially for food, beverage and consumer goods. The ability to manufacture multiple products at the same plant will allow businesses to continue to produce, distribute and maintain the supply chain should there be a need to cease production at a facility in certain locations. -Discussions are already happening at global level to create more equally balanced supply chains across North America, Europe and Asia.  Those who have an overdependence on a single country or region will be looking to diversify locations in order to reduce risk. A huge positive from this will be the push for countries, governments and regulators to adopt more collaborative efforts, South East Asia being a likely beneficiary. -With the diversification of location will also come a diversification of suppliers. In the past Procurement leaders have been effective in reducing costs by consolidating suppliers from raw materials to logistics and external manufacturers, however in order to mitigate the impact of future market downturns, there will be a much greater need to have a wider and more varied list of external suppliers. -Business continuity during crises is essential but several companies seem to have been caught out by the lack of synergy between BC and supply chains.  The future supply chain leaders will likely be assessed even more on their ability to make swift and effective contingency plans alongside business continuity and disaster recovery teams.  It is not unreasonable to assume that the impact of this will mean the future of hiring at the senior level for supply chains will include assessment of their handling of Covid-19.

-We also expect a significant increase in investment in digitization of the supply chain. This may well result in a bigger push for Blockchain Technology. -Panic buying in relation to basic necessities has affected many countries and may raise the question “should supply chains be nationalised to a certain point” particularly for those countries heavily reliant on imports. Switzerland, for example, has one of the largest strategic stock piles in the world and they also encourage the population to maintain reserves of basic food items at all times. -Finally, the ability to use technology and to operate remotely in a virtual world is more important than ever. As businesses struggle to recover financially, the cost of travelling versus connecting virtually will be questioned particularly given the potential impact on health.  

We wait with baited breath, once the world is through this crisis, those who survive relatively unscathed will be bold and invest in their supply chains, those who wish to stabilize will look to diversify their supply chains and those who have been exposed and scarred will evaluate their supply chains.

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