It was a privilege to appear on RTE’s ‘Open for Business’; a mini-series supporting local Irish businesses and consumers on their journey through COVID-19 recovery, helping them adjust to the new normal. At IDDEA, we help customers buy better and I was delighted to have the opportunity to make a contribution and share our expertise. Here are my key takeaways.
To fully appreciate the impact of COVID-19 in Ireland, first and foremost, we need to acknowledge four realities:
Distant and multi-layered supply chains are not sustainable.
- Over the last 30 years, many organisations made the choice to place manufacturing in low-cost economies. This created a geographic bottleneck. An interdependent global trade system became evident, but long and distant supply chains with various invisible, inflexible links were the results. Globally, we were over reliant on these low-cost manufacturing countries while supply chain links were not always clear. To give you a perspective, China accounts for 28% of global manufacturing output, compared to just 11% in the US. Therefore, over a quarter of the world’s manufacturing demand is dependent on just one country; a true bottleneck.
You need supplier options, and ideally local ones.
- To cut costs, many businesses implemented lean production. Contextually, this means that inventory of stock was kept low and deliveries were scheduled to arrive just in time. You may now realise how this is problematic if your stock dependency lies with just one country, far away. Contingency of stock, products and supply is core to build a resilient business and, ideally, you want to have alternative suppliers within your control and closer to home.
COVID-19, the largest bullwhip effect of your lifetime.
- In these lean, fine-tuned supply chains, any big change in supply or demand has an immediate ripple effect throughout the whole supply chain. We call this the bullwhip effect. This occurs when inaccurate demand predictions, price fluctuations or lack of accurate communication lead to the gap between supply and demand becoming bigger and bigger up the supply chain, resulting in over or under production. In the COVID-19 scenario, the ripple started when China stopped producing and shipping to schedule. It resulted in shortages all over the world, and many invisible links in the chain become apparent and an immediate supply problem to end-consumers occurred.
We are connected and impacted by shared global economic threats.
- While Ireland imports only around 7% directly from China, we suffered more from the bullwhip effect as we import from other countries who had been severely impacted by the restricted supply chain from China. Overall, as per the CSO, Irish imports were reduced by 23% in the last 3 months, that is 1 in every 4 Euro.
What does all this mean for the resilience of Ireland’s businesses?
COVID-19 came on the back of the Brexit disruptions that Irish businesses were already facing. Enterprise Ireland put in place support plans for small businesses to create contingency plans for Brexit impacts. IDDEA has been heavily involved in guiding Brexit contingency strategies for small and medium size businesses. Now local businesses have to deal with COVID-19 and its associated supply chain disruptions. It is a very testing time, but support is out there and ‘Open for Business’ highlights the main supports available.
COVID-19 has been a watershed moment for supply chains throughout the world. It has impacted Ireland greatly as we are an island nation dependent on imported raw materials from countries around the world. The risks associated with single and geographically remote suppliers highlighted the criticality of understanding how supply chains actually work. People now understand how goods and services are delivered to them, how interlinked and how dependent trade has become on world economies. Businesses are a lot more aware of the multiple risks and fragility of all the links in the supply chain.
One example illustrating the impact of this in Ireland was the shortage of PPE. PPE and other healthcare products’ life-saving properties, the importance of their quality, and how and where they’re sourced from, became a national talking-point. Hand sanitisers saw an unforeseen demand and there were few companies in Ireland producing them. PPE products ordered from China were argued to have been of inferior quality. Other industries were impacted as well. Food and drink supply chains, while robust, had to deal with moving their products with reduced air freight, ocean freight and transportation restrictions throughout all the supply chains. Well-known brands were temporarily replaced by alternative products to keep the shelves stacked. Small food producers had to close down due to resource shortages. Things were quite uncertain.
However, out of crisis came opportunity. Within weeks, factories took the decision to restructure their production lines to make hand sanitisers, gowns, masks, gloves. For example, Irish Distillers in Midleton moved from alcohol production to producing sanitising gels. Signage companies started full production on COVID-19 signs for roads and retail. Food retailers opened their kitchens to support the needs of frontline workers and local people. For example, Crust and IZZ Café delivered frequent food boxes to frontline staff in Cork city hospitals.
Businesses have looked at their supply chains and are actively seeking local suppliers or are attempting to shorten their supply chains. Smart, innovative products and services have been fast tracked, and micro, small and medium sized businesses have been the most agile to respond. For example, EcoStraws.ie, a Limerick based company, saw a gap in the market for sustainable PPE equipment and filled this niche with the world’s first plastic free PPE offering. The determination to be resilient, agile and adapt to change is a strength of local businesses that cannot be un derestimated.
Still faced with so many uncertainties, companies need to take sensible steps to prepare for the effects of the COVID-19 (see our previous blog). A rigorous business approach should focus on managing risk and increase resilience for the short andhttps://iddea.ie/wp-admin/options-general.php?page=imagify long term.
- Set up your own rapid response team and write your contingency plan. When you reach critical financial trigger points, kick start your recovery or contingency plan to mitigate the risks.
- Review your customer base in order to set priorities, based on your sources of income.
- Review your first tier suppliers, their suppliers (tier 2, tier 3, tier 4 etc.) and ask yourself:
- Which suppliers are vital for the survival of your business?
- Where are your critical products made?
- Do you know the alternative sources and are they real alternatives?
- Have you full visibility of the core components journey, along the supply chain, from the manufacturer to you?
- What is the suppliers’ inventory status?
- Review your product portfolio. If capacity or supply of your core components is reduced, then agree the rules on which products should be prioritised and which customers should be supplied first.
- Plan to maximize cash flow rather than profits. Keep the ship afloat!
- Keep communications clear and frequent with your employees, your customers and suppliers. Transparency and honesty is key.
It is an unprecedented time for all business around the world: it is a very scary time for 99% of Irish businesses, the micro to small and medium enterprises sector. For many, thinking inside the box will not provide the right answer. Every industry will have different risks and every business will have their own supply chain challenges . There is not one solution to the myriad of challenges we are all facing.
Focus your attention on your core competencies, your competitive advantage, and re-think your future. The world is changing, your customer will have different needs, your business will need to provide different solutions. Your perspective is key and your authenticity will make the difference in your dealings with your customers and your suppliers.
I have learnt that incredible change happens in your life when you decide to take control of what you do have power over, instead of craving control over what you don’t. Opportunities don’t just happen, you create them. Let’s take control, and together, let’s create a more sustainable future. written by Ingrid De Doncker, IDDEA