A few weeks into the COVID-19 outbreak, the impact on supply chains was already becoming apparent, with companies like Hyundai, McDonald’s and Burberry closing down their factories and stores in China.
Less than two months later, with the pandemic sweeping rapidly across the globe, many other countries have been severely affected – and the containment measures put in place in a number of markets have made it difficult for businesses to continue operating as normal. Conversely, some sectors are struggling to keep up with a major increase in demand for essential goods. Against this backdrop, how can corporations protect their supply chains from the current challenges?
Beginnings of a crisis
“In China, what we saw was the normal decline in production volumes associated with the lunar new year,” comments Nathan Feather, CFO of working capital solutions provider PrimeRevenue. “Things started to come back – and then the true nature of COVID-19 became more apparent. That really prolonged a reduction in the spend that was coming through China.” Nevertheless, after four to six weeks at low production levels, Feather says volumes seem to be bouncing back to normal, “or even above normal levels.”
While conditions in China continue to improve – the Wuhan lockdown, for example, is beginning to lift – numerous other markets are struggling with the spread of the disease, with varying restrictions imposed on countries across Europe and beyond.
Supply chain pressures
For corporations, the challenges brought by the rapidly evolving situation are significant. Some large multinationals may be in a position to ramp up production in some locations around the world, while scaling back in others in line with current restrictions. “One of our customers turned off plants in France and Italy, but was still able to increase demand in the US,” says Feather. “But that’s a multi-billion-dollar business, with the sort of footprint that can work through that.”
At the same time, other sectors are seeing a sharp spike in activity. Panic buying in the UK has led to supermarket shelves being stripped bare, while food delivery services have been inundated with new orders. This surge in demand places a different type of pressure on supply chains, which companies are struggling to keep up with.
Moving forward, companies may face additional challenges once the current challenges subside. Feather points out that when automotive OEMs begin to restart production, getting factories back online “is going to create another crunch for the supply chain, as companies ramp back up from shutdown to full production.”
Taking all necessary steps
For companies facing these challenges, many are taking a proactive approach to alleviate pressure within their supply chains and keep the cogs moving. As such, Feather says he has seen a significant uptick in demand for supply chain finance: existing customers are looking to onboard additional suppliers, while some prospective customers are keen to get new programmes up and running in record time.
“Typically we see suppliers financing 70-75% of their available invoices via the platform,” he adds. “Now it’s over 100%, as companies are looking to finance older invoices that are unsold as well as new invoices that are coming onto the platform. Everyone is looking for different sources of liquidity.”
Beyond supply chain finance, Feather says treasurers will be acting to mitigate the impact of the crisis in any way they can. “Everyone is pulling down on all the liquidity they can get, whether that means accelerating inflows, pushing outflows or drawing on revolvers,” he concludes. “These are extraordinary times, and treasurers are doing everything they can think of and more.”
