Coronavirus: How procurement kept the world's economy moving

The outbreak of coronavirus in China has seen procurement functions scramble to source enough facemasks to keep their operations running. In a highly competitive marketplace procurement has pulled in favours, which has kept the wheels of the global economy going

covid-19

The coronavirus pandemic has had a major impact on regional and global supply. Restrictions on working conditions demand that Chinese workers wear protective surgical masks in any place of business. Supplying the world’s workshop with these masks has been a miracle of procurement’s drive and expertise.

 

Without this sustained effort, the regional and global economy would have suffered a deep blow.

 

The coronavirus virus outbreak is centred in China but has spread across the globe. The virus, which has been termed covid-19 or Wuhan Flu, is relatively benign in its physiological impact but is highly contagious. To try and prevent its spread, the Chinese government has closed down much of the economy.

 

Any places of work with reported cases are temporarily closed. People or goods crossing internal province boundaries require additional documentation and, in many cases, such travel is prohibited.

 

It is the latter of these measures that has placed a severe strain on the regional economy.

 

The economic consequences of these measures have already been profound and will have an impact for some time to come.

Without providing key Chinese suppliers with the facemasks necessary to ensure output, the consequences of this still-ongoing crisis would be and still could be even more severe.

 

The immediate consequences for the supply chain in China are mixed. Some members of the Procurement Leaders network are unaffected, while others have reported around half of their local suppliers entirely closed.

 

Worse still, given the inter-dependency and leanness of the regional supply chain, small supply shortages can aggregate to broader economic consequences. One CPO in the manufacturing sector, who is running a just-in-time (JIT) model, said that if their company was missing just one small part then its ’entire product could not be produced’.

 

With diminishing inventory levels, it is becoming increasingly vital to secure continued supply of parts, no matter how small or trivial they may be. The success of JIT is now reliant on the humble facemask. Required by every industry for every employee, the need for these disposable products reach hundreds of millions daily to ensure continued output.

 

Servicing this demand has been a major challenge for procurement teams across the world. Unless they ship the masks to their various facilities, their company simply cannot produce output.

 

The main challenge for procurement teams over the last two weeks has been sourcing facemasks and shipping them to China, the difficulties of which are detailed below.

Sourcing

The critical challenge over the last few weeks, specifically in APAC, has been identifying the supply of facemasks. As the corporate panic-buying piled on, major supplying countries saw their own stockpiles deplete dramatically.

 

As the virus has spread, some countries who manufacture the masks have banned their export, including Taiwan and Kazakhstan.

 

Inevitably, this has caused prices to rocket. In Indonesia, for example, prices have increased tenfold.

 

As the scramble for scarce supplies has intensified, securing remaining stockpiles has become highly competitive.

 

Here, procurement executives have excelled themselves in securing supply. Skilled buyers have conjured supplies from Europe to South America. Hard negotiators have triumphed over their numerous competitors – from every industry – to obtain supply. And relationship managers have obtained long-term deals to ramp up supplier output.

 

All these achievements have been forged in a highly fraught environment of heightened corporate pressure and visibility. Yet, the supplies are reaching their destination.

Supplying facemasks to Chinese sites

The second issue, and less clear than the former, has been the difficulty in shipping masks to affected sites.

 

Although procurement functions have been quick to send masks to China, there have been reports of supplies being informally confiscated at the border. Allegedly, impounded stocks are being redirected to Hubei province to ensure that critical medical and service personnel have ample supplies to help contain the spread.

 

Yet, a skimming of supplies could prove fatal for supply lines that are already struggling under the pressure.

 

Buyers, being resourceful by nature, have developed a number of strategies to reduce any potential threat of ‘leakage’:

  • Reducing the number of units in single consignments. Currently, the figure of 10,000 units per delivery appears to be the optimum level to evade attention.
  • Increasing entry points. Buyers are accessing the country in various ports of entry as well as in different forms of transport.

This has proved an effective strategy to ensure that operations can continue to run.

Keeping supply moving

In almost every conversation I’ve had with CPOs in APAC there have been stories of late-nights and weekend work, as well as frequent disaster response updates and meetings. Procurement, sourcing and supply chain professionals have been exploring every lead and using every favour to ensure the supply of facemasks to key Chinese sites.

 

That hundreds of millions of masks are now flooding into China is a wonder of modern sourcing. We must celebrate the achievement of these professionals for their contribution to their businesses as well as the wider economy.

 

This week, one CEO publicly recognised a foresighted APAC purchasing executive in proactively supplying his teams with facemasks before the crisis gripped the company. This regional leader – whose modesty requires that I don’t name them further – was singled out by the company head as an example of action.

 

However, the work of procurement during this crisis should be heralded for its contribution to the movement of supply chains, operations and the broader global picture. Not only have buyers helped to keep China moving, they have sustained a regional economy that has been shocked by this black swan event.

 

Additional resources

Coronavirus: What’s happening and what comes next?