Hello, my name is Maia Becker and I’m the Director of Corporate Governance and Responsible Investment at RBC Global Asset Management. Today I’ll be talking about supply chain risk management in the time of COVID-19.
The food we eat, the goods we buy, and the services we use on a daily basis all depend upon effective global supply chains.
With COVID-19, this has brought disruption to economies, financial markets, communities, travel, trade, and our communities. It has also caused unprecedented disruption to our global supply chains. These impacts are being felt in almost every region in the world.
In recent years, companies have put in place a range of strategies to reduce costs and improve the efficiency of their supply chain – whether that be outsourcing, or just-in-time delivery, or offshoring. While that’s produced cost-savings and has improved efficiency in some supply chains, what we’re seeing now is that it has also resulted in reducing the resilience of our supply chains.
Since COVID-19 was first identified in December of 2019, factories and transportation hubs have closed, new safety protocols have been in place, the movement of employees has been restricted, and consumer needs and consumer demands have changed. No regions or industries have been immune to these effects.
This has resulted in supply shocks and trade restrictions, which has affected the ability of some companies to both produce and supply their goods and services. For example, active pharmaceutical ingredients – approximately 80% of them comes from China. When China halted their manufacturing, this caused supply chain disruptions, which resulted – in some regions – in potential shortages of certain drugs.
COVID-19 has also stretched the capacity of some companies, as they have seen both an increase in demand as well as a decrease in supply for some goods. As inventories have been depleted, they have also seen strain on their production capacity. Grocery stores, for example, have had inventory shortages of certain foods and consumer goods as they have seen a surge in demand of up to 500% for certain products. And while they have reduced their hours in order to try to allow time for re-stocking, and food producers have extended their hours or limited their product lines, there is only so much capacity within the system.
A company’s ability to produce, to distribute and to supply products can also be impacted by supply chain risks related to worker health and safety– such as a lack of personal protective equipment, absence of sick pay, or in some regions and for some workers, an inability to access health care.
So while the attention and focus right now is (rightfully) on dealing and managing the current crisis, COVID-19 has exposed vulnerabilities in our global supply chains.
Once the current crisis has ended, many more companies will be looking to how to address supply chain risk management, perhaps in a different way. That may be by expanding or enhancing their digitization of processes, doing supply chain mapping as well as looking at diversifying their supplier base. They may also start to scrutinize their contracts and their liabilities in more detail, and start to look at their suppliers’ workforce management activities.
At RBC Global Asset Management every investment team evaluates Environmental, Social and Governance factors as part of their decision-making process, and that includes supply chain risk management. COVID-19 has demonstrated more than ever before that the quality and effectiveness of supply chain risk management is important. Thank you.