DIY Spare Parts: Will COVID-19 change supply chains for good?

Toilet paper. Bleach. Now packet cakes are being stripped off supermarket shelves. But what happens when your company relies on a critical widget or spare part that is now unavailable because of COVID-19 shutdowns? It's driving companies to reassess how, and why they offshore their supply chains. 

Supply chain disruption is nothing new. But this crisis is testing the opaque relationships, network interdependencies and global sourcing in supply chains in a whole new way. Whether its palm oil for food and consumables, rare earths for mobile devices or spare tyres for mining trucks, the pace and geographic scale of the disruption is enormous.

“A month ago, businesses were really concerned about disruption in North Asia,” EY Oceania Partner and Supply Chain expert, Nathan Roost, says, “Now the concerns are in the EU and the US.”

Nev Power, the handpicked head of the National COVID-19 Coordination Commission, sees a silver lining in the crisis. He told The Australian Financial Review that disrupted supply chains represented an opportunity for rekindling Australian manufacturing. “But [the manufacturing] needs to be modern, efficient, high-tech and focused on the things we need,” he said, “A lot of the manufacturing in Australia is very old fashioned, it hasn’t had new investment.”

It’s a long-term proposition, but for some companies that have seen key input supply disrupted to the extent it threatens their own viability, it is one they’re starting to consider. What no-one knows for sure is will supply chains simply weather the shock and return to normal, or will the advances happen in time to support more local production? China is already showing signs of recovery: PMI data, which measures manufacturing, shows a rebound to pre-COVID-19 levels between February and March.

If onshoring and near-shoring is to be a long-term solution, the availability of and capabilities in technology such as advanced manufacturing, will be crucial. In the interim, Roost says organisations including mining companies are looking at whether 3D metal printers might work to print critical parts as a short-term solution. Manufacturing at a scale any larger than that, however, will have a much different ROI.

“As a small and relatively expensive market globally, we will need to think carefully about what we bring back,” says Roost, “There might be nation-critical parts in defence, some chemicals or critical spares for power and utility companies that we start to manufacture ourselves.

"But [structural change] will take time and investment and effort to develop supply chains, manufacturing and distribution centres closer to home.” Roost expects there will be a trend in many countries to bring back more local production.

EY Oceania Real Estate, Hospitality and Construction Managing Partner, Selina Short, says that some business leaders have started to look at the need to shore up advanced manufacturing/robotics capabilities in the recovery phase to build local capabilities. “And then we need to think about what investment and policies we need to make that happen to make us cost-competitive,” she says.

In reality though, boards and management are still looking to practical, near-term solutions to guarantee vital inputs. For Roost, organisations need to be determining multiple sources of supply for key items. “Because we’ve clustered supply chains in different parts of the world, they’re becoming choke points,” he says, “Now, businesses might need to find secondary or tertiary sources of supply for the same material, from different countries.”

This will involve a reshaping of not only logistics, but introducing flexibility into procurement systems and strategies, as well as more nuanced contractual arrangements, and possibly a touch of good old fashioned government diplomacy.

What to do now

In the short term, over the next four-to-eight weeks, Roost says the focus should be on closely understanding a business’ inventory position from a supply chain standpoint. “You need to work out the source of origin for most supply, what you’ve got in stock, in system, on water (or what has been ordered and is on its way), and then what might be a disruption to supply.”

“Our rule of thumb at the moment is that 1 per cent  of your products that have been ordered or are inbound are likely to be out of stock in next four to 12 weeks," Roost says. 

“Data in this environment is difficult to get so you need look at multiple data sources. And then rely on external and internal views as to the situation.”

“To get a clear read on inventory, companies need to, as quickly as possible, look at transaction data within their business, customs data to understand where materials have slowed from, the list of critical supplies, what you’ve got in system and potential disruptions. And model that as soon as you can.”