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Sourcing and Procurement

Procurement sector in the time of Coronavirus

The year 2020 began with a disaster. China, the world’s most populous country, experienced one of the biggest health epidemics to date. The sudden outbreak of the highly contagious Coronavirus in China shook the country, which has now become a global threat.

Till the end of February, nearly 2,700 people in China alone were declared dead because of the virus, while an additional 70,000 people were recorded as infected. Since then several other cases of coronavirus have emerged in countries such as Italy (~165), South Korea (~250), and Japan (~200).

The breakout of Coronavirus coincided with the Chinese New Year, when all production activity in the country is paused for the annual holidays. The manufacturers and companies factored the Chinese holiday period between 24th Jan and 3rd Feb for all their procurement needs. However, the situation did not relent soon enough, and compelled the country to extend the Lunar Year shutdown as a precautionary measure. This resulted in an unfortunate standstill of the production activities.

The cautionary travel notices issued by other countries added to the panic, impacting exports, which further squeezed supplies, creating a nightmare situation for procurement teams. What started as a local crisis in China, became a global crisis, disrupting the supply chain network which is interlinked internationally.

Caught in the ripple

The erupting issue of supply shortage hit several industries in equal measure. Certainly, the unrest put to test the risk management and supply failure preparedness of the procurement teams all across. The electronics sector, for instance, has been hit the hardest, given China’s stronghold on hi-tech component manufacturing. Even giants like Apple and Hitachi are experiencing a setback in supply because of the shutdown. Many companies have pushed back launches, mitigated production plans, and are scouting for alternate sources for supplies.

The cascading effect has exacerbated the roll-out plan for 5G as well. As per analysts, the unwelcome strike of the virus is likely to further disrupt the progress of next-generation wireless standard, given its dependence on smartphones, which are in turn dependent on China for production of components.

The automobile sector, which is largely dependent on raw materials from China, has also found itself in a similar tough spot. Following the shortage of supplies, auto companies such as Hyundai and Kia, have shifted their production to their domestic plants in South Korea to safeguard against the supply crunch.

First-hand account

Devender Madan, Senior Domain Principal - Sourcing & Procurement Practice, at Infosys BPM, was caught in the middle of this economic havoc. Infosys BPM is highly regarded for its comprehensive procurement outsourcing services, ensuring a seamless procurement transformation journey for its clients. But Devender’s quandary was of a different kind.

While in China for a client visit, Devender was faced with an unusual demand to source 1,00,000 pieces of N95 masks urgently. Since China, a global giant in manufacturing of masks, thermometers, and small electronics for medical use, was sucked into a production limbo, the demand for the masks from the client had risen further by 50 times, to 5 million, in less than 2 weeks.

The client lodged an additional request with Infosys to support the procurement of surgical masks, forehead IR thermometer, and other medical supplies. Unavailability of funds for immediate payment, lack of stock, along with higher market price of the products and ban by the government on the export of PE equipment to protect domestic supplies, posed unique challenges for Devender in procuring for the client’s demands.

The global Infosys team came to his rescue and he was eventually able to assemble the products from local networks in Brazil, Nigeria, UK, EU, and the USA. This across the globe connect helped his client in securing the masks required in a short period of time despite all the odds.

Take away from the disaster

The first-hand account brings disaster preparedness of organizations into sharp focus. Coronavirus notwithstanding, there are several other circumstances, such as natural calamities and economic slowdown, that can neither be foreseen nor avoided. The key is to plan for such contingencies in advance using supply risk management practices and identifying alternate supplier arrangements. Aligning with the subsequent market conditions is a healthy approach to adopt for businesses.

It is also imperative to educate the client about the worst-case scenarios that are likely to arise during such an outbreak. It is also critical to have a system in place that can suspend the mandate of undergoing procedural hierarchy for releasing of funds for spot purchases in emergency situations.

Enhancing risk prediction can also efficiently safeguard businesses against prolonged disruptions, even under adverse circumstances. Companies equipped with Supply Chain Risk Management can not only eliminate unexpected costs, but can also prevent against frauds and, reduce disruptions in service delivery.