Beyond COVID-19: Supply chain of tomorrow

The COVID-19 outbreak has caused sequential disruption across the globe. Having active visibility of critical supply chain components, inter-dependencies, and data to properly assess potential operational and financial weaknesses is more crucial than ever before. It helps organisations plan for and manage immediate contingencies, thus creating a more resilient supply chain in the longer-term.

The sudden and unprecedented change in demand and supply, coupled with the global spread of infection, is creating significant logistical and security challenges. Impacts include difficulties or inability to get components and end-products to their destination; shortages of supply of specialist drivers; delays in maintenance and servicing of vehicles and shortages of specialist equipment to deliver goods where needed; and rises in theft and/or loss of product. 

Unprecedented shifts in demand for certain products and raw materials, and stocks of certain crucial items running low, requires consideration of how to control third party behaviours around pricing. Ethical, legal and reputational risks arising from accelerated onboarding and contracting with distributors need to be managed.

The impact of the COVID-19 crisis has affected both availability of workers and their ability to travel to work in some locations. In some cases, contingencies for specialist skills is difficult to address. Companies need to assess strategies to deploy temporary workers for some roles and automate or use technology for others.

Shocks to the supply and service chain ‘ecosystem’ caused by COVID-19 are already resulting in significant losses for companies, including those from: missed sales opportunities; increased direct costs from supplier pass through or re-sourcing at short notice;  reputational damage from failure to service demand; quality costs from rushed or shortcut delivery and excessive time management spent on managing crisis.

Organisations have become more technology dependent since the pandemic. We are beginning to see the nature of the threat changing, as attackers exploit uncertainty, unprecedented situations, and rapid IT and organisational change. Responding to these issues will serve in the long-run as remote working and digital operations become more widespread across all sectors.

COVID-19 has disturbed the steady state of compliance, with rapid onboarding of third parties in the supply and distribution channels, and other flexing needed to respond to increased volumes and demand. Those who neglect ESG responsibilities now may face customer hostility later and find yourselves the subject of regulatory investigation when the crisis has passed.

Disruptions caused by COVID-19 are causing companies to re-evaluate the contractual terms you have with their customers, suppliers and other commercial partners. In order to do this, you need to have ready access to all contract and commercial agreements, to identify the key terms that pose risk or opportunity to you.

Although there is ambiguity over whether force majeure clauses will apply where COVID-19 has led to disruption in the supply and service chain ‘ecosystem’, companies need to consider the mechanisms to recover loss (both in-bound and out-bound claims) as a result of such disruption. Whilst the actual mechanism for recovery may be unclear, there are important steps for companies to take now to support future claims.

Disruptions caused by COVID-19 including ailing or increased customer demand, changes to physical supply chains, the onboarding of new suppliers / supplier locations and the consequent contractual documentation will drive a number of tax consequences that need to be proactively assessed in order to mitigate risks. The incidence of indirect taxes can have a major impact on sourcing decisions and the way these decisions are made will also be relevant to where profits and losses arise through the supply chain, and in turn where tax liabilities will arise.