Securing supply chains

COVID-19 has thrown a bright spotlight on supply chain vulnerability and the need for boards to manage this risk. Indeed, the Economist Intelligence Unit projected global value chains may become shorter, less fragmented and more regional.

A recent Productivity Commission study found that one in 20 Australian imports might be vulnerable to concentrated sources of global supply. China emerged as the main supplier of vulnerable imports, accounting for roughly two-thirds of those products. Most vulnerable imports were either consumption or intermediate goods, with fewer capital goods.

In its interim report, the commission says companies need to understand the nature of the potential disruption and its potential impact to their supply chains. “But this is not always straightforward. Supply chains can be long, complex and opaque, and information on a firm’s supply chain can be difficult to obtain,” it says.

The commission says mitigation strategies used to prepare for supply chain risks can include: stockpiling, supplier diversification, contingent contracting and developing domestic capability. These strategies complement other actions companies can take to prevent the risks of a disruption or respond/recover from one.

“Supply chains can be long, complex and opaque, and information on a firm’s supply chain can be difficult to obtain.” - Productivity Commission

Vehicle pools

In a recent research report, Six COVID-19 aftershocks and how they’re reshaping the mobility industry, listed fleet management and leasing company SG Fleet notes that ongoing risk of infection has driven passengers away from public transport toward pool vehicles and short-term leases that can limit exposure and provide a higher level of hygiene. Moreover, it expects more employees to start enquiring about salary packaging private vehicles for personal use. Because of social distancing and virus transmission risks, companies can’t risk sending employees out on public or shared transport — and many are finding pool vehicles more viable.

“Previously, pool vehicles may have been underutilised as workers opted for convenient shared transport options,” the report says. “At SG Fleet, we are seeing pool utilisation increase. Cars aren’t sitting idle, meaning our clients are getting their money’s worth while the workforce stays safer.”

COVID-19 has also led to an increased focus on vehicle hygiene, safety and tracking. Pre-pandemic, SG Fleet noted vehicle tracking did not sit well with everyone who had access to pool vehicles. “Some drivers would refrain from signing an agreement if their manager had visibility into where they went and when,” it says.

“Now, drivers understand it’s imperative their fleet manager knows who is using a pool vehicle and where they have had contact.”

If a driver later tests positive for COVID-19, management cannot be left guessing about what has happened to a vehicle, says SG Fleet. “Contact tracing is now an accepted and essential safety measure.”

Remuneration structures

The return to the use of private vehicles instead of public transport could lead more employees to secure novated leases through their employers and may turn these leases into a must-have benefit within their remuneration structures.

E-commerce explosion

COVID-19 turned in-person shopping into a health risk, driving up online shopping and affecting businesses such as last-mile transport and delivery companies.

According to analysis for Australia Post, e-commerce shopping jumped 80 per cent year-on year in the first two months of the COVID-19 pandemic, when more than 200,000 Australians became first-time online consumers. This helped 23,000 small businesses to venture online for the first time. The AusPost research undertaken by Deloitte found that by 30 November 2020, online shopping had grown more than 45 per cent year-on- year in Australia — which was more than double the previous year’s e-commerce uplift.

According to the SG Fleet report, the swing to e-commerce is likely to settle in as a permanent change in consumer behaviour.

“Some experts estimate this rapid and substantial change in e-commerce consumption habits has accelerated the online retail industry by about four to six years when compared to previous spending projections. But it has not been easy for delivery service providers to leap light-years ahead as well in just a matter of months.”

It adds that businesses are considering fleet expansion as a long-term necessity and delivery service providers are clamouring for small commercial vehicles and panel vans.

Financial strategies

Some businesses are looking at short-term vehicle leases to keep up with current demand without making major financial commitments as they focus on staying afloat. Once markets normalise and it’s easier to forecast resource needs, this will allow organisations to transition back to longer-term solutions.

The SG report says that companies can also consider sale and leaseback agreements that will enable them to raise capital on their existing fleets. “The cost of leasing vehicles is then spread out over time in small monthly payments, and the company gets a substantial amount of money by selling their fleet,” the report notes.