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Covid-19, supply chain disruptions and beyond. By Tze Hsien Lim The Edge Malaysia Weekly on July 13, 2020 - July 19, 2020 Covid-19 has disrupted the world in an unprecedented manner. At the beginning of the year, the novel coronavirus, as it was then called, was indeed novel, and perceived by many to be a largely localised outbreak. As the virus spread rapidly around the globe, and governments took drastic action to curb its effects, the social, economic and public health ramifications made themselves almost immediately obvious and businesses found themselves faced with difficult choices. Closer to home, the combined effects of the multiple Movement Control Orders (MCOs) and overall decline in global manufacturing and trade saw the steepest drop in Malaysian exports in a decade, as April figures show a drop of 23.8% from the same period last year. Likewise, imports recorded a contraction, falling 8% year on year, according to the Ministry of International Trade and Industry. The economic impact is a lingering pain that is likely to be felt by businesses big and small for at least the next 12 months. We are seeing signs of optimism, however, with some countries both regionally and globally cautiously starting to "reopen", and with Malaysia in particular in its Recovery MCO phase. Furthermore, the government's June announcement of its RM35 billion economic stimulus package, the Pelan Jana Semula Ekonomi Negara (Penjana), should help support the economy and keep businesses afloat during these trying times. As businesses deal with the near-term challenges, they need to also take the long view to prepare for the post-Covid-19 world. There is no telling what shape the next black swan will take when it arrives, but drawing lessons from the current crisis, businesses need to be able to adequately address the four biggest logistics challenges defining the landscape today: the closure of retail shops as a result of recent lockdowns, reduced air freight capacity and changes to specific air trade lanes, shifts in e- commerce fulfilment and production shifting offshore. First, the closure of retail shops amid lockdowns and quarantines around the world: Once a nagging call for brick-and-mortar establishments to take steps towards "click-and-mortar" hybrid sales, this model has now become a deafening roar. From department store chains to the neighbourhood sundry shop, business owners need to accelerate their pivot to digital channels to keep revenue streams flowing in the face of restrictions imposed by governments around the world. To be able to effectively operate and ship on e-commerce channels means ensuring that businesses have the right tools to support their consumers, allowing for greater visibility, flexibility and automation. Second, working around reduced air freight capacity: At the global onset of the pandemic, border closures and restrictions on domestic travel forced passenger airlines to ground their fleets, significantly reducing common carriage air freight capacity - up to half of all air freight previously travelled in the cargo holds of passenger airlines. However, the demand for air cargo space remains for various reasons, including increased demand for cross-border e-commerce, the restart of China's industries and perhaps more so now, the flow of critical goods and services, including healthcare shipments. As we see restrictions eased and some airlines reopening albeit at a reduced capacity logistics will most likely continue to be a highly dynamic environment to operate in, so it is crucial for shippers to develop agile responses to market fluctuations. To keep the goods moving, shippers need to be flexible on transit times and open to different transportation modes, cost models or even the size and quantity of their shipments. Third, shifts in e-commerce fulfilment: Companies with an established online sales presence have not been spared from the coronavirus onslaught either. Lockdowns and restrictions on non- essential businesses may have slowed manufacturing lines or stopped them altogether, or ready manufactured products may be sitting in distribution centres waiting to be shipped. It may also be that suppliers are located in affected areas where a shortage of materials and products make maintaining a certain level of inventory more costly. Shippers need to look at solutions that streamline processes or provide cost-effective alternatives to maintain a sense of normalcy as far as commercial transactions are concerned at this time. Fourth, the possibility of moving production offshore as a key component of business contingency planning: One quick fix for many businesses facing supply chain challenges has been to move available inventory away from affected areas, so that these products can be easily accessed for shipping. Moreover, businesses should also look into Tier-2 and Tier-3 suppliers, securing supplies and available assembly capacity as back-up in the event that their main production areas are affected by quarantines and lockdowns. Measures such as supply chain mapping enable businesses to identify these important plan B and C options that they could take now and in the longer term. Hindsight will (aptly) be 2020, but more than ever, businesses will need to focus on supply chain resilience in the post-coronavirus world, starting with improving supply chain visibility and identifying new risks and costs. Supply chains will still factor in traditional metrics such as cost, quality and timeliness, but the lessons we learn today tell us that responsiveness and reconfigurability deserve more attention. This means conducting supply chain risk assessments, identifying where disruptions are likely to occur, anticipating how governments would react and prioritising critical focus areas. A diversified supplier network must also be established, with businesses identifying alternative suppliers to be activated at the drop of a hat should disruptions occur. Automated and digital processes should also be put in place, enabling greater visibility, collaboration and optimisation. Preparing for the next big event with such extreme consequences requires businesses to take the contrarian view and see beyond business-as-usual scenarios. The true visionaries will be those prepared to adjust to disruptive events with speed and agility, collaborating with trusted partners that will provide them with the network, capacity and solutions in times of uncertainty and volatility. As Malaysian businesses cautiously ease back into the swing of things and look towards recovery, we should be prepared for the possibility that the business landscape will not take the same shape as before. Malaysian businesses that try their best to be as flexible and resilient as possible as circumstances continue to change will surely reap the rewards of their actions in the post- coronavirus world. Doing some of the heavy lifting now in terms of rethinking operations will be what ultimately builds strength for businesses in the future. Questions 1. Based on the logistics challenges as mentioned in the article, explain FOUR (4) sourcing strategies that can be practiced in Malaysian context to increase the supply chain value. (12 Marks) 2. Discuss FOUR (4) importance of location decision for Malaysian businesses to remain sustainable following the Covid-19 crisis. (8 Marks) [Total: 20 Marks] Covid-19, supply chain disruptions and beyond. By Tze Hsien Lim The Edge Malaysia Weekly on July 13, 2020 - July 19, 2020 Covid-19 has disrupted the world in an unprecedented manner. At the beginning of the year, the novel coronavirus, as it was then called, was indeed novel, and perceived by many to be a largely localised outbreak. As the virus spread rapidly around the globe, and governments took drastic action to curb its effects, the social, economic and public health ramifications made themselves almost immediately obvious and businesses found themselves faced with difficult choices. Closer to home, the combined effects of the multiple Movement Control Orders (MCOs) and overall decline in global manufacturing and trade saw the steepest drop in Malaysian exports in a decade, as April figures show a drop of 23.8% from the same period last year. Likewise, imports recorded a contraction, falling 8% year on year, according to the Ministry of International Trade and Industry. The economic impact is a lingering pain that is likely to be felt by businesses big and small for at least the next 12 months. We are seeing signs of optimism, however, with some countries both regionally and globally cautiously starting to "reopen", and with Malaysia in particular in its Recovery MCO phase. Furthermore, the government's June announcement of its RM35 billion economic stimulus package, the Pelan Jana Semula Ekonomi Negara (Penjana), should help support the economy and keep businesses afloat during these trying times. As businesses deal with the near-term challenges, they need to also take the long view to prepare for the post-Covid-19 world. There is no telling what shape the next black swan will take when it arrives, but drawing lessons from the current crisis, businesses need to be able to adequately address the four biggest logistics challenges defining the landscape today: the closure of retail shops as a result of recent lockdowns, reduced air freight capacity and changes to specific air trade lanes, shifts in e- commerce fulfilment and production shifting offshore. First, the closure of retail shops amid lockdowns and quarantines around the world: Once a nagging call for brick-and-mortar establishments to take steps towards "click-and-mortar" hybrid sales, this model has now become a deafening roar. From department store chains to the neighbourhood sundry shop, business owners need to accelerate their pivot to digital channels to keep revenue streams flowing in the face of restrictions imposed by governments around the world. To be able to effectively operate and ship on e-commerce channels means ensuring that businesses have the right tools to support their consumers, allowing for greater visibility, flexibility and automation. Second, working around reduced air freight capacity: At the global onset of the pandemic, border closures and restrictions on domestic travel forced passenger airlines to ground their fleets, significantly reducing common carriage air freight capacity - up to half of all air freight previously travelled in the cargo holds of passenger airlines. However, the demand for air cargo space remains for various reasons, including increased demand for cross-border e-commerce, the restart of China's industries and perhaps more so now, the flow of critical goods and services, including healthcare shipments. As we see restrictions eased and some airlines reopening albeit at a reduced capacity logistics will most likely continue to be a highly dynamic environment to operate in, so it is crucial for shippers to develop agile responses to market fluctuations. To keep the goods moving, shippers need to be flexible on transit times and open to different transportation modes, cost models or even the size and quantity of their shipments. Third, shifts in e-commerce fulfilment: Companies with an established online sales presence have not been spared from the coronavirus onslaught either. Lockdowns and restrictions on non- essential businesses may have slowed manufacturing lines or stopped them altogether, or ready manufactured products may be sitting in distribution centres waiting to be shipped. It may also be that suppliers are located in affected areas where a shortage of materials and products make maintaining a certain level of inventory more costly. Shippers need to look at solutions that streamline processes or provide cost-effective alternatives to maintain a sense of normalcy as far as commercial transactions are concerned at this time. Fourth, the possibility of moving production offshore as a key component of business contingency planning: One quick fix for many businesses facing supply chain challenges has been to move available inventory away from affected areas, so that these products can be easily accessed for shipping. Moreover, businesses should also look into Tier-2 and Tier-3 suppliers, securing supplies and available assembly capacity as back-up in the event that their main production areas are affected by quarantines and lockdowns. Measures such as supply chain mapping enable businesses to identify these important plan B and C options that they could take now and in the longer term. Hindsight will (aptly) be 2020, but more than ever, businesses will need to focus on supply chain resilience in the post-coronavirus world, starting with improving supply chain visibility and identifying new risks and costs. Supply chains will still factor in traditional metrics such as cost, quality and timeliness, but the lessons we learn today tell us that responsiveness and reconfigurability deserve more attention. This means conducting supply chain risk assessments, identifying where disruptions are likely to occur, anticipating how governments would react and prioritising critical focus areas. A diversified supplier network must also be established, with businesses identifying alternative suppliers to be activated at the drop of a hat should disruptions occur. Automated and digital processes should also be put in place, enabling greater visibility, collaboration and optimisation. Preparing for the next big event with such extreme consequences requires businesses to take the contrarian view and see beyond business-as-usual scenarios. The true visionaries will be those prepared to adjust to disruptive events with speed and agility, collaborating with trusted partners that will provide them with the network, capacity and solutions in times of uncertainty and volatility. As Malaysian businesses cautiously ease back into the swing of things and look towards recovery, we should be prepared for the possibility that the business landscape will not take the same shape as before. Malaysian businesses that try their best to be as flexible and resilient as possible as circumstances continue to change will surely reap the rewards of their actions in the post- coronavirus world. Doing some of the heavy lifting now in terms of rethinking operations will be what ultimately builds strength for businesses in the future. Questions 1. Based on the logistics challenges as mentioned in the article, explain FOUR (4) sourcing strategies that can be practiced in Malaysian context to increase the supply chain value. (12 Marks) 2. Discuss FOUR (4) importance of location decision for Malaysian businesses to remain sustainable following the Covid-19 crisis. (8 Marks) [Total: 20 Marks]