Contract performance and supply chains: coronavirus impact

Published: 03 Mar 2020 Average Rating: unrated Print

Author: Tim Cummins

The last few weeks have seen a lot written about the impacts of coronavirus on supply chains. The fear of supply shortages and consequent disruption to production underlies many of the predictions of a global economic slowdown. How worried should we be?

A black swan?

Among the opinion leaders, a few have challenged whether the latest health emergency represents a 'black swan' event or, in the words of one, is it 'a lame duck'? They argue that industry learned from past crises and made extensive investments in developing supply chain resilience. This, they say, will limit the impact.

Are they right? IACCM conducts regular research among its members and has gathered extensive data that helps us better understand current events. First, a report released in February shows that insight to the ultimate sources of supply remains highly variable and in most cases quite limited. These findings suggest that many organizations simply don't know the precise scale or nature of potential shortages and many are scrambling to find out.

A second study, conducted over the last few days and with results due this week, shows that the impact to date is actually quite limited. While there is again variability by industry, very few are at this stage indicating severe shortages, though many are taking or exploring defensive actions. In part, these are driven by the recognition that their insight to extended supply chains is currently too restricted and that this represents an unacceptable level of risk.

The situation could, of course, become far worse and not necessarily due to production issues. For example, one industry reporting above-average impact is transport and logistics.

So what's the truth?

The massive sell-off in global stock markets appears to be more driven by uncertainty than by hard data. It may also be that coronavirus is Simply the trigger for a more fundamental reassessment of current trading patterns and relationships. The IACCM survey results suggest that a significant proportion of businesses are evaluating their current supply sources and considering future alternatives. The risk off-sets and core economics of the last 25 years may have changed. Hence the real impact of coronavirus could be a fundamental refocusing and realignment of supply chains.

So what should we do?

The results of IACCM research and their implications for contracts and trading relationships will be discussed in a webinar on Friday, March 6th and subsequently in a series of virtual roundtables. Visit www.iaccm.com/events for details and to register.


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