The Impacts of COVID-19 on the Global Economy and in the Procurement Department
In addition to the impact on health, the economic consequences of COVID-19 are being felt in all sectors of the economy – due to the slowdown in business investments and consumer spending, as well as industries shutdowns and bottlenecks in logistics.
This is the scenario covered in this article, offering a special focus on the purchasing department.
The new coronavirus and the impact on the global economy
One of the researches on the impacts of the new coronavirus on the global economy comes from the National University of Australia / Brookings and predicts a drop in GDP in the main global economies in 2020. The report concludes that the damage will be widespread and that policy makers must be willing to invest high to minimize the effects of the pandemic – learn more about the study and the GDP reduction table.
Thus, one of the consequences of the new coronavirus concerns employment. The ILO (International Labor Organization) estimates a reduction that will be between 5.3 million (optimistic forecast) and 25 million jobs worldwide. In addition, the ILO also foresees an increase in underemployment and loss of workers’ income.
Stock exchanges around the world are already accumulating huge declines and, in view of the restrictive monetary conditions, the banking sector is being more cautious in the release of credit. Public finances are not exempt from the new coronavirus crisis and, due to the fall in economic activity, the increase in public debt is considered certain.
The supply chain and the COVID-19
The new coronavirus also impacts supply chains. Many companies had its production interrupted having the supply of services and goods greatly affected.
Those that depend on Chinese products, for instance, suffer even more: currently, more than 20% of the manufactured intermediate goods consumed on the planet are produced in China. Cell phones and other electronics produced in several countries need chips, integrated circuits and other parts produced and marketed in that country, for example.
This dependence even made Bruno Le Maire, Minister of Economy of France, affirm that the COVID-19 pandemic must be seen as the chance to review and change the global supply chain dynamic, so dangerously dependent on Chinese products. He also defends a globalization slow down and the interconnection of the international supply chain.
On the other hand, the supply chain was also impacted by social distance and the panic that led people to the supermarket to generously supply their pantry, requiring from some sectors a significant increase in production and agility in delivery to avoid shortages of provisions- emblematic example is alcohol gel 70 %, one of the most sought products worldwide.
Procurement Department: minimizing impacts of COVID-19
The audit firm KPMG, analyzed the market and released some guidelines on the necessary steps for companies to understand how they are being impacted by the COVID-19.
From these guidelines, we list some tips for the purchasing department to minimize the effects of the new coronavirus on the sector and the organization.
1. Immediate actions
Assess what changes in the organization’s business plans and, more specifically, review purchase planning to ensure that both are aligned.
Another essential step is to assess the risk of suppliers closing or delaying deliveries, identifying how they can affect business and reviewing regional and global flows to see ways to optimize resources.
Map the criticality of the materials used in the production of products that generate greater revenue for the company and review contracts with these suppliers, evaluating the need for new negotiations that meet the new scenario faced by the organization.
Pay special attention to the stock, maintaining the appropriate level of safety, identifying risks that can lead to increased costs and establishing proactive actions to avoid the lack of materials that interrupt production.
2. Medium or long term actions
Learn from the past. Use data from occurrences already faced and that have generated some instability in operations – such as previously overcome economic crises – to make effective decisions, such as: identifying which stock level should be maintained or which supplier profile serves your company with excellence.
Invest in technologies and team training, taking advantage of advanced tools to ensure that all employees are prepared to work remotely. Not only in times of crisis, but through possible needs imposed by the business environment – and without compromising the quality of the services offered.
In the face of COVID-19, purchasing department managers may question the validity of maintaining their operational model based on a large number of suppliers that need to be closely monitored constantly or whether it would be possible to evolve the process into a more practical, agile model that reduce costs and be less vulnerable to unforeseen events like the new coronavirus.
The answer to this question is in the partnership with a company specialized in the purchase of all brands of indirect materials. Soluparts has extensive experience in this regard, having access to the main suppliers worldwide and professionals able to obtain the best prices and terms, even in critical situations such as the one we are going through – get to know our value proposition!
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