Much of the press is in an introspective mode this week, attempting to assess what is happening to the global economy and what is likely to follow. For example, Bloomberg says that when the timeline of the pandemic of 2020 is complete, March 24 will stand out as a day to remember.
On that day CEO of Coca-Cola Co. described the supply chain as “creaking around the world,” James Quincey said, clearly worried about the need to adjust.
Now, a month later, many supply chain continue to face pressures and some shifts are worsening, particularly in the pipelines for fresh food and medical goods. But Quincey said his plant shutdowns were confined to “just a couple of places” and he even congratulated employees for keeping “everything” running.
A “great strength” during the disruptions, he said on April 21, has been local production of Coke’s soft drinks and juices -- we’ve had some issues on timing of ingredients but even those are much better than they were a few weeks ago, he said.”
Quincy noted that the same can’t be said of American meatpacking companies that have closed processing plants to contain outbreaks among their workers, or auto companies with supplier networks sprawling from southeast Asia to eastern Europe that are at least another week away from restarting assembly lines. Industrial giants like Alcoa Corp. have to reckon with weak global demand for several more months or perhaps longer.
The article notes that Unilever, with more than 200 factories around the world, has been running at about 85% capacity, reflecting “heroic work by people on the front lines of our supply chain, adjusting to new patterns of demand and securing new supply routes for ingredients,” Chief Executive Officer Alan Jope told Bloomberg.
Like many companies, the Anglo-Dutch maker of Lipton tea, Breyers ice cream and Dove soap has been trying to ensure it has enough workers who face both government restrictions on travel and time off needed when the virus strikes them. When Northern Italy shut down, the company got approval within hours to keep producing a line of food products in the region. In India, a similar request took four to five days. When an outbreak hit a facility in the Middle East where many workers live in dorms, Unilever booked hotel rooms so those who tested positive could stay isolated and the others could go to work, according to Jope.
“Most of our supply chain is local, it’s very flexible, and generally speaking the vast majority of the products we sell in a country we supply in that country,” Unilever Chief Financial Officer Graeme Pitkethly said on a conference call with reporters on Thursday.
For Danone, the French food processing company, flexibility became one of its biggest challenges in adjusting to “significant changes in consumers’ buying behaviors, with unprecedented swings in weekly demand accentuated by stocking patterns in the first weeks, the shift from out-of-home to at-home food consumption, as well as shifting preferences to larger pack sizes."
The tech industry continues to wrestle with uncertainty around the pandemic, Bloomberg says. This month, Broadcom Inc. warned customers they’ll need to place orders for parts at least six months ahead of time, a surprisingly long lead time that points to wider than anticipated disruptions to the global supply chain.
Taiwan Semiconductor Manufacturing Co., supplier of advanced silicon to most every major name from Apple Inc. to Huawei Technologies Co. and Qualcomm Inc., acknowledged the potential for supply-chain disruption in its annual report released April 21. CFO Wendell Huang however stressed that deft adjustments could mitigate the fallout. Signaling confidence in a gradual recovery, TSMC is setting aside $16 billion for technology upgrades and capacity this year.
“We did not see any disruption from the material supply or any supply-chain activity that has been in disruption mode. Although I did say that because of shelter-in-home that some of the tool delivery has been delayed from two weeks to about one month,” investor relations chief Jeff Su told reporters on a post-earnings conference call. “We continue to work with tool vendors and minimize the impact on the capacity building. So for the whole year, we don’t expect it to have a big impact.”
For companies in the U.S. and Europe, ultimately what may happen is a broad reassessment about whether key supplies ought to be manufactured closer to home, even at higher cost for smaller markets.
“For the first time we're seeing not just one or two countries closing down, we have three countries closing down,” said David Farr, CEO of Emerson Electric Co., which supplies automation equipment to the oil and gas industries and produces consumer goods, such as garbage disposals and shop vacuums. “So what we're going to have to do here is evaluate this from an economic standpoint and enterprise-risk standpoint.”
So, we will see. It is clear that global supply chains will need to change and likely will increase production costs. How much the competitive position of many now competitive firms shifts and where the impacts turn out to be are changes that should be watched closely as the global landscape adjusts—changes likely to affect the overall patterns of trade, Washington Insider believes.
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