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Moving Past COVID-19: Risk Mitigation Strategies to Drive Supply Chain Resilience

risk mitigation strategies

Moving Past COVID-19: Risk Mitigation Strategies to Drive Supply Chain Resilience

As the world begins to ease movement restrictions imposed during the COVID-19 pandemic, companies are wondering where they go from here and how they can reduce risks moving forward.

These questions are especially relevant to supply chains, as the pandemic disrupted trade flows across borders, from raw materials to finished products. The initial decline in production in China rippled across the world, as the country sits at the heart of many global manufacturing networks. As the virus spread west, more nations instituted lockdowns to protect public health, leading to an increase in factory closures and a sudden drop in consumer demand.

The shock to the global economy was breathtaking in both scope and speed. The search for efficiencies within disrupted supply chains is now driving organizations to look at the lessons that can be learned, in order to better manage and mitigate risk of disruption from future events.

Before you develop risk mitigation strategies, you have to first understand how your suppliers were affected by the pandemic. Are they considered essential? Did they have trouble sourcing raw materials or run low on critical inventory? Did they suffer a shortage of labor due to workers falling sick? Did they face transportation issues?

Once these questions have been answered, then you can start developing and implementing risk mitigation strategies: from immediate actions to enhance supply chain resilience and reduce future supply bottlenecks, to longer-term strategies that require a greater investment of time and resources.

Short- to Medium-Term Strategies

1. Develop a supply chain risk monitoring program

If not already in place, companies should integrate risk management into their supply chain, sourcing strategies and ongoing category management processes. A comprehensive risk monitoring framework should capture the following key elements:

-Understanding the critical risk-prone categories and level of risk across the supply chain

-Regular monitoring of different risk types across suppliers – going beyond just financial indicators, to cover operational, compliance, strategic and geographic risks

-Scenario and contingency planning for unforeseen situations

2. Identity alternative logistics partners for future contingencies

Companies trying to recover from economic lockdowns will face hurdles in shipping markets roiled by deep capacity cuts and weeks of disruption. Airfreight could be constrained for months as airlines continue to operate reduced schedules. Identify and qualify alternative logistics providers to mitigate service failures by an existing partner.

3. Shift supplier base to other low-cost countries

The drop in exports from China in the first quarter led to a significant increase in sourcing from other countries for many product categories. American and European manufacturers started sourcing raw materials and goods from low-cost countries such as India, Vietnam, Bangladesh and Turkey. A diversified geographical sourcing strategy is an effective way to ensure supply chain continuity. Larger companies are leading the charge in this respect: Apple, for example, recently pledged to invest more in Vietnam.

4. Adequate focus on ensuring compliance with new regulatory norms

Companies need to assess new regulations put in place by regulatory bodies across the globe, and identify those that impact their supply chains, manufacturing processes or end products. Dedicating time and resources to reviewing and adapting existing procedures will be critical to ensure compliance with the latest requirements.

Long-Term Strategies

1. Implement a Direct-to-Consumer (DTC) model for uninterrupted supply

COVID-19 has affected many e-commerce businesses as well as how consumers shop. Brands need to be agile and able to move at speed to find and meet demand. Many B2C businesses (and their partners) are pivoting to a direct-to-consumer model because it helps strengthen brand loyalty and increase consumer confidence in terms of certainty and guaranteed supply of goods and products.

2. Develop alternative supply chains

Developing new supply chains in collaboration with respective governments can ensure faster delivery of key raw materials. Further, to avoid supply chain disruptions arising from factory shutdowns in the future, companies can develop a manufacturing network strategy that leverages government economic development programs that encourage domestic production.

3. Consider supply chain digitalization supported by automation

The coronavirus crisis may be a tipping point in the transition to digital platforms and applications that help establish an interconnected network of supply chain components. In a digital supply chain, every activity is able to interact with one another, allowing for greater connectivity between areas that previously did not exist.

Investment in technologies such as artificial intelligence, machine learning and Internet of Things can help companies gain real-time visibility, better manage inventories, improve logistics tracking and make better-informed decisions. These alternatives to often error-prone ERP systems and manual spreadsheets can help businesses predict disruptions and design actionable mitigation strategies.

4. Adopt robust demand planning practices

Traditional planning tries to match demand with supply for the next 30 days. The problem with this process is that a lot of things can change in a month, or even a week. Today’s fast-moving markets require more forward-looking planning to correctly determine demand for future production and identify potential material and manufacturing capacity shortages. Companies should also invest in strengthening their online presence, and focus on quality assurance and delivery timelines, as more and more customers become reliant on e-commerce channels.

Outlook for the future

The COVID-19 pandemic has had significant effects on international supply chains. Going forward, the crisis is likely to give further impetus to trends already underway. More companies are seeking to leverage their production plants outside China or are planning to build production in new locations. The shift to online shopping will accelerate, putting more pressure on companies to meet expectations in an on-demand economy.

When planning ahead, timely, relevant market intelligence is fundamental to making complex decisions and embedding long-term strategies.

Access to timely, relevant market intelligence, conducting the right analysis and asking the right questions now, will provide the opportunity to build a robust, agile procurement strategy that minimizes risk and safeguards business continuity, without sacrificing profitability.

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Tavleen Kaur and P Vijay are Research Managers at The Smart Cube

palm oil market

Africa’s Palm Oil Market – Foreign Suppliers Benefit From Resilient Market Growth

IndexBox has just published a new report: ‘Africa – Palm Oil – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The palm oil market size in Africa is estimated at $8.2B in 2018, an increase of 3.7% against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price).

The total market indicated a resilient expansion from 2007 to 2018: its value increased at an average annual rate of +4.6% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, palm oil consumption increased by +9.3% against 2016 indices. The most prominent rate of growth was recorded in 2011 when the market value increased by 24% year-to-year. Over the period under review, the palm oil market attained its peak figure level at $9.9B in 2014; however, from 2015 to 2018, consumption stood at a somewhat lower figure.

Consumption By Country in Africa

The countries with the highest volumes of palm oil consumption in 2018 were Nigeria (1.2M tonnes), Egypt (959K tonnes) and Kenya (705K tonnes), with a combined 31% share of total consumption. These countries were followed by Tanzania, Ghana, South Africa, Democratic Republic of the Congo, Djibouti, Mozambique, Uganda, Togo and Cameroon, which together accounted for a further 42%.

From 2007 to 2018, the most notable rate of growth in terms of palm oil consumption, amongst the main consuming countries, was attained by Djibouti, while the other leaders experienced more modest paces of growth.

In value terms, the largest palm oil markets in Africa were Nigeria ($861M), Egypt ($626M) and Tanzania ($559M), with a combined 25% share of the total market. Kenya, Cameroon, Ghana, Djibouti, South Africa, Togo, Uganda, Mozambique and Democratic Republic of the Congo lagged somewhat behind, together accounting for a further 37%.

In 2018, the highest levels of palm oil per capita consumption was registered in Djibouti (431 kg per person), followed by Togo (40 kg per person), Ghana (18 kg per person) and Kenya (14 kg per person), while the world average per capita consumption of palm oil was estimated at 7.09 kg per person.

From 2007 to 2018, the average annual growth rate of the palm oil per capita consumption in Djibouti stood at +17.6%. The remaining consuming countries recorded the following average annual rates of per capita consumption growth: Togo (+6.9% per year) and Ghana (+3.6% per year).

Market Forecast 2019-2025 in Africa

Driven by increasing demand for palm oil in Africa, the market is expected to continue an upward consumption trend over the next seven-year period. Market performance is forecast to retain its current trend pattern, expanding with an anticipated CAGR of +3.9% for the seven-year period from 2018 to 2025, which is projected to bring the market volume to 12M tonnes by the end of 2025.

Production in Africa

The palm oil production amounted to 2.4M tonnes in 2018, approximately equating the previous year. Overall, palm oil production, however, continues to indicate a relatively flat trend pattern. The pace of growth appeared the most rapid in 2011 when production volume increased by 3.7% y-o-y. The volume of palm oil production peaked at 2.5M tonnes in 2008; however, from 2009 to 2018, production remained at a lower figure.

In value terms, palm oil production stood at $2.1B in 2018 estimated in export prices. Over the period under review, palm oil production, however, continues to indicate a relatively flat trend pattern. The pace of growth appeared the most rapid in 2011 when production volume increased by 9.7% year-to-year. In that year, palm oil production reached its peak level of $2.8B. From 2012 to 2018, palm oil production growth remained at a lower figure.

Production By Country in Africa

The countries with the highest volumes of palm oil production in 2018 were Nigeria (739K tonnes), Cote d’Ivoire (426K tonnes) and Democratic Republic of the Congo (410K tonnes), together accounting for 65% of total production.

From 2007 to 2018, the most notable rate of growth in terms of palm oil production, amongst the main producing countries, was attained by Democratic Republic of the Congo, while the other leaders experienced more modest paces of growth.

Exports in Africa

In 2018, approx. 462K tonnes of palm oil were exported in Africa; picking up by 7.6% against the previous year. Over the period under review, palm oil exports continue to indicate a prominent expansion. The growth pace was the most rapid in 2014 with an increase of 39% against the previous year. Over the period under review, palm oil exports attained their maximum in 2018 and are likely to see steady growth in the immediate term.

In value terms, palm oil exports totaled $355M (IndexBox estimates) in 2018. The total exports indicated a strong expansion from 2007 to 2018: its value increased at an average annual rate of +6.0% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, palm oil exports increased by +29.9% against 2016 indices. The most prominent rate of growth was recorded in 2014 with an increase of 33% y-o-y. Over the period under review, palm oil exports attained their peak figure in 2018 and are expected to retain its growth in the near future.

Exports by Country

In 2018, Cote d’Ivoire (200K tonnes) was the major exporter of palm oil, making up 43% of total exports. It was distantly followed by Ghana (80K tonnes), Kenya (59K tonnes) and Seychelles (45K tonnes), together creating a 40% share of total exports. South Africa (15K tonnes), Senegal (13K tonnes), Togo (9.5K tonnes) and Liberia (8.9K tonnes) followed a long way behind the leaders.

Exports from Cote d’Ivoire increased at an average annual rate of +7.6% from 2007 to 2018. At the same time, Liberia (+31.6%), Ghana (+23.8%), Senegal (+21.7%), Seychelles (+19.8%), Togo (+13.3%), Kenya (+4.9%) and South Africa (+4.2%) displayed positive paces of growth. Moreover, Liberia emerged as the fastest-growing exporter in Africa, with a CAGR of +31.6% from 2007-2018. While the share of Cote d’Ivoire (+24 p.p.), Ghana (+16 p.p.), Seychelles (+8.3 p.p.), Kenya (+5.2 p.p.), Senegal (+2.4 p.p.), Liberia (+1.8 p.p.) and Togo (+1.5 p.p.) increased significantly, the shares of the other countries remained relatively stable throughout the analyzed period.

In value terms, the largest palm oil markets in Africa were Cote d’Ivoire ($133M), Ghana ($73M) and Kenya ($46M), together accounting for 71% of total exports. Seychelles, South Africa, Senegal, Togo and Liberia lagged somewhat behind, together comprising a further 22%.

Among the main exporting countries, Liberia recorded the highest rates of growth with regard to exports, over the last eleven-year period, while the other leaders experienced more modest paces of growth.

Export Prices by Country

In 2018, the palm oil export price in Africa amounted to $769 per tonne, jumping by 2.1% against the previous year. Overall, the palm oil export price, however, continues to indicate a slight contraction. The growth pace was the most rapid in 2008 when the export price increased by 20% year-to-year. Over the period under review, the export prices for palm oil attained their peak figure at $1,084 per tonne in 2012; however, from 2013 to 2018, export prices failed to regain their momentum.

Prices varied noticeably by the country of origin; the country with the highest price was South Africa ($1,021 per tonne), while Cote d’Ivoire ($665 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by South Africa, while the other leaders experienced more modest paces of growth.

Imports in Africa

In 2018, the palm oil imports in Africa stood at 7.1M tonnes, surging by 5.1% against the previous year. Over the period under review, palm oil imports continue to indicate a remarkable expansion. The most prominent rate of growth was recorded in 2014 with an increase of 21% against the previous year. The volume of imports peaked in 2018 and are likely to see steady growth in the near future.

In value terms, palm oil imports totaled $4.8B (IndexBox estimates) in 2018. The total imports indicated a buoyant expansion from 2007 to 2018: its value increased at an average annual rate of +7.2% over the last eleven-year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, palm oil imports increased by +7.9% against 2016 indices. The most prominent rate of growth was recorded in 2011 when imports increased by 33% against the previous year. Over the period under review, palm oil imports attained their maximum at $5.8B in 2014; however, from 2015 to 2018, imports stood at a somewhat lower figure.

Imports by Country

Egypt (968K tonnes), Kenya (764K tonnes), Tanzania (648K tonnes), Ghana (481K tonnes), South Africa (473K tonnes), Nigeria (425K tonnes), Djibouti (419K tonnes), Uganda (343K tonnes), Mozambique (342K tonnes) and Togo (320K tonnes) represented roughly 73% of total imports of palm oil in 2018. Algeria (198K tonnes) and Angola (178K tonnes) held a relatively small share of total imports.

From 2007 to 2018, the most notable rate of growth in terms of imports, amongst the main importing countries, was attained by Nigeria, while the other leaders experienced more modest paces of growth.

In value terms, the largest palm oil importing markets in Africa were Egypt ($592M), Kenya ($505M) and Tanzania ($455M), together comprising 32% of total imports. Ghana, Djibouti, South Africa, Nigeria, Uganda, Mozambique, Togo, Angola and Algeria lagged somewhat behind, together accounting for a further 45%.

Nigeria experienced the highest rates of growth with regard to imports, in terms of the main importing countries over the last eleven years, while the other leaders experienced more modest paces of growth.

Import Prices by Country

In 2018, the palm oil import price in Africa amounted to $673 per tonne, declining by -10.5% against the previous year. In general, the palm oil import price continues to indicate a mild decrease. The pace of growth appeared the most rapid in 2008 an increase of 29% y-o-y. The level of import price peaked at $1,038 per tonne in 2011; however, from 2012 to 2018, import prices stood at a somewhat lower figure.

Average prices varied somewhat amongst the major importing countries. In 2018, major importing countries recorded the following prices: in Angola ($806 per tonne) and Djibouti ($746 per tonne), while Egypt ($611 per tonne) and South Africa ($627 per tonne) were amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by Mozambique, while the other leaders experienced a decline in the import price figures.

Source: IndexBox AI Platform