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Be prepared: The Dayco stand at Automechanika Shanghai in December last year. Dayco Australia is currently in a good position with stock, but is working to head off any potential supply bottlenecks down the track.

Risk management expert says coronavirus impact on supply ‘should not be a surprise’

18 Feb 2020

PREPAREDNESS and decisive action to mitigate supply chain disruptions caused by the coronavirus (COVID-19) outbreak – as exhibited by a number of Australian automotive parts manufacturers and suppliers – is to be applauded, according to risk management consultant Alf Esteban.


Mr Esteban, who is managing principal of Sydney-based StratEdge Consulting, told GoAuto the impact of supply chain risk “should not be a surprise to organisations that have taken risk management seriously”.


“While COVID-19 is a new pandemic, the type of risk event is not unknown as we have had SARS (severe acute respiratory syndrome) and MERS (Middle East respiratory syndrome) in the past two decades,” he said.


Among the measures Mr Esteban said businesses should have in place were “leading key risk indicators to detect early signs of pandemic” and to “take actions before the pandemic takes hold and the supply chain risk materialise”.


Mr Esteban agreed that cover ups – as happened in China during initial stages of the coronavirus outbreak – do happen and were “fairly common”.


But he said that “any good risk manager worth their salt would have taken this into account” when early indicators or rumours emerged.


Australian Performance Vehicles (APV) managing director Harry Hickling told GoAuto the Melbourne-based seatbelt and harness specialist was one of the companies that had taken action “early on”.


“We went through and did a risk assessment of our parts,” he said. “We had half a dozen critical parts in China which were potentially going to be impacted by the coronavirus.”


Mr Hickling said APV narrowed down to four at-risk suppliers, two of which were international with operations in various countries, one in Hong Kong and the other in mainland China.


“We implemented dual sourcing outside of ASEAN (Association of Southeast Asian Nations) to mitigate against any supply risk. That’s basically the strategy we’ve adopted.”


Since securing its component sources, APV was contacted by customers further down the supply chain – such as bus and coach manufacturers – that were in the process of assessing and addressing their own risks.


“We’re now seeing in Australia that people have become very much aware of the problem so they’re starting to go across the supply chain and assess the risk, which is what they need to do for sure,” said Mr Hickling.


A number of automotive manufacturers and suppliers surveyed by GoAuto said the coronavirus impact had been cushioned by the usual practice of stockpiling in preparation for reduced supplies during the Christmas and Lunar New Year breaks.


Mr Esteban said this timing had played a part in terms of helping businesses deal with the current outbreak but suggested that “good scenario-based risk assessments” would have taken this into account.


“I do know of organisations that have in place a stockpile of supplies as a mitigation against delays in sourcing the supply – regardless of the cause,” he said, providing the example of remote mine sites that accumulate truck tyres and parts to reduce the impact of unforeseen supply problems.


“Similarly with distribution channels; I have worked with an organisation that mitigated its distribution risk by having a stockpile close to the end customer, mitigating transportation issues,” he added.


A report by industry analyst IHS Markit has warned that if production and logistics disruptions continue beyond this month, it could cause a “China-wide supply chain disruption caused by parts shortages” for the automotive sector.


Mr Hickling and two other manufacturers surveyed by GoAuto agreed that although production in China is resuming, the recovery of supply would likely be slow due to reduced capacity caused by travel restrictions and quarantine periods limiting the number of people who could return to work, compounded by uncertainty over freight and the availability of raw materials.


Unicla International director of global marketing and technical support, Mark Mitchell, told GoAuto the air-conditioning compressor manufacturer was unusual – and fortunate – in resuming work with a stockpile of raw materials.


“Typically in China, most factories really clear the decks before the Lunar New Year festival,” he said. “Generally, all work is finished, all raw materials done so that they come back from the holiday starting with a clean slate.”


Dayco Australia managing director and Asia-Pacific vice-president for aftermarket, Arnold Mouw, told GoAuto the company had sufficient inventory to last “probably out until March-April”.


Mr Hickling said APV was also sitting on around four months’ worth of stock and Bapcor chief operating officer Jeff Nicol said the auto aftermarket giant had “quite a healthy inventory position”.


Both Dayco and Bapcor are working on strategies to overcome potential supply bottlenecks in case disruption caused by the coronavirus outbreak drag on.


Mr Esteban said he applauded “those organisations that have a robust risk management framework in place that includes business impact analysis and remediation for supply chain risks”.


“Organisations that have good risk management in place are the ones that are resilient in situations such as COVID-19.”

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