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“Will the last supplier turn out the lights”

April 14, 2020

The global financial crisis reduced competition by more than 20%. It is reported that the average number of bidders fell from eight before the collapse to six today. Some went out of business; others consolidated. In a few industries, this resulted in a shift of power. In others, buyers remained dominant and continued to drive down prices and margins.

The Covid-19 pandemic is arguably even more disruptive than the financial crisis. Some 90% of businesses are either issuing or receiving notices of Force Majeure. 85% are reviewing their rights of contract termination or delay. The impact on supply chains is unprecedented and has left many scurrying to better understand their current sources of supply and to identify possible alternatives. Almost 60% of businesses are re-evaluating their sourcing strategies and seeking additional or alternative suppliers.  There are signs of growing collaboration between buyers and suppliers and even between competitors to maintain viable business operations.

In some cases, companies have recognized the threat to the viability of their supply chain and are providing support – for example, by early payment or renegotiated terms. But in others, the opposite is happening – delayed payment, demand for discounts, cancellation of orders even for finished products. At a strategic level, some 22% of businesses are considering bringing activities back in-house.

After years of aggressive cost-cutting, many supply chains were already fragile before the pandemic hit us. That fragility will inevitably lead to a further reduction in sources of supply. It will force many buyers to develop new approaches. Some will bring work back in-house, often through M&A activity. Others will engage in increased partnering with their suppliers. Many will seek to diversify sources of supply – but may struggle to do so.

This is a time when ethics are tested and reputations are forged. It is a time when trust and loyalty is built, or destroyed. Some businesses will survive at the expense of others. Some will survive because of others. But when it all ends, we will certainly find that many have disappeared and that the supply landscape – and the relationships within it – look very different from the way they were at the end of 2019.

 

One Comment
  1. pauladoyle permalink

    Hi Tim

    I like this post. Does this incorporate the results of the third round of the Coronavirus spot survey?

    Best regards

    Paula Doyle
    VP & Global Head of Research & Analytics
    Tel:(+44) 07747847226

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