The first four months of 2020 were marked by an economic impact that demanded global changes across many sectors and areas due to the Covid-19 pandemic. The fragility of public and private healthcare systems worldwide was exposed, and its correlation with the economy highlighted the strength and need for investment in the health sciences field as a whole.
In the supply chain, the pandemic's most significant impacts during the first four months of the year occurred, according to Alexandre Menezio, founder and Chief Procurement Officer of Aliança SCA, in the fertilizer and agrochemical segments. “I consider this primarily because during this period there was great uncertainty regarding the continuity of the supply of inputs, given that a significant portion of the products is imported, and there could be disruptions in port operations; in addition to the fact that China is a very important source of supply.”
The scenario of doubt and uncertainty accelerated negotiations for longer-term contracts and also forced several companies in the agro-industrial segment (sugar-energy) to build up inventory to protect themselves against delivery disruptions. Furthermore, there was a significant impact on product prices, given the volatility in oil prices and exchange rates.
Menezio analyzes that some segments weathered the pandemic unscathed, such as the fuel sector, which, despite volatility in oil prices, managed to maintain logistical efficiency while facing a sharp drop in demand, thus balancing the sector's economics. Other segments, such as tires, experienced temporary supply interruptions, but have already resumed deliveries.
What the pandemic scenario changed in the supply chain
According to the Chief Procurement Officer of Aliança SCA, the scenario demanded closer proximity to suppliers and increased discussions about manufacturers' capacity to sustain supply and, in a subsequent move, reduce reliance on China as the primary supplying country.
Regarding cash flow, also according to Alexandre Menezio, discussions expanded to include the possibility of extending payment terms and, in specific cases, conducting barter transactions¹.
From an operational and administrative perspective, changes were necessary to adapt to the new scenario and face an unprecedented crisis. “Operational, industrial, and agricultural areas quickly adapted to distancing requirements and the provision of necessary resources to protect workers, such as access to masks and hand sanitizer, etc. Workers in high-risk groups were promptly identified and placed on leave, without loss of salary, and a massive communication and education effort became part of the daily routine for managers and occupational health and safety teams.” – commented Alexandre.
In addition, administrative areas transitioned to remote work, and many technology leaders were able to prioritize investments in communications, allowing the transition to happen almost instantly.
What are managers doing to handle the uncertainties presented by this scenario?
Uncertainty has driven the approval of larger purchase volumes, resulting in inventory levels higher than normal and impacting manufacturing costs.
As a way to bring greater predictability to pricing, market intelligence departments should be strengthened, as well as efforts in supplier management and corporate access. There is also an ongoing effort to negotiate contracts with parameterized pricing for imported products, in order to capture price reductions in Reais.
Actions and measures for the post-pandemic era
Looking ahead to the post-pandemic period, it is quite reasonable to believe that actions and measures will remain in place to mitigate future risks, including corporate adaptation to remote work for administrative teams, as it reduces leasing and commuting costs and consequently allows resources to be allocated toward investments in other areas.
Another measure is reducing the number of in-person meetings, event participation, and corporate travel.
Over time, companies tend to observe an increase in efficiency and productivity among administrative workers, provided they are able to sustain innovation, monitor relevant key performance indicators, maintain corporate culture practices, and continue training, developing, and evaluating people.
Risk analysis linked to proper management and supplier mapping has proven essential; thus, market intelligence and supplier management departments once again play a key role in identifying those capable of maintaining business continuity even during times of crisis. “Suppliers that demonstrate they have developed more robust and mature supply chains will be identified and prioritized in relationships and contract renewals. There should also be a shift toward consolidating larger deals among fewer suppliers who are more efficient, reliable, and financially sound.” – concludes the founder of Aliança SCA.
(1) barter: the term Barter means “exchange” and involves trade-offs to improve commercial relationships between companies. In the context of agribusiness, Barter refers to paying for inputs with harvested grains or final products, such as sugar and ethanol. It is a financial mechanism that allows growers to access inputs without impacting cash flow, becoming an opportune tool in low-liquidity environments.
