As COVID-19 continues to spread across the world, many Australian businesses have felt the dual strain of managing the social and economic potential of where the disease may take the country in the coming months.
Unlike a “traditional” recession, the coronavirus pandemic threatens economies by its impact on not only consumer demand and expenditure, but also on forecast confidence: Like all unprecedented events and natural disasters, it is hard to forecast the full fallout, and when we can expect things to return to a new kind of normal.
Understanding Demand Risk and Supply Chain Shock
As a concept, supply chain shock is not new. Natural disasters like the Eyjafjallajökull eruption in Iceland, caused a 1.7 billion cost to airlines, as ash grounded flights for weeks. The 2009 H121 Swine flu pandemic saw a 0.5 - 1.5% GDP drop to affected countries thanks to the sudden and unexpected changes to supply chains worldwide.
In Australia, we are also seeing the fallout of unmitigated demand risk, or the balance a business must play in order to accomodate for sudden and unexpected increases to demand. A simple trip to the toilet paper aisle at Coles or Woolworths will reveal to you what happens when a retailer is not prepared.
But let's move on from dwelling on the negative, and return to a positive we look to forecast: A return to reliance on Australian-made.
Access to foreign made brings back the local demand
With restrictions occurring across manufacturing hotspots like China, Vietnam and South Asia, importing goods has become equally challenging and costly. Consumer goods behemoth Procter & Gamble have already experienced the pain of COVID-19 related shut downs, with upsets to 387 China based suppliers due to factory shut-downs, seeing 17,600 finished products grind close to a halt. We are already seeing forward thinking businesses reach out to local manufacturers in a bid to protect the rhythm of supply and demand, or to even pivot their own business to focus on more in-demand areas.
The Australian Dollar Drop
With the Australian dollar dropping 15%, foreign manufacturing has become instantly 15% more expensive. Where once demand and availability meant brands were content with expensive shipping costs and fees, thanks to lower overseas manufacturing costs to balance, this may be the case no longer. Instead, businesses may need to look to negotiating with other Australian based businesses to find common ground for novel contracts and agreements while we anticipate incoming challenges and a gradual resolution to the virus crisis.
What does this mean for your business?
If you’ve been given the opportunity to pivot, restructure or refocus your business, taking control of your expenses and overheads may be the next line on your to-do list. Decisive action can be undertaken today to ensure your energy costs are optimised and designed to suit your business needs. Likewise, the recent federal government stimulus package has created a unique and time-sensitive opportunity for businesses looking to invest in solar and remain cash positive from day one. We’ve expanded on the stimulus package here, and what that might mean for your business: Read more
Just as we’re being told as individuals, it is important Australian businesses continue to work together through uncertain times. If you’d like to have a conversation about strategies for lowering your energy bills, reach out to us today on 1300 304 448 for a no obligations conversation. And if you’re worried about toilet paper? Never fear - plenty of your favourite brands are Australian made, and prepared to meet demand.