The impacts of COVID-19 on suppliers and how businesses are responding

New Sedex data reveals the impacts of COVID-19 on suppliers in 2020. A complex picture of many risks and challenges emerges, highlighting how suppliers are adapting to cope and the importance of continued support from buyers.

Our new report explores how the impacts of the global pandemic differ from the initial concerns reported by suppliers in April 2020, and how they are adapting in response.

Based on Sedex’s COVID-19 Self-Assessment Questionnaire (SAQ) data, responses from over 1,000 supplier businesses across 2020 help us understand the impacts of the global pandemic to date. These suppliers are primarily from four sectors – Agriculture, Food and Drink Manufacturing, Garment Manufacturing, Packaging – and together employ nearly 600,000 workers in the supply chain.

Key report insights

  • Not all suppliers have been as badly affected as they expected
  • Suppliers are adapting their product mixes and sales models, with 20% diversifying their products
  • The Garment Manufacturing industry is most severely affected, with 86% of the sector experiencing a downturn
  • Financial support for workers is of mixed availability and uptake, and certain groups, such as women, casual workers and migrants, are more vulnerable to severe drops in income
  • An increased proportion of suppliers report customers being supportive.

 

Read the full report

 

Not all suppliers have been as badly affected as they expected.

Early data in April 2020 revealed fears across all sectors that the pandemic would cause decreases in business revenue. Responses indicates a more complex picture across industries, from order increases and decreases, to concerns around both workforce shortages and surplus.

Fewer companies than expected experienced decreased orders, and some in Food and Drink Manufacturing and Agriculture sectors have seen increases. However, both situations come with risks. Decreased demand may mean businesses have to reduce staff numbers or available shifts, resulting in reduced income for workers. Increased demand can lead to overtime and excessive hours – an indicator of modern slavery.

Concerns around workforce numbers have reduced – in April 2020 a third of businesses feared a labour surplus and a third feared a shortage. More recent analysis shows only 15% of businesses reporting too many workers, and 14% reporting a labour shortage.

Sedex recommends: It is crucial that businesses work with their suppliers to understand how they and their workers have been affected. Using a questionnaire to collect data is a good first step and a safe, remote way to gain insight. This insight allows companies to understand where their supply chains and the workers within them are at risk, and make informed decisions about how to support suppliers.

Buyers can also support their suppliers through their purchasing practices, such as avoiding cancelling orders, extending delivery dates and providing prompt payments.

 

Suppliers are adapting their product mixes and sales models.

By mid-2020, some companies reported adapting their operations to maintain their business. Diversifying their product offering, such as switching from manufacturing garments to producing personal protective equipment (PPE), was reported by 20% of businesses. Other businesses diversified their sales channels, such as launching online – reported by 23%.

This agility in a time of crisis helps to maintain business income and ensures more work and income is available to employees.

Sedex recommends: Businesses can support each other, including their suppliers, through sharing knowledge, training and strategies. Companies with established eCommerce platforms can help suppliers to develop their online offering, for example.

 

The Garment Manufacturing industry is most severely affected.

Sedex research shows that the Garment Manufacturing sector continues to be the industry most negatively impacted, with 86% of businesses experiencing decreased orders. This is compared with only 30% of Food & Drink Manufacturing and 47% of Agriculture businesses.

This is consistent with numerous media reports on the garment industry highlighting unpaid wages, cancelled orders, and millions of workers sent home without severance or furlough pay.

The Garment Manufacturing industry also has one of the highest proportions of businesses experiencing unsupportive customer actions. Over a fifth of Garment Manufacturing businesses reported experiencing adjusted payment terms and discounted prices (higher than other sectors).

Sedex recommends: Buyer companies should be particularly aware of the Garment Manufacturing businesses in their supply chains and the challenges these suppliers face. The pandemic has highlighted the importance of strong business relationships where risks are dealt with collaboratively, not pushed down to suppliers and their workers.

It is critical that buyers use responsible purchasing practices both to support suppliers during COVID-19 and to build more resilient supply chains going forward.

 

Financial support for workers is of mixed availability and uptake, and certain groups are more vulnerable to severe drops in income.

Around half of businesses are offering wage and salary support to help workers financially. However, the extent of this support varies – not all suppliers can offer full wages, and not all workers can access such support.

Temporary workers[i], those on hourly rates, migrants[ii] and women[iii] are more likely to be laid off during crises than salaried workers, and some groups may not be eligible for company-provided or state support.

The proportion of businesses using government support to aid workers financially increases from 29% in April 2020 to 45% in our latest analysis. Reliance on some form of government support was higher in the SAQ for Garment Manufacturing, Agriculture, and Food and Drink Manufacturing sectors.  

Sedex recommends: Review the state programmes and supplier provisions in place to support workers financially, including what is accessible to vulnerable groups such as migrant or temporary workers. This will give context to the impacts that suppliers report and, combined with what a supplier is offering, indicates the total financial support available to workers. Read our guidance for supporting vulnerable workers.

 

An increased proportion of suppliers report customers being supportive.

88% of businesses report that their customers (buying organisations) are being supportive in at least one way. This is encouraging, given that in April 2020 a quarter reported unsupportive customers. However, this support may not be sufficient to meet suppliers’ needs or be reflective of good purchasing practices generally. The coming months will reveal how effective this support has been.

Sedex recommends: Sedex strongly recommends that buyers work with suppliers to mitigate the worst of the pandemic’s impacts. Regular communication, clear forecasting and flexibility around lead times can be lifelines both for supplier businesses and their workers.

As economic activity increases through 2021, supply chains and workers that were protected during the pandemic will be better positioned to recover faster.

 

Click here to read the full report

 

 

Notes on methodology

  • Methodologies of the April 2020 survey and the COVID-19 Modular SAQ are different. The April 2020 survey was one-off and anonymised. The later dataset is from SAQs completed on the Sedex platform, which were issued by buyers to selected suppliers and can be updated on an ongoing basis.
  • All information is self-reported.There may be differences between how candid businesses are in the SAQ compared with the April 2020 survey, as results are shared with linked buyers. Readers should therefore treat findings as indications of trends and sentiments.
  • The two assessments have different question sets. However, topics covered are similar, and therefore answers can provide insight into key themes. Comparisons are made at a topic level and indicators used are described throughout the report.

 

 

[i] https://www.oecd-ilibrary.org/sites/9789264306943-en/1/1/3/index.html?itemId=/content/publication/9789264306943-en&_csp_=60072f6c81e5afb306d1ad580d284396&itemIGO=oecd&itemContentType=book

[ii] https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_748992/lang–en/index.htm

[iii]  https://www.unwomen.org/-/media/headquarters/attachments/sections/library/publications/2020/gender-equality-in-the-wake-of-covid-19-en.pdf

 

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