The COVID-19 pandemic has posed significant challenges for supply chains globally. To avoid severe supply disruptions of explosives to mines, AECI Mining put together a business continuity plan that addressed anticipated risks and challenges well ahead of the hard lockdown.
The COVID-19 pandemic has created an imperative to reconfigure the mining supply chain by highlighting risks and disruptions. Multiple national lockdowns continue to slow or even temporarily stop the flow of raw materials and finished goods, posing serious disruptions to an industry where downtime is out of question.
Denvor Govender, Executive: Global Operations and Supply Chain at AECI Mining, says severe disruption through the pandemic has driven the company to make its supply chain more resilient. He reasons that mining customers have a short window in which to exploit the benefits of the current ‘bull run’ in PGMs, fossil fuels and other commodity market prices as industries try to catch up on lost output.
“In our environment, uninterrupted supply of explosives and mining chemicals is critical to ensure that clients reap anticipated benefits during the current economic environment,” says Govender.
Level of disruption
Due to deep supply tiering that can be found in global supply chains around the world, Govender is of the view that traditional business models have been challenged in two areas: their resilience and readiness to support a dynamic environment that balances cost, demand, service and risk.
“Traditional models and philosophies such as JIT (just in time) – where focus is on having the right product at the right place and time – has suddenly tuned to what I term JIC (just in case) philosophies, where scenario planning with the aid of big data and artificial intelligence (AI) plays a major role in mitigating supply and logistics risks,” he says.
Many supply chains across the world operate on vertically disintegrated and off-shore supply chain strategies that trigger two global impacts that Govender refers to as “Supply Shock” and “Demand Shock”. On the one hand, he says, suppliers were unable to produce raw materials and ship them due to COVID-19 lockdown measures that were imposed in most countries. On the other hand, demand for goods suddenly rocketed, causing a total imbalance in the global market.
“Logistical infrastructure delays have resulted in blanked shipping, causing global disruption in the movement of cargo. Due to improved supply conditions in China and lower demand in Western regions, the cost of shipping increased on some trade lanes by as much as 150%. When the environment changed and lockdown measures were eased, it resulted in panic buying which further increased logistics costs based on supply and demand imbalances,” says Govender.
Supply lead times, he adds, have also increased significantly due to the high demand for dedicated charter vessels and changes in liner services, introducing additional transhipment geographies. In essence, the crisis has unfrozen many of the traditional and established supply chain and business models, causing significant increases to costs.
Sidestepping the challenges
To sidestep these challenges, AECI Mining formulated a business continuity plan that addressed projected risks and challenges well ahead of the first hard lockdown in South Africa.
“In some instances, we locked up future raw material supply with key suppliers and filled the supply pipeline, applied nearing shoring principals and looked to suppliers closer to point of use to avoid shipping delays and ensured that, from an essential services perspective, the supply chain was geared to manufacture and distribute our products. This is of course not possible with all critical materials, hence we are still faced with several sourcing and logistical challenges that are common to all industries,” says Govender.
Another key aspect, says Amit Govind, Global Supply Chain Manager at AECI Mining, was a strong focus on cash flow as a whole for the business amid an unprecedented environment of uncertainty. “Amid a VUCA (volatile, uncertainty, complexity and ambiguity) world, we had to align our inventory strategically to ‘right size’ a market, in order to maintain operating cash flow for the business, which is the lifeline of all businesses especially during a pandemic. This allowed us to pay our creditors and suppliers on time, as well as meeting our day to day operating expenses.”
Commenting on the success of these initiatives, Govender says the measure of triumph is when one looks at the entire supply chain network. To that effect, all AECI Mining’s manufacturing facilities continued to produce and there was no unplanned stoppages due to the impact of the pandemic. The global distribution network, although challenged, continued to provide an OTIF (On Time in Full) of above 95%. While the company at times had to rationalise supply of goods to cushion against over-ordering as a result of panic demand, AECI Mining kept all customers operational.
Big changes are on the horizon for supply chains post COVID-19. As a manufacturing and supply chain intensive organisation, says Govender, AECI Mining inherently has risks, but more so post the pandemic.
“Some of the key challenges post the pandemic will be blanked shipping; container imbalances, resulting in dead ports; distribution bottlenecks, impacting on logistics costs; limited global supply chain visibility and increased global scramble for raw materials and resources in an already constrained environment,” he says.
Economic nationalism, he concludes, will result in local buying, but not necessarily translate in customers being willing to pay more for locally manufactured and supplied goods, even though there is security of supply.