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How Covid has affected supplier businesses

NEW research from business membership organisation Sedex reveals the impact on supplier businesses over the past year.

In a follow-up to Sedex’s COVID-19: Impacts on Business report from May 2020, this latest analysis uses data from over 1,000 businesses, employing nearly 600,000 supply chain workers, to understand how the ongoing challenges of the pandemic are affecting suppliers.

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

The garment manufacturing industry is most severely affected. Sedex’s research shows that the sector continues to be the industry most severely impacted, with 86% of businesses experiencing decreased orders.

This sector also saw almost a quarter of businesses experiencing negative, unsupportive customer actions (one of the highest proportions by sector), such as payment terms adjusted in the customer’s favour.

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

Not all suppliers have been as badly affected as they expected to be however. Sedex data indicates a varied picture across industries, from order increases and decreases to concerns around workforce shortage 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 shifts, while increased demand can lead to overtime and excessive hours.

Alexia Ward, Head of Improvement at Sedex, said:  “Businesses further down supply chains and their workers, particularly casual, migrant and female workers, are often more vulnerable to – and hardest hit by – both the financial and health impacts of COVID-19.

“It is important that companies understand how their suppliers and workers are affected, so they can mitigate negative impacts where possible and help to enable recovery.

“Sedex is helping members gather information on suppliers to assist them in this. COVID-19 has highlighted the significant impact business decisions can have on people across the world. We strongly encourage companies to work in partnership with their suppliers and to prioritise human rights at this time.”

Suppliers are also adapting their product mixes and sales models. By mid-2020, some companies reported adapting their operations to maintain their business and diversifying their product offering.

For example, 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 their business 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.

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

The proportion of businesses using Government support to aid workers increased from 29% in April 2020 to 45% in the latest data. Around half of businesses are providing wages or salaries to workers themselves. However, not all suppliers can offer full wages, and not all workers can access support from the state or their employer.

Click here to read the full report, including Sedex’s recommendations for businesses to support their suppliers.

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