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Supply chain disruption: Planning for the long-term impact of the COVID-19 crisis

Author(s): Andraya Frith, Simon Hodgett, Peter Glossop, Alan Kenigsberg, Paul Morassutti, Richard M. Borins, Kelly O’Ferrall, Natalie Munroe

May 12, 2020

This update provides answers to commonly asked questions to help address the broad range of legal and business issues that companies should consider when assessing and responding to the immediate supply chain impact of COVID-19, as well as when developing a longer range strategy for sourcing supplies and delivering goods and services to end user customers.

Introduction

Traditional supply chains have been disrupted by the dramatic and unpredictable changes in consumer demand and behaviours driven by the COVID-19 pandemic, labour shortages in key sectors, particularly Canada’s food and farming sectors (that latter relying heavily on temporary foreign workers), as well as export restrictions and other protectionist policies introduced by some of Canada’s largest trading partners. In addition, the day-to-day operations and production levels of manufacturers, suppliers and distributors have been impacted to varying degrees by physical distancing rules and enhanced sanitation measures, not to mention recent COVID-19 outbreaks at several Canadian and U.S. meat packing plants raising the spectre of food supply shortages and increased prices.

Some suppliers and manufacturers have been forced to pivot their own business models as their traditional customers have shuttered operations and grocery chains and other food retailers have bolstered their ecommerce channel to meet increased consumer demand.  For example, Sysco Canada, the country’s largest supplier to the hard-hit restaurant and hotel industries,  has launched an online bulk grocery platform to sell products directly to household consumers for the first time in its history.  Grocery retailers will face different competition and suppliers to the grocery channel will need to adjust their marketing and promotion strategies to capture the new online consumer.

While Canadian health authorities in several provinces are beginning to report positive results in response to collective efforts to “flatten the curve” and some provinces are starting to outline plans to reopen businesses, the Canadian and global economies remain largely in “lock-down” and the timeline and path forward remain uncertain.  Government leaders around the world are cautioning their citizens that the lifting of current restrictions will be gradual and any reopening of the economy will be slow and staged.  This necessarily cautious approach to planning the next phase of the global response to the pandemic, which includes ongoing risk assessment and the possibility of second and third waves of the virus, means that businesses must plan beyond the acute phase of the pandemic and begin to reassess their intermediate and long term supply chain strategies. 

Our recent work with clients shows that addressing and monitoring both actual and anticipated disruptions of the supply chain requires a multi-pronged and multi-disciplinary approach. Most enterprises rely on a network of upstream and downstream collaborators or supply arrangements to carry out their business. These collaborations have been set out in contracts with varying degrees of rigor.  In the current crisis, performance under these contracts may have failed entirely, been temporarily reduced or adjusted to accommodate new realities. Clients face questions of how to address allocation of cost and liability for failed contracts, how to replace or reestablish supply, or how to deal with contracts that no longer align with the current facts and actual practices.

This Update provides answers to commonly asked questions to help address the broad range of legal and business issues that companies should consider when assessing and responding to the immediate supply chain impact of the pandemic, as well as when developing a longer range strategy for sourcing supplies and delivering goods and services to end user customers. 

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COVID-19: Navigating legal and business impacts

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