IPA Industry COVID-19 Response Survey: Owners Report Major Supply Chain Disruptions

Jason Walker

Many Capital Projects Are Stymied Despite Mitigation Efforts

Industrial sector capital projects are feeling the strains of the ongoing coronavirus pandemic as supply chains have been disrupted and measures to protect personnel from the virus have slowed productivity, according to a just-completed industrywide COVID-19 survey conducted by Independent Project Analysis (IPA), Inc. Over 20 companies representing all major industrial sectors provided detailed responses on how the coronavirus pandemic is currently affecting their capital projects and project systems. The companies also answer questions regarding supply chain disruptions, portfolio implications, and actions they have taken to mitigate work process disturbances as the COVID-19 virus has put much of the world on edge. IPA’s COVID-19 survey results reveal that many capital projects are being affected in a significant way. Most owner companies are responding quickly to the crisis; however, the crisis has exposed weaknesses in sourcing strategies. Companies are now searching for any promising opportunities to adjust going forward.

IPA’s COVID-19 survey obtained detailed responses regarding how the coronavirus is currently affecting capital projects.
IPA’s COVID-19 survey collected data from 21 owner companies in 6 different industrial sectors on these topics: supply chain disruptions, effects on internal operations, portfolio implications, and mitigation strategies.

Nearly all companies surveyed (~90%) have created and implemented internal plans for dealing with COVID-19 with various implications on daily operations. All the companies IPA surveyed have established travel restrictions of some kind. Most have moved towards a work-from-home environment, and cleanliness regulations, especially at sites, have been implemented. These targeted plans have enabled work to continue but at a reduced level of efficiency.

While internal owner operations have been affected, capital projects in execution have seen major delays due to supply chain disruptions. Owners report that they are experiencing delays in the procurement of equipment and fabricated modules of up to 20 percent. In some cases, supply chain delays have been estimated at well over 20 percent. These delays are not limited to Asian vendors. In fact, recent data from the field suggests that the Asian vendors are beginning to ramp back up whereas the Western supply chains are shuttering amidst a backdrop of growing uncertainty. Roughly 40 percent of owner companies are currently experiencing supply chain disruptions outside of Asia and Western delays are becoming more and more prevalent. One major European fabrication yard told IPA that it just sent home approximately 75 percent of its workforce, significantly delaying the fabrication of subsea production systems on an ongoing tieback project for an oil and gas operator.

Supply delays are not limited to vendors and fabrication yards. Engineering related activities are also experiencing significant delays. Owner companies are reporting that work efficiency in engineering has suffered in Asia and has been extended to the home office. As one major chemicals company that IPA surveyed put it, “There is simply not enough engineering work force available to continue with capital projects.” Presently, reported delays in engineering activities are up to 8 weeks and growing. To compound the issue, only 1 out of 3 vendors and engineering contractors have provided detailed plans outlining how they are responding (or will respond) to coronavirus related interruptions.

Mitigation Efforts

Most owner companies are taking specific actions to mitigate the effects of the coronavirus on supply chains. They reported strategies to include looking for alternate vendors, tracking the country of origin at the widget level, developing relationships with contingency supply chain vendors, increasing owner engineering resources to catch up in China as the local vendors resume work, and asking suppliers to utilize alternate inventory locations. Still, a number of owner companies are struggling to respond in an ever-changing supply chain landscape. One owner company reported that, while they are developing plans, “all current plans are bound to fail.” Other companies have simply done nothing to mitigate supply chain disruptions. Surprisingly, nearly 2 out of 5 owner companies have taken NO actions to reduce the effect of the coronavirus on the supply chain.

Bar chart: Is your company employing strategies to mitigate the negative effect of the coronavirus on the supply chain?
How are companies responding to supply chain disruptions? Nearly 2 out of 5 companies have yet to develop strategies to mitigate disruptions.

Supply chain disruptions, along with downward market trends and growing uncertainty, have led some owners to either postpone or outright cancel major capital projects. For example, an ongoing midsize chemical project located in Asia is experiencing heavy supply chain disruptions and has been stopped indefinitely as a consequence. Outside of Asia, a multibillion dollar megaproject in South America has temporarily suspended construction activities out of concern for the health and safety of the construction labor force. These specific case studies represent a small sampling of the many reported project delays. A growing number of project systems are now planning to delay major capital projects and reduce annual capital expenditure. One major oil and gas company is further reducing annual capital spend by 20%.

Many of these challenges are temporary since the pandemic will eventually pass. However, some changes may be useful to keep as owners learn from what they are currently experiencing. The COVID-19 crisis has highlighted a weakness in our current project delivery model. Our supply chains, regardless of industry, rely heavily on efficient sourcing of equipment and fabricated modules from a single region. As a result, there is an opportunity for owners to de-risk their supply chains by building in redundancy and maintaining a variety of qualified suppliers. The coronavirus has forced owners to establish additional supply chain relationships and the success of our project delivery model in the future depends on how well we maintain these relationships. Now is the time to implement lasting change to mitigate future disruptions.

Since publishing this article, IPA has shared the information gathered from participating companies via live webinars. Follow the links below to access the recordings and slide packs from these previously delivered sessions:

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