The spread of COVID-19 has become a top risk for supply chain managers which is now being felt across multiple industries. The impact has become global in nature and is across operations that have become very challenging to model and evaluate. For a lot of organizations the highly impacted regions are at the heart of many global supply chains. Although it may be difficult to predict the exact consequences of COVID-19, organizations can still be planning for material shortages which are routed from logistical hubs in impacted areas, as well as labor concerns due to quarantine procedures or illness. Industries with few sourcing options for critical components and/ or lower on-hand inventory levels are especially susceptible to supply chain disruption however no industry is invulnerable to COVID-19 disruption. A majority of the Fortune 1000 organizations are experiencing some level of supply chain disruption.1
What Organizations Can Do Now
Recommended Short Term Actions
- Crisis Response Team – Identify key stakeholders who should be responsible for communicating updates internally, consolidating requirements and setting priorities for the suppliers.
- Material Criticality – Understand material criticality across multiple tiers and associated risk on revenue.
- Contingency Plan – Establish a contingency plan to source freight from other suppliers in non-affected regions.
- Scenarios – Understand financial and operational impact across multiple scenarios.
- Supply-Demand Balance – Focus on balancing supply and demand, and building buffer stock as necessary.
- Transportation Mode – Evaluate using other modes of transportation (cost-benefit) to reduce replenishment times.
- Supplier Stabilization – Support suppliers (working capital infusion, loans, etc.) to help them get started.
- Alternate Supply – Determine potential suppliers for short-term sourcing in case alternate supply is required.
- Production Optimization – Understand high margin and high opportunity cost products for prioritization.
- Supplier Financial Health – Evaluate the financial health of your key suppliers to assess the potential impact to your supply chain.
- Remote Operations – Define a business continuity plan to ensure the workforce is staying connected, engaged and productive while working remotely.
Recommended Mid to Long Term Actions
- Supply Chain Visibility – Deploy visibility tools giving organizations real-time access to capacity constraints across the multiple tiers of their supply chain.
- Supply Chain Resilience – Look to develop more collaborative relationships with critical suppliers in order to build organizational resilience as it is highly unrealistic to completely exit the Chinese market because of the supplier ecosystems in place, however organizations should understand their supply chains more deeply
- Micro Supply Chains - Build agility and speed into your supply chain by creating Micro-Supply Chains; finite, decentralized, agile ‘mini-operating models’, with flexible supplier contracts and relationships with manufacturing closer to the point of purchase. Explore strategies to ‘buy where you make, and make where you sell.’
- Supply Chain Risk Monitoring – Utilize risk evaluation and monitoring tools that use machine learning techniques to predict patterns that indicate the exposure to various risks.
- Supplier Diversification - Assess opportunities to diversify the supplier base. Identify geographically diverse suppliers to onboard in the event of emergency. Considerations should be given to dual-sourcing for critical components.
- Supplier-Centric Procurement - Move towards a Supplier-Centric approach to procurement, further integrating your supply chains with those of your Tier 1 and Tier 2 suppliers.
- Supply Chain Strategies – Need to move away from an adversarial, short-term approach and to a long-term strategy of driving value. Periodically test and revise your strategy to account for organizational growth and environmental change.
The COVID-19 impact on supply chain disruptions is widespread and dynamic and emphasizes the need for more interconnected, transparent, agile and flexible supply chains in the global world.