While many firms have likely built some cushion of parts in inventory and in transit, backup supplies will start to run out if factories cannot get back to work soon or flights remain limited. In this time of complex and cascading challenges for supply chain professionals, we have synthesized insights from our internal experts and member network. We hope these ideas will be helpful as you formulate, implement, and manage your own crisis response.
First, we suggest three executive actions to address the challenges ahead:
- Get the data. Assemble the most relevant and granular data on all forces that create supply chain risk. Some will be non-traditional data for normal supply chain optimization activities, such as anecdotal inputs from credible local sources and trusted intermediaries.
- Update your organizational risk assessment. COVID-19 brings different risks to multiple areas and processes simultaneously, completely changing the risk map. Along with new risks, the map may reveal opportunities that can help minimize the overall negative impact of the crisis as well as aid in preparation for the new normal, post-pandemic. A grasp of the big picture is crucial to creation of a successful action plan.
- Work toward redundancy. Invest in well-designed redundancy for critical-path supply chain components and agile processes to manage them, both for risk mitigation and cost management. (Trade frictions had already driven this need prior to the COVID-19 outbreak.)
- Improve tools and processes. That means installing best-practice tools for supply chain security and supplier compliance, digital twinning for real-time supply chain management and crisis response, telecommuting and groupware for immobilized white-collar workers, and real-time intelligence acquisition for health crises, natural disasters, and political and social upheavals.
Key “Must Dos” and “Get Rights”
- Increase agility and decision-making efficacy via a multifunctional supply chain crisis team. Under senior leadership supervision, install and empower a team of solid mid-level managers who can work quickly to set priorities in times of limited resources. Supply chain leaders should be the core, surrounded by key internal interfaces: finance, production, procurement, sales, government relations, legal. Finance should identify key accounts that are the most critical sources of profit contribution. Production should list all inputs, regardless of volume, essential for those key accounts. The logistics and procurement teams should develop full supply chain maps for all the identified inputs. Sales should shape communications with customers, and procurement with suppliers.
- Dedicate resources to staying abreast of various and rapidly changing local regulations with respect to reopening facilities, managing workforce, transport restrictions, and COVID-19-specific workplace requirements. Emphasize the risks, both legal and reputational, of non-compliance during a crisis.
- Know how and when to report and process a COVID-19 case. Implement SOPs for activating the mandated steps to inform health authorities when a case of COVID-19 is suspected or confirmed in your location. Manage infected staff or partners from point of intercept to appropriate healthcare facilities. Establish a daily monitoring and reporting protocol.
- Establish a rapid response communication channel with all supply chain staff to instantaneously convey, as necessary, emergency information so that informal or erroneous communications don’t disrupt operations and true emergencies are addressed quickly and efficiently.
- Sort high-risk shipments. In prioritizing PO fulfillment, consider using profit contribution and key customer as dual ranking criteria. Further isolate the “hot” POs, i.e., orders for key customers who are running out of inventory, for priority delivery. Map the entire supply chain of all critical components for high priority POs.
- Given the need for highly agile and possibly non-conventional process workarounds, identify and preemptively resolve internal bottlenecks that might affect the supply of key components and the fulfillment of key POs. Create rapid response of command where needed.
- Dot all the I’s and cross the T’s on legal matters. Ask your general counsel to identify the implications of failure to deliver, or failure to deliver on time, as another dimension of risk. Some companies are considering invoking force majeure for legal protection. Remember that doing so requires demonstrating, via appropriate documentation and bona fides, that it is effectively impossible to perform contractual duties as a result of the outbreak.
- Revisit contingency plans. Plot ways to minimize the impact of current and expected reductions in parts, products, and components. Look 15, 30, 60, and 90 days ahead to identify problem areas and develop plans for continuity of supply. Notify sales, marketing, and production of expected shortages and changes in demand.
- Revisit your tools and processes for identifying product shelf life in the event that interrupted flow of raw materials and finished goods means that new contingency plans must be developed for those products (e.g., recertify, rework, or reorder).
- Work with critical vendors and external providers such as maintenance, utilities, and tech support to ensure they are able to continue providing support during the crisis. This is especially important for service and transport companies.
- Use personal networks, yours and your team’s, for firsthand data. Cast the net wide. Contact factory owners and managers, QC inspectors, forwarders, and courier companies you know for on-the-ground situation reports and insights. Ask: How big is your backlog? What percent of workers are back and working? How reliable have sub-suppliers been since the crisis hit? What percentages of trucks are running and vessels calling? What’s the status of transportation bans? Consider producing a regular briefing document to inform the work of other departments.
- Consider setting up a digital twin for supply chain modeling. A digital twin will enable real-time data collection and accurate cost calculating for alternative supply chain options.
- Set up a dashboard to monitor the unfolding geographic profile of the crisis. Have a consolidated repository of COVID-19 maps, incorporating live updates from reliable media, government, and non-governmental sources. Include input channels for updates from social media, which, although vulnerable to inaccuracy, may be faster than official reports. Understand where transport and mobility carriers are likely to be erected. Some transport and mobility controls established to contain COVID-19 may endure beyond the current crisis if they provide economic advantage.
- Strengthen tools for professional office staff to function successfully in mobility constricted situations, not only from COVID-19 but from transportation snafus, natural disasters, and other causes. Key examples are IT systems for telecommuting, groupware, and other aids for virtual convening.
Key Mistakes to Avoid
- Don’t reinvent the wheel. Check whether you have a pandemic plan or manual. Determine which crisis level has already been reached and identify written directives you may be responsible for implementing. Review and update the manual as the current crisis evolves. Check with related departments—HR, communications, finance—to understand their planning assumptions and touchpoints for supply chain operations.
- Don’t conduct risk analysis based on sales or buying volumes. This is an obvious but common mistake. The volume of a certain product might be small but vital to a top client; or critical to a high value (but relatively low volume) product line.
- Don’t forget to communicate regularly and consistently throughout. Be proactive and transparent in communicating with customers to share what you know and what guideposts and gating factors you are monitoring to predict operating conditions. Be realistic; avoid creating expectations that are overly optimistic. And pay special attention to how and how frequently you communicate with employees. The economic and emotional stress of the crisis, plus the change to remote work, can significantly affect morale and work quality. Communication is effective in mitigating this anxiety and the trickle-down risk it poses to your company.
- Don’t waste the crisis. Continually ask your own managers to identify risks and solutions. Ensure there is a channel for capturing, processing, and acting on good ideas. Use this opportunity to seek out and implement overlooked or neglected operational transformations. Celebrate successes.
Key Things to Keep in Mind
- Traceability is crucial. Do your systems and processes allow you to trace the source of materials and their flow? Investigate second- and third-tier suppliers for better visibility of risks to your company’s supply. Explore blockchain tools, RFID tagging, and other security systems to assure supply chain integrity. To the extent possible, audit direct suppliers’ upstream procurement to assure compliance with contracted specifications. Expect suppliers to experience extreme upstream cost pressure and availability risks.
- Continually assess your demand chain to identify and exploit opportunities. Demand volatilities add an additional layer of risk. As volumes for certain products dip in crisis, other products may see unprecedented demand. Stay nimble to pick up the unmet demand of competitors who may be unable to cover unforeseen spikes in demand. Being shrewd in times of crisis can create long-term competitive advantage.
- Build credibility and provide a reality check for HQ. Send regular updates to your overseas headquarters to supplement the COVID-19 news available overseas, which is limited in scope and often politicized.
- Don’t expect “normal” to return quickly. The drawdown of inventory during the crisis period will lead to a challenging time of hyper restocking. Allocate sufficient time to revise your plan for 2020 and advise your C-suite on key customer and competitive impacts.
We hope that this summary will be helpful as you navigate the complexities of this fast-moving situation. Please do not hesitate to reach out to our expert team for a quick chat or meeting. We’re here to help.
Continue reading:
For our view on economic impacts of the coronavirus outbreak, click here.
For coronavirus guidance for HR leaders, click here.
For coronavirus guidance for communications leaders, click here.
To listen to our podcast series on implications of the coronavirus outbreak, click here.
This piece is adapted from a previously posted article by The Conference Board China Center.
Reuters, Companies consider force majeure as coronavirus spreads, 10 February 2020.
