Unexpected disruptions and downtime often highlight supply chain dependencies that companies may be unaware of when operations are running smoothly. Could the pandemic caused by the coronavirus disease of 2019 (COVID-19), be the major event that forces many companies, and even entire industries, to rethink and transform their global supply chain models?
The term supply chain refers to the network between a company and its suppliers to produce, distribute and transport a product to end customers. Disruptions in the supply chain create uncertainty and unpredictability for businesses and customers alike. Sometimes the issues are less impactful and more localized, like transportation failures or product issues. Other times, natural disasters and outbreaks can send lasting ripple effects throughout the entire global supply chain.
The COVID-19 global pandemic caused significant disruptions in many businesses’ supply chains in the United States and North America. The COVID-19 outbreak has exposed vulnerable areas in many organizations, particularly those that depend on China for raw materials or product fulfillment. China has largely become the “world’s factory,” therefore any major disruption there can put global supply chains at risk. In fact, according to Deloitte, more than 200 of the Fortune Global 500 firms have a presence in Wuhan—the highly industrialized province where the outbreak is believed to have originated.
A recent study by the Institute for Supply Management found almost 75% of the 628 businesses surveyed experienced supply chain disruptions due to the COVID-19 outbreak. In the same survey, 57% of respondents said they were facing longer lead times for orders with suppliers in China. Companies whose supply chain depends on Tier 1 (direct) or Tier 2 (secondary) suppliers in China have been experiencing significant disruptions.
The COVID-19 outbreak will likely result in longer-lasting reconfigurations of supply chains to help build resilience. For decades, many companies have primarily focused on supply chain optimization to minimize costs, reduce inventory, and drive asset utilization. Now the supply chain is in the middle of digital disruption, with new technology and tools that help increase efficiency, accuracy and collaboration. Today’s global supply chains must be able to react effectively to unforeseen demands and disruptions.
Thankfully, new supply chain technologies have emerged in recent years that dramatically improve visibility across the end-to-end supply chain, helping to support companies’ ability to resist such global supply chain shocks. The following steps outline some of the ways companies can prepare for and manage supply chain disruptions.
Steps to Prepare for Supply Chain Disruptions
- Create a supply chain emergency plan.
Emergency preparedness plans help identify and limit potential supply chain disruptions. Effective emergency planning involves asking important questions like, “Are we capable of dealing with a major catastrophe? How long can we operate if there is a power outage? Who is responsible for managing operations in the event of an emergency?” Most importantly, emergency preparedness plans help ensure operations keep running, resources are appropriately allocated, and staff and workers are kept safe. When creating an emergency plan, companies should think about all the different ways they can move goods around in their supply chain and consider setting aside an emergency budget in case of disruptions.
- Build up essential double-duty inventory.
Creating an inventory of essential items can help your company manage through a disruption and help ensure that the right amount of inventory is in the right place at the right time. Look around at your MRO stock and pinpoint key double-duty products that can fulfill a dual role during regular operations and emergency preparedness situations. Dual role products are items that take up a small portion of your inventory and do not require an additional supply, making them ideal for small storage areas like closets and tool cribs. Also consider keeping a supply of wireless communication devices, water, food, battery-powered tools, and generators.
- Conduct a supply chain risk analysis.
Risk analyses can help uncover weak links in your supply chain. Evaluating your supply chain for seasonal spikes and demand changes helps companies identify and prioritize specific areas where they need to find alternative materials or services. It is also useful to assess potential environmental, social, and political conditions that may impact supply routes.
- Identify back-up suppliers.
Search for alternative suppliers that can help provide what your company needs if your current supplier cannot source your goods. Using the Kraljic Matrix is one of the most effective ways to achieve accurate supplier segmentation. Mapping your supply network helps identify and build relationships with suppliers in other geographic locations so that they can help fill in supply chain gaps when you need them.
- Partner with a logistics expert.
Fulfillment and supply chain experts can support you when disruptions happen. Logistics partners can help you locate alternative courier solutions and help you understand how to deal with disruptions and navigate fees and surcharges.
- Adopt risk evaluation tools.
New collaboration tools are helping transform traditional supply chains into digital supply networks (DSNs), where organizations can quickly identify and respond to potential threats to their supply chains. artificial intelligence-enabled mapping and environmental analysis solutions and new collaboration tools are helping companies identify threats and issues in real time. Companies also use social media as a predictive tool to identify potential shortages and supply chain disruptions.
Steps to Manage Supply Chain Disruptions
Being prepared for emergencies helps ensure supply chain continuity, but disruptions can still happen. Having an emergency response plan in place is a critical part of immediately responding and effectively managing supply chain disruptions. Here are some steps to take to help address short-term disruptions and long-term changes to your supply chain.
- Evaluate critical areas of your supply chain.
Disruptions happen, so when they do, it’s important to be aware of all your options. Determine what materials and components are critical for operations and their supply source. Work on establishing alternative suppliers for essential parts and products first.
- Estimate available inventory.
Take a physical inventory and audit all the finished products you have available, and what components and spare parts are on hand that can help keep production running. A part that’s difficult to source may suddenly be in high demand during an emergency, natural disaster, or unexpected plant shutdown. Determining these factors when forecasting your supply needs isn’t easy, but it’s critical in your efforts to achieve zero downtime in your operations.
- Optimize production and distribution capacity for safety.
Ensuring the safety of your employees and fulfillment partners is critical. Work on updating production and distribution strategies to ensure your products are being safely produced and delivered for everyone involved. Stay up-to-date on the latest safety regulations from trusted sources in relation to the situation at hand, such as the Centers for Disease Control and Prevention during a pandemic, The World Health Organization and local government and health organizations.
- Communicate with customers.
Transparency and open communication are essential during uncertain times. Let your customers know if you are low on stock, limiting purchase amounts, or have modified shipping times. Communicating regularly helps build trust so your customers will likely be more understanding when your supply chain experiences delays or disruptions.
- Assess buyer behaviors.
Changes in demand often complicate supply chain disruptions. Far-reaching natural disasters or a global pandemic can change what and how buyers are purchasing. Keeping track of changing consumer behavior is necessary to effectively adjust production to match consumer demand.
- Identify logistics flexibility.
Elastic logistics is a recent trend that has evolved to meet fluctuating demands in production, warehousing and shipping. Elastic logistics developed to adjust to variables like container usage and carrier space, helping to make the supply chain more effective with minimal waste. Identify areas in your supply chain where you can decelerate and accept slower delivery and alternative transportation methods. Ensure your supply chain relationships are strong and maintain regular contact with suppliers to help keep operations running as efficiently as possible.
- Evaluate cash flow.
Some impacts on your bottom line may be inevitable. Run risk analyses and stress tests to determine where supply chain disruptions may have the most financial impact so your organization can plan and make adjustments to overhead as needed.
According to a recent Deloitte report, most companies’ immediate focus in response to COVID-19 needs to be on improving visibility into supply chain risks with direct suppliers, facilities, and beyond. Without visibility into the potential issues across your end-to-end supply chain, you can’t adequately prevent or manage them.
Achieving extended supply chain visibility may require a more digitized approach than many companies have used. Business leaders and supply chain managers should examine how new tools and technologies can provide greater intelligence and greater end-to-end visibility and supply chain collaboration. Real-time data and greater supply chain visibility can help companies to take bigger risks with an agile mindset, using customer feedback to adapt to ever-changing buyer demands.
Learn more about inventory management with Grainger’s KeepStock Inventory Management Services.