There is no question that the coronavirus (COVID-19) is having far-reaching effects on industries, businesses, and production. As international and domestic trade slows, businesses shut down for extended periods of time, and current inventories of raw materials and components get bought up, maintaining supply chains for a wide variety of goods here and abroad will become more challenging.
While nobody could have predicted the scale, speed, severity, or timing of the outbreak, could businesses be better prepared to deal with the consequences?
The COVID-19 outbreak is arguably one of the most impactful events we have seen simply based on the fact that it hasn’t just created hurdles, it’s completely stopped production and normal operations for a lot of businesses, something many supply chains can’t absorb. But the reasons businesses are struggling to deal with the fallout are the same: supply chains are fragile.
There are five key reasons for this:
Reduced Inventory Levels: Just-in-time manufacturing allows companies to increase efficiency and lower the cost of their supply chain, but it also leaves supply chains less resilient to sudden shocks and supply shortages.
Inflexible Supply Chains: If businesses operated flexible supply chains, they could switch order volumes to alternative suppliers in times of stress. Those companies that don’t do this, are unable to identify and connect with alternative suppliers when there are sudden shocks to their supply chain resulting in a tangible impact on production.
Manual Supply Chain Management: A key reason that supply chains are inflexible is because they’re managed manually. Making changes to orders or shifting suppliers is a lengthy and complex process and in times of stress is a amenity few companies have.
Lack of Supply Chain Transparency: Businesses are often unaware of what’s happening across their supply chain beyond the first tier, as a result they’re unable to know where threats to production capacity exist. This makes it near-impossible to proactively manage a situation like the COVID-19 outbreak.
Consolidated Centers of Production: The globalization of supply chains has led to the development of specialist production zones—cities or countries specialize in the production of a few key products. These have helped ensure there is a plentiful supply of key supply chain components and lowered the overall cost of supply. Yet while this is beneficial when times are good, it can cause issues when there is disruption. That’s because there isn’t the capacity in other parts of the world to plug the gap in supply.
Some short-term actions companies can take to respond to business disruption and supply chain challenges from the global spread of COVID-19, as well as implementation of long term solutions are:
- Enhance focus on workforce/labor planning
- Focus on Tier 1 supplier risk
- Illuminate the extended supply network
- Understand and activate alternate sources of supply
- Update inventory policy and planning parameters
- Enhance inbound materials visibility
- Prepare for plant closures
- Focus on production scheduling agility
- Evaluate alternative outbound logistics options and secure capacity
- Conduct global scenario planning
While black swan events like coronavirus (COVID-19) can’t always be predicted, understanding supply chain risks and opportunities gives businesses more transparency to plan ahead while maintaining customer experiences in the face of crisis.