After the immediate effects of the coronavirus on our health and healthcare, the economic effects become apparent. The pandemic takes its toll on global supply chains and international production networks. Particularly the drop in import from China has and will continue to have a substantial impact on businesses worldwide. How can you decrease the risk for your supply chain, now and in the future?
Traditionally, global supply chain management has been designed to deliver just-in-time and to optimize for cost reductions. The impact of COVID-19 forces the need to change focus on risk reductions as well. Mitigating the effects on supply chains now will also help build resilience against future results and build less reliance on single suppliers. Both short term and long term strategies are needed to build resilience against further impact.
Short term strategies
- Create a transparent and visible supply chain. Which parts are critical components? Where are they manufactured? And which alternative sources are available? An alternative may include near-shore options to shorten the chain.
- Investigate the complexity of your supply chain. Who supplies your suppliers? How many links do your components have to pass through before they become a final product? Can that number of links be reduced?
- Evaluate the existing inventory in the complete supply chain. What inventory does your business need to keep production running for a longer period of time? To secure the supply of critical components, consider hiring two or multiple suppliers. Having contact with multiple points of supply can ensure greater protection against uncertainties as well as boost comparative and competitive advantage in times of long term instability. Additionally, an inventory buffer for an extended period of time decreases the vulnerability to supply chain shortages.
- Determine realistic customer demands for the upcoming months, also involving time periods with possible shortages of buying behaviour.
- Embrace new technologies that can help shorten your line of supply. Can you manufacture more of your components locally? Can automation help reinforce your production against instability in the workforce as a result of another pandemic or an event with similar consequences?
Geographically separating suppliers introduces redundancy in times of governmental or productive stress, allowing for less reliance on one region
Long term strategies
- Understand where supply chain shortages will have a (huge) financial impact. What do (legal) contracts with distributors say about delivery shortages? Will the customers demand decrease due to shortages?
- Create a supply chain continuity plan. What should your business do in case of shortages? This must include back-up plans with second sources. Scenario-planning techniques can help your business to plan for the impact on each of the shapes of economic recession.
- Be aware of how spread out your supply chain is geographically. Try to avoid having many links of your supply chain in one location because this can introduce risk. Spreading out the line of supply adds a level of defence against suppliers being unable to provide components due to changes in local policy or in times of stress, such as the COVID-19 pandemic.
- Be cautious of critical dependencies. If your supplier of a critical component can no longer provide, can you find other ways to continue production? Can you reconstruct your supply chain to have critical dependencies more readily available?
Four drivers of supply chain vulnerabilities
- Supplier network – how easily is the supply chain disrupted? What are the most vulnerable parts?
- Financial – how much financial flexibility does your business have for increased supply costs?
- Transportation – how resilient is the transportation of supplies to your plants?
- Critical elements – are these critical elements easy to substitute? Is it possible to change the design of your product?
Get in touch with our expert business advisors for more advice on managing the impact of COVID-19 on your supply chains.