Global Supply Chain - Tackling natural disasters & global pandemics

 

The COVID-19 pandemic brought to the forefront what a disaster can do to a business’s supply chain. It shows that pandemics and epidemics can seriously wreak havoc on supply chains around the globe. With most supply chains impacted, many companies are scrambling to mitigate disruptions. Items being manufactured are short in supply as some manufacturers closed down temporarily for their workers’ health or to keep supplies for themselves. This could create stock shortages down the line. Severe disruptions are visible in terms of airports operating with harsh restrictions, shortages of medical equipment and supplies, etc. A drastic reduction in foreign investment is happening. A good number of industries such as automotive, electronics, medical equipment, and consumer goods experienced ripple effects as China, the epicentre for the pandemic is considered a world’s factory and the disruptions to supply chains around the world started there before spreading everywhere else.

 

Fortune, in a report published on 21 February 2020, indicated that 94% of the companies listed in the Fortune 1000 list were facing supply chain disruptions due to the COVID-19. As for Deloitte, the publication highlighted that the whole effect of the pandemic on Supply chains remained uncharted.

 

A framework for operations and supply chain management is required at these times covering six perspectives, i.e., adaptation, digitalization, preparedness, recovery, ripple effect, and sustainability. The World Economic Forum emphasized the need for firms and organizations to reengineer and adapt supply chains to their future trade challenges. For instance, the short-term priority may be ‘transport and production’ and ‘worker movement’, while in the long term, capabilities and strategies related to ‘digital readiness & data sharing’ would be developed and implemented for supply chains. The digitalization of the supply chains could improve the quality of the response to outbreak-related disruptions by enhancing the flexibility in such circumstances.

 

Most of the risks are unpredictable - for their occurrence, for how long they last and how far-reaching their impact will be. In most cases, the best possible response is only reactive. A recent study by Federal Emergency Management cites that 40% of companies affected by natural disasters do not get back on their feet after a natural disaster – and even if they do, they are not as efficient as they were before. Therefore, there is a clear need for organizations to at least react in the best possible manner to these occurrences in the interest of ensuring business continuity.

 

Preparing for supply chain disruption is key, and now it is time to review and create a business’s disaster or crisis plan.

 

Key stakeholders & processes

A business disaster plan should include a command centre that assembles during crises like the current pandemic, including representatives from procurement, manufacturing, logistics, forecasting, finance, sales, and communications. Both the disaster plan and the command team should initially focus on short-term supply issues, moving to medium and long-term views when the crisis is under control.

Mapping of Supply Chains

To fully understand the situation, mapping the entire supply chain by geography and supplier & identifying the critical components is needed to run the business. Evaluating the likelihood of partial or complete interruption from various factors ranging from weather events to geopolitical unrest, shortage of raw materials, vendor bankruptcy, etc. must be made. Reviewing the suppliers' disaster plans can help a business understand how well they are prepared for an emergency. This can go a long way toward ensuring that business is prepared for the unexpected.

 

Diversification of supply chains

Diversification of the supply chains will provide backup options to mitigate risks. Bringing in a second supplier may not be an option if no other company produces the item, or if it’s cost-prohibitive to source from elsewhere because of retooling requirements or labor costs. In that case, businesses can consider adjusting their days-in-stock, to ensure they have a greater supply in case of a problem which buys more time to resolve the issue. In this global environment, a manufacturer may source components from other countries before building one product. For example, specific electronic parts may all come from the same Chinese factory even if they’re assembled into another part in Vietnam and added into a larger product in Thailand. That causes a problem if there’s a shortage or disaster in any of those locations.

 

Planning for Demand and Inventory Needs

Manufacturing companies need to work with sales and forecasting departments, considering current and forecasted customer demand for products and consider how much buffer stock is retained in both parts and finished products. Developing a risk calender showing potential disruptions during the year can help modify operations in anticipation of scheduling kinks. A disaster plan should have scenarios for what might happen and how it would be addressed in operations, manufacturing, and logistics. With an anticipated port strike, for example, supplies can be rerouted to a different port, or flown instead of shipped by ocean carrier.

 

Evaluation of the Financial Conditions

Part of the disaster plan should include the financial implications of potential risks as well. Understanding how a delay or shortage of a certain product can affect the operations. Can purchasing additional supplies mitigate a potential shortage, or does that harm the balance sheet in some ways?

Pinpointing your most important products, and knowing what customers are essential to retain, can help with decision-making, should you need to prioritize one product over another. Evaluating clients’ financial abilities to weather a storm is important too. If they are not able to handle the stress of a short term shut-down, a natural disaster or other curve balls, consider whether you’re equipped to help them out, or if you have a back-up plan.

 

Communication with suppliers, employees, and customers

Communication with both vendors and customers—before, during and after a disaster is vital. With COVID-19, that spike came from increased PPE orders. That kind of anomaly could be indicative of a larger trend. Maintaining solid relationships with suppliers means they’ll be willing to share their disaster plans and any early warning signs of future disruptions. That can help ensure that if disaster strikes, business isn’t caught by surprise. Empowering the employees to share mistakes made or concerning news about the supply chain, without fear of reprisal, can strengthen the supply chain overall and help anticipate problems or mitigate them.

Lastly, insurance is a necessary mitigation tool to protect against unanticipated losses. That includes disaster insurance, cargo insurance, business interruption insurance, and cyber insurance.

 

 

The following five recommendations from the supply chain shocks are worth learning:

1) Improve the international and inter agency compatibility of resilience standards and programmes.

2) Ensure that the supply chain and transport risks are assessed as part of procurement, management, and governance processes.

3) Develop trusted networks, made up of suppliers, customers, competitors, and government officials, which are focused on risk management.

4) Improve the visibility of network risks through information sharing and the development of standardized risk assessment and quantification tools.

5) Improve risk communication before and after disruptions to create a more balanced public- and private-sector discussion.

 The onset of the COVID-19 pandemic has thus exposed the dramatic risks inherent in global supply chains. To help prevent a supply chain breakdown from having an irreversible impact on business, it’s necessary to take the time to evaluate and plan for the worst. By doing so, we can ensure enterprise continuity the next time the unexpected occurs.

 

References:

https://www.weforum.org/agenda/2020/03/covid-19-coronavirus-lessons-past-supply-chain-disruptions/

 

https://www.53.com/content/fifth-third/en/commercial-banking/resource-center/Growing-Your-Business/approaching-supply-chains-during-pandemics.html

 

https://link.springer.com/article/10.1007/s10479-020-03685-7