As political leaders and health officials around the world are trying to make decisions regarding the containment of the recent COVID-19 outbreak, those in supply chain risk management are also trying to assess and plan how the new coronavirus impacts global supply chains.
Many try comparing it to the 2002-2004 SARS outbreak, which affected China, Hong Kong, and other countries in the Asia Pacific region. However, the ramifications and impact of the coronavirus outbreak on global supply chains are more severe and much harder to predict. Today, China is a more developed nation and is far better integrated with the rest of the global economy’s production and distribution processes. It has also greatly improved its transportation networks since the SARS outbreak from a decade and a half ago. And since China is the major manufacturing hub of the world, the impact of the COVID-19 pandemic is felt across a wide range of industries.
Labor and material shortages, travel restrictions, and numerous other logistical challenges resulting from a tightened hub and border closures and controls all make the coronavirus pandemic a more serious international trade and supply chain disruption than what happened 17 years ago.
The Impact of Coronavirus on Supply Chains
As the COVID-19 pandemic spreads globally and shows no real signs of slowing down, local and global companies experience increased supply chain disruptions. And even though the total impact on supply chains due to COVID19 is difficult to ascertain, affected regions already feel the following:
- Material Supply – Supply shortages, be it of raw materials or finished goods, coming through or from affected areas.
- Labor Supply – Because of quarantine and social distancing measures, as well as the illness itself, the availability of labor is also put into question.
- Logistics – Both hubs and supply networks will experience capacity limitations and availability, even if there are enough materials available.
- Consumers – Even consumer behavior has changed during the COVID-19 pandemic, as an increasing number of people are more conscious about their purchases, particularly in terms of being in public and exposed to the virus. As such, online purchases have increased, putting further strain on logistics networks.
However, supply chain leaders are taking some necessary steps to assess the risk and mitigate the impact of the pandemic on their customers and suppliers. They can and will get past this disruptive event, probably in even better shape than before.
How to Prepare for Supply Chain Disruption
Supply chain disruptions are a common occurrence, and leading supply chain organizations are using dynamic risk management processes to mitigate them. Among these processes, we can include a framework that continuously measures key risk indicators, helping them better prepare for various disruptions in terms of compliance, material supply, labor, financial issues, and more.
Such dynamic risk management processes can also focus on less obvious and regular disruptions by integrating the company’s procurement strategy with various forms of supply chain flexibility. Among these, we can include standardized and concurrent processes, planning to postpone, forming deeper relationships, or diversifying their network of suppliers. By enhancing their supply chain resilience, businesses can not only survive the impact of the coronavirus outbreak but even thrive in it.
Nevertheless, the full effects of the pandemic on local and global trade won’t be felt for months to come, and supply chain management leaders need to better prepare for the potential impact on their value chain.
Handling the Workforce Issue
In an attempt to slow down the rate of infection and provide a certain degree of risk management, governments around the world have advised employees to stay at home. However, this measure has put many employers under great strain. In the case of manufacturers, for example, goods are no longer produced and subsequently exported to dependent markets. In terms of supply chain management, business leaders need to devise strategies that will protect the wellbeing of their workers and support those who fall ill. Providing clear and consistent communication through human resources and travel security is essential to mitigate this area of the supply chain.
Handling the Supply and Demand Issue
As more and more disruptions occur as a result of the coronavirus pandemic, clients start looking for alternative suppliers when their goods aren’t received on time. As a consequence, suppliers are at great risk of losing their market share. When forced to make these sorts of decisions, supply chain managers need to take into account the impact of the virus on both product availability and customer demand. As such, companies will need to reassess their supply and demand plans on a regular basis and in accordance with the effect of the virus on customer sentiment. In some cases, supply chains may even experience a sharp increase in demand for certain products, as was the case with the panic buying of essential items.
Handling the Cost Issue
With an increase in the cost of shipping and the growing concern that businesses will not be able to meet their financial objectives, any additional costs incurred should be spread across the entire organization instead of the individual departments directly affected by the pandemic. This will make it easier to assess the total costs against the company’s ability to meet its strategic objectives. It’s also advisable to analyze all supplier contracts and ensure that the organizations will be financially protected against similar events in the future. Going forward, there will be a much greater emphasis placed on risk exposure, supply chain resilience, and the business’ continuity plans.
Mitigate the Impact of the COVID-19 Pandemic
When looking to mitigate the effects of the coronavirus outbreak on the supply chain, businesses need to address the situation in terms of its short-, mid-, and long-term effects. These are some of the ways to do that.
- Short-term initiatives – Supply chain transparency, particularly when it comes to Tier-1 companies, is essential. To do so, you will need to develop and implement a high-risk supply chain monitoring system program so as to get a clear picture of the entire value chain. You will also need to take into account how customer spending might be affected during this period. Once this is established, you will need to make sure that all available inventory is within reach and not stuck in impacted areas.
- Mid-term initiatives – Looking a bit further down the line, companies will need to find the right balance between supply and demand. This implies a more robust supplier network, either by expanding it or by forming deeper relationships with existing ones. Work with your critical suppliers to develop a congruent risk management strategy able to prepare for other such disruptions and shortages in the future. As a mid-term initiative, it’s also a good idea to build a redundancy stock to work as a buffer in similar circumstances.
- Long-term initiatives – With the initial impacts of the coronavirus outbreak mitigated, it’s time to anticipate and prepare for other such events in the future. This is a perfect time to diversify the value chain. This also includes areas of concentrated supplies with high value posing risks that your internal risk capacities can’t absorb. Focusing your efforts more on flexibility is essential for the long-term survival of your organization.
If you want to learn more about business interruption and supply chain resilience, how to prepare your supply chain for risk and disruption, or are looking for a top logistics company, Redbird Logistics Services can help you mitigate the impact of the coronavirus pandemic on your supply chain and formulate an effective supply chain response plan! Contact us today!