Virus-proof your supply chain
As outbreak spreads, supply chain leaders must mitigate instant disruption and plan for future incidents, says Gartner
As global leaders and health officials track the spread of the coronavirus and make tough decisions about containment, supply chain leaders need to assess and plan for how the virus will impact global supply chains.
The full impact of the virus on supply chains might not become obvious until sometime in the next few months and beyond, says Koray Köse, senior director analyst with the supply chain sourcing and procurement team at Gartner, the global research and advisory firm.
“The consequences of a pandemic event are hard to predict,” he said. “However, the risks always exist and are augmented with further globalisation and integration of supply chains.
“It is not a matter of if it will happen but to change the focus to be prepared when it happens. That is a shift of mindset in risk management and business continuity.”
Although the Covid-19 outbreak is being compared to the 2003 Sars pandemic, China is now much more developed and integrated with the global economy, and the country has significantly improved its transport networks. This means the supply chain implications go beyond regional concerns.
Travel restrictions, shortages in labour and materials, as well as logistical challenges through tightened controls, and hub and border closures will cascade and augment the impact much more widely today than Sars did 17 years ago.
Though it is difficult to predict the exact consequences of coronavirus, organisations might begin to see impacts across the supply chain, including:
Materials: Shortages of materials or finished goods coming from or routed through logistical hubs in affected areas.
Labour: White- and blue-collar labour may not be available due to quarantine guidelines or illness.
Sourcing: Travel may be restricted to certain areas, limiting the ability to discover, qualify and certify new business or programmes and to transact business.
Logistics: Established hubs and supply networks may experience limitations in capacity and availability so that even if materials are available, they would be stuck elsewhere. Finding alternative routes and means of transport will become difficult.
Consumers: Consumers may be more cautious in their purchasing habits because of fears about being in public. Many may turn to online sales, challenging logistics networks.
BE PREPARED
Disruptions happen. Leading supply chain organisations utilise enhanced risk management processes. They include a framework to continuously measure key risk indicators and to prepare scenarios for controllable and foreseeable uncertainties such as
compliance, labour, material, capacity and financial issues.
Epidemics and pandemics present a different scenario. The main impact is a lack of access to staff, decreased productivity and a change in public behaviour in terms of shopping practices and spending.
Mr Köse advises supply chain leaders to take initial steps now to monitor and prepare for the impact on their value chain.
Short-term actions: Develop monitoring and response programmes for countries affected by the virus and potential high-risk supply chain exposure from tier 1 and below.
If lower-tier transparency is missing, start building up the programme and prioritise discovery to get a full picture rapidly. It’s also important to assess how customer spending might be affected.
The next step is to make sure all inventory is within reach and outside affected areas and logistical hubs.
Work with legal and human resource departments to understand any financial implications of not being able to deliver to customers and provide guidance to employees located in affected areas.
Medium-term actions: In the current quarter, the focus should be on balancing supply and demand as well as building buffer stock. Assess opportunities to diversify the supplier ecosystem and review or create an overall risk management approach.
Work with internal stakeholders and strategic and critical suppliers to establish a congruent risk management approach to monitor and prepare for potential material and manufacturing capacity shortages.
Long-term actions: Once the initial impacts of the crisis are mitigated, it’s all about foreseeing the next “when”. Over the remainder of this year, supply chain leaders and their teams can conduct scenario planning exercises and develop action plans. This is the time to discover or develop alternative sources and diversify value chains.
Tackle strategic and high-value supplies for which internal capacity to absorb risk — such as alternative sources, routes, inventory and cash reserves — are insufficient to mitigate major disruption. Being better prepared than the competition might even open new opportunities when the next disruption comes around.
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It is not a matter of if it will happen but to change the focus to be prepared when it happens. That is a shift of mindset.
KORAY KÖSE Senior director analyst, Gartner