How COVID-19 Has Disrupted the Supply Chain, And What Businesses Can Do About It

By April 22, 2021Industry
How Business Protect Against Disruptions COVI19

With the COVID-9 pandemic and the havoc that it wreaked on global supply chains now on the wane, it is a good time to reflect on shock-proofing our supply chains for the future. Consider that we have not fully learned from previous wakeup calls. In March 2011, for instance, global commerce was rocked by an earthquake and tsunami in Japan. Over the last decade alone, the flow of materials and goods has been impacted by events including the Hanjin shipping bankruptcy in 2016, a volcanic eruption in Iceland, Thailand floods, hurricanes and forest fires. In spite of these natural disasters and lessons learned from them, however, many supply chain operators found themselves ill prepared for the Covid-19 pandemic that emerged in 2020.

As COVID-19 unfolded, businesses found themselves in uncharted territory. Government closed businesses deemed to be non-essential, while employee absenteeism and strict new safety measures impeded production. Early in the pandemic, reduced production in China had severe repercussions for international manufacturers reliant on parts from that country. Manufacturers reliant on single source suppliers found themselves particularly vulnerable to supply disruption. Worse yet, many companies did not have a full understanding of their supplier networks. As the pandemic intensified, manufacturers scrambled to secure their supply  of  raw materials and components. As HBR noted in a 2020 article, “their response to the disruption has been reactive and uncoordinated, and the impact of the crisis is hitting many of their companies full force.”

According to experts, there are some basic steps that supply chains can take to shock-proof their supply chains in the face of future disasters in the years ahead. Here’s what you can do to reduce your risk when the next disruption hits:

1. Get a clear picture of your supply network

One way to have a clear understanding of how regional disasters can impact your supply chain is to map your supply chain. Mapping your supply chain can be expensive and difficult, but experts argue that it is worth the effort to ensure business continuity when disaster strikes. In most cases, manufacturers only are familiar with their immediate (tier 1)  suppliers. Through supply network mapping, manufacturers can follow the materials and components used to build key products through to tier 1 suppliers and then back to tier 2 or 3 suppliers right to raw material suppliers. Part of the exercise is to identify alternate sites of the supplier that could produce the same part, and determine how long it would take for the supplier to pivot to the alternate location.

2. Have multiple suppliers, but maintain strong supplier relationships

One way to reduce risk is to employ multiple suppliers, especially for crucial inputs. If one supplier is derailed hopefully the other supplier can pick up the slack. Another consideration is the network of the supplier. If one location is hammered by a hurricane or flooding, for example, do they have other sites in their network that could pick up the slack? At the same time, it is  crucial  to maintain strong supplier relationships. When manufacturing inputs are scarce, suppliers can be expected to look after their best customers first. The moral is not to put all your eggs in one basket, and to take the effort to build strong ties to important vendors.

3. Increase pipeline inventory of supplies

Inventory is money, and companies take great effort to operate as lean as possible to reduce their carrying costs. However, those savings can be quickly eclipsed by stock outages. One expert recommends bringing in more stock than you normally would – up to 30-60 days of inventory.

4. Reimagining procurement function goals and supplier metrics

Cost savings are at the heart of  corporate procurement – sourcing materials and parts at the lowest possible price while meeting other quality and performance requirements. However, when expedited shipments are required, they may be assigned to other departments within the organization such as logistics or finance. Experts recommend including risk reduction as part of the conversation, so that the conversation is not around who will pay for expedited shipment, but rather how to eliminate the need for it, altogether. Likewise, it’s recommended to include disruption-related metrics in supplier evaluations.

The COVID-19 pandemic was an enormous wake-up call for companies that have failed to heed the lessons offered by previous disruptions. Risk management is a cost of business, and businesses would be well advised to take the steps necessary to minimize its impact. Supply chain mapping, building supplier relationships and multiple sourcing are all important considerations, as well as at a higher level, reviewing buyer incentives and supplier incentives. If the COVID-19 pandemic has taught us anything in business, is that we need to roll up our sleeves to take the necessary steps to ensure business continuity.

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