Supply chain disruptions can come in many forms (weather events, automation failures, changes in geopolitical policies and/or economic conditions, etc.), but the sudden, aggressive spread of COVID-19 (also known as the corona virus) is making countless companies grappling to adjust to the new reality.
“The emergence of COVID-19 is accelerating the change of global value delivery models, with unprecedented consequences for manufactures and supply chains,” the World Economic Forum says.
As we've worked closely with our clients over the last two weeks, our team at DiCentral has seen firsthand how challenging this supply chain disruption has been. Enhancing automation and integration of supply chain related processes, such as order and transportation management and fulfillment, provides hidden goldmines of data to make informed, on-the-fly decisions on how to respond to recover from this disaster.
The Challenges of Major Supply Chain Disruptions
It’s almost impossible to avoid the effects of this pandemic entirely, but not every supply chain will feel the repercussions the same way. “At a bare minimum,” the Harvard Business Review recommends, “companies should invest in 24 x 7 monitoring of their global suppliers.”
The crisis will clearly affect industries differently, as some companies may be experiencing peak demand and need all-hands-on-deck to fulfill the sudden increase in order volume, while other supply chains may come to a complete standstill.
Take, for example, suppliers in the retail sector. The COVID-19 outbreak has now accelerated the need to supplement traditional replenishment with drop shipments, which will extend additional pressure to fulfill direct-to-consumer orders. On the retailer side of this equation, COVID-19 is likely to lead to accelerated business challenges on short and long-term revenue loss, which may lead to cost-cutting measures and potential store closings.
Additionally, many retailers have announced temporary closures of their brick-and-mortar stores. Some retailers are still providing options to buy online and pick up in store, while others have suspended all outbound freight to stores, forcing suppliers to temporarily cease shipments.
Establish Recovery and Contingency Processes
When facing a sudden disruption, especially one as wide-spread and unpredictable as the COVID-19 pandemic, challenges often extend beyond traditional supply chain management and processes, and can create challenges out of normally simple operations.
For example, an organization may utilize a manual process to receive inbound checks and task employees to cash the checks and manually enter the data into their ERP or back-end accounting system. In an event such as the COVID-19 pandemic in which many or most employees are working remotely, will there be anyone available to collect the checks? In this instance, you may consider automation of ACH payments directly from suppliers to your bank account, thereby eliminating the need for manual process of paper checks. Automation can be further extended to integrate payment data into your ERP or back-office system.
This is just one of many near-term actions companies can take during this period of certainty and begin the recovery process. By all accounts, history suggests that our economy will emerge from this disaster with more innovation and enhanced processes. Here is a checklist to fortify your supply chain processes, automate efficiencies and make more informed decisions to protect your company from future disasters.
Action Checklist to Bolster Supply Chain Resilience:
1. Establish an emergency management team
- Create a central decision-making team
- Establish steps for taking care of employees, and enabling resumption of operations
- Establish practices for the supply chain ecosystem
- Establish practices of taking care of the customer
2. Develop communications and decision protocols
- Identify all suppliers and stakeholders and develop communications for each unit (customers, employees, suppliers, shareholders, media, etc.)
- Develop a position and voice for the company to ensure consistent and accurate information
3. Assess internal supply chain and related risks
- Create a map of your supply chain partners (identify locations of headquarters, as well as affected manufacturing plants and/or distribution centers)
- Create a map of transportation and logistics partners and alternatives
- Prioritize criticality of every key supplier and identify potential alternate sources should one become compromised
- Track and improve supplier performance (including quality of product over time (ensure no degradation), accurate and timely delivery of product, supplier financial health and steps to assist key suppliers upon which the companies rely)
- Increase visibility into inventory levels; in-house levels and within each supplier inventory
- Prioritize customers served by aforementioned suppliers (some customers purchase higher-revenue or higher-grossing items)
- Increase visibility into order management and updated shipping information
4. Determine process for dealing with limited supply
- Allocation of goods. Develop decision criteria now (prior to the shortage) on which products get prioritized when supply is limited (based on financial considerations, customers, inventory levels, etc.)
- Substitution or dilution of quality. Determine which areas of the business can sustain a degradation of quality by sourcing other type materials.
- Pricing. Determine whether and which pricing strategies might be available in the event of short supply
5. Keep tabs on finances
- Increase days payable to maintain cash positions as long as possible (to suppliers)
- Reduce days-receivables (from customers)
- Reduce inventory and related costs
- Delay capital investments and move to operational expenses, when possible
6. Planning for recovery
- Continue payroll
- Enabling remote or part-time work, when applicable
- Uncover opportunities
- Reduction or reallocation of non-performing products/customers/suppliers
- Diversification of suppliers across multiple geographic locations and materials
When a disruption does occur, companies need a strategy in place to help collaborate with suppliers, seek alternative options, and, ultimately, keep yourself agile and active. The more thorough the supply chain crisis management plan, the better prepared organizations become.
Webinar with Dr. Zach Zacharia, Director of the Center of Supply Chain Research at Lehigh University
If you’re looking for a closer look at how companies should plan for recovery, join our webinar with Dr. Zach Zacharia, Director of the Center of Supply Chain Research at Lehigh University. On the webinar we’ll explore the different ways COVID-19 has impacted both supply and demand, outline what companies can expect from this disruption, and explain how your company should respond in the near term while planning for the future.