Coronavirus: how to mitigate the impact on your supply chain?
The daily news shows us how the coronavirus outbreak is affecting global supply chains and disrupting manufacturing operations through orchestrated lockdowns by governments in more and more countries.
Initially airlines have been reducing their frequency of flights as passenger demand fell. However, air travel will soon come to a total standstill as countries are closing their borders. As most air cargo today goes via passenger airlines, this will hereby eliminate an essential mode of transport: air. This limits cargo movements to land and sea/river transport only, increasing supply chain lead-times for various supply chains.
In order to get people off the streets into their houses, governments have been restricting manufacturing operations to the production of essential items only. So what is exactly an essential item? Food, cosmetics, home care products, pharmaceuticals? As global supply chain networks are highly interlinked today, what is now not considered as essential will pop-up just in a matter of days as essential when production of your so-called essential items is halted because of a broken machine part, disruption of supplier, or disruption of the supplier of your supplier. Those restriction list are evidently unsustainable. Some governments in order to protect their own country needs first, are now even limiting export of various goods, resulting in direct shortages of basic (supermarket) commodities in several countries that are highly dependent on imports like in Indonesia and the Philippines. When governments are limiting production and exports, prices are only going one direction: up!
Hence, as manufacturers are faced by orchestrated lockdowns this disrupts their sourcing, manufacturing operations, export, and local distribution. What resilience strategies are left when your capacity is cut, flexibility is removed, and transparency through fast changing government regulation is gone?
Important mitigation strategies during the corona crisis are control, coherence, and coordination. It is important to be in full control of the supply chain during this crisis. Solid supply chain processes and capabilities are key enablers to be in control during this crisis. Coherence of the supply chain, holding it together to form a whole, is pivotal during supply chain disruptions that might put a lot of pressure on the supply chain partners and staff. Coherence is enhanced through meaning, direction and understanding during the worst times of the corona crisis. In terms of coordination, three levels are differentiated:
- Own Organisation: establish a cross-function mitigation (response) team with representatives from key departments that are critical during this crisis, such as purchasing, production, logistics/supply chain, and sales. Supply chain decisions will be made by this response team.
- Vertical Collaboration: collaboration with your suppliers, service providers, and customers. This covers those managed process links (supply chain links that are most important for your company and should be integrated and managed well) of first and second tier suppliers and customers (that caused and/or are affected by disruptions).
- Horizontal Collaboration: collaboration between different supply chains when cooperating with competitors and non-competitors, leveraging lobbying with governments, asset-sharing (machines, tools, equipment, warehouse, transport), inventory sharing (raw materials and spare parts), and joint purchasing (to limit escalation of prices).
What are supply chain tactics for resilience during the corona crisis? I propose the following supply chain mitigation cycle:
STEP 1: Supply Chain Impact Assessment
A supply chain impact assessment maps possible supply chain issues (or disruptions) on a matrix based on disruption probability (low/high) and consequences (light/severe). The impact assessment is an important basis for a possible supply chain redesign.
STEP 2: Supply Chain Redesign
Vulnerability is reduced through simplifying (= shortening) the supply chain structure and establishing control measures in the supply chain for the most critical supply chain issues mapped during the supply chain impact assessment (step 1). Vulnerability can be avoided or highly reduced through in (parts of) the supply chain by owning/controlling critical assets in a supply chain. Identify which critical assets you would like to control.
STEP 3: Exploit Vertical and Horizontal Collaboration
Vertical and horizontal collaboration could provide useful mitigation tactics in better controlling supply chains during the corona crisis. This is useful for leveraging lobbying with governments, asset-sharing (machines, tools, equipment, warehouse, transport), inventory sharing (raw materials and spare parts), and joint purchasing (to limit escalation of prices). Setup a joint control tower team with supply chain partners (vertical collaboration) and companies in other supply chains (horizontal collaboration) for assets which you would like to control (step 2). This can be for example a critical supplier of raw materials, distribution centre, or depot in a port.
STEP 4: Monitoring by Cross-Functional Team
Monitoring is achieved by measuring key supply chain performance indicators (in particularly time-cost-variability related), control towers, as well as scanning of the latest government directives of countries where your first & second tier suppliers and customers that are part of your managed process links are located. Any red-flags will trigger the mitigation team to go back to step 1.
In these uncertain times we hope that these supply chain strategies & tactics are helping you navigating through this unprecedented crisis. In case you need help or have any questions, please do not hesitate to contact us.