COVID-19: Managing Supply Chain Risk & Disruption
Coronavirus impact highlights the need to transform traditional supply chain models
COVID-19 has taken the world by surprise. Since this new coronavirus was first identified at the end of 2019 in Wuhan, the capital of central China’s Hubei province – more than 90,000 people have been infected in over 65 countries, leading to over 3,000 deaths. Could COVID-19 be the black swan event that finally forces many companies, and entire industries, to rethink and transform their global supply chain model? Since China has become the world’s primary producer of products and components, as well as a large consumer of global commodities and industrial products – global supply chains across many industries have been impacted. While the most optimistic forecasts predict “normalcy” returning by April, we believe COVID-19 will make a significant global economic and financial impact on supply chains.
Manage Supply Chain Risk & Disruption
Our recent paper, COVID-19: Managing supply chain risk and disruption, is designed to help stakeholders understand the implications of COVID-19 on supply chains, and present options for short-term solutions to help alleviate the immediate impact, as well as present our thoughts on how companies can strengthen their supply chain management to guard against future supply chain shock.
Find out more about combating COVID-19 with resilience.
COVID-19: Managing supply chain risk and disruption
Read the report
Top 5 short-term actions for Supply Chain Management in Ireland
1. Align IT systems and support to evolving work requirements.
As companies increase remote work policies and flexible workforce arrangements, IT systems and support will need to be aligned. The sudden increase in online activity can have big implications on system stability, network robustness and data security, especially in parts of the world where telecom and systems infrastructure are not as well developed. Companies will need to act quickly to ensure they have the systems, and support staff, in place to ensure smooth operation as the workplace and workforce evolves.
2. Focus on cash flow.
Companies should immediately develop a treasury plan for cash management. A focus on collections and reducing aged AR should be an immediate priority. Extending payables where possible to conserve cash will be also important. A survey jointly conducted by Tsinghua University and Peking University estimates that 85 percent of SMEs will run out of cash within three months and two thirds will run out of money in two months if the crisis does not abate. The government will release US$71 billion in emergency funds for low interest loans to small and mediums sized businesses. This emphasises the importance of cash flow management for all businesses during this volatile time.
3. Focus on Tier 1 supplier risk.
Identify the company's key direct suppliers and understand their ability to meet supply requirements and potential risks. Work to get visibility to Tier 1 supplier inventory, production, and purchase order fulfilment status. Work with key suppliers to understand the flexibility that they have to shift production and purchase order fulfilment to other locations. Also understand how you’ll be treated from an allocation perspective in the event of inventory and capacity shortages as you are not likely their only customer. Active communication and formulating alternative plans will be critical to minimising the supply chain impact on the company.
4. Understand and activate alternate sources of supply.
For those companies that have multi-sourced key inputs, it is important to move quickly to activate secondary supplier relationships and secure additional critical inventory and capacity. There may be opportunities within the ecosystem including establishing shared resource pools for raw materials inventory, which is an approach that large companies in China have used in the past in times of crisis. For those companies that have significant exposure to suppliers in the impacted region of China, it will be important to identify alternative suppliers in non-impacted regions of the world. Alternative sourcing markets will vary greatly by supply chain and manufacturing expertise. However, countries like Mexico, Brazil, India, and Chile are the most likely markets as companies look to diversify geographically beyond China.
5. Prepare for the rebound.
A lot of companies are feeling the pain of the supply chain disruptions caused by COVID-19. What will separate the winners from the losers in this crisis will be how well companies are prepared for the rebound. Companies that are able to move more quickly than their competitors may be able to capture a larger share of the pent up demand, solidify their relationships with their most important customers, and perhaps gain some new ones. Pricing strategy will be an important consideration as business gradually transitions back to normal — both to address normal supply-demand considerations, as well as to maintain profitability while logistics costs, and potentially other costs, will likely be volatile.
In response to COVID-19, the immediate focus for most companies needs to be on improving visibility to supply chain risk—in your own facilities, in your direct suppliers, and beyond. If you don’t have visibility into the potential supply chain problems across your end-to-end supply chain then you can’t adequately prevent or manage them.
Once the issues are visible, the solutions will come from achieving increased flexibility, collaboration, and control. The solutions to these issues are not new or particularly innovative—assuming you have the data and tools to execute. Focus and creative execution strategies will be critical when data and tools are lacking, as companies can’t afford to fail in their execution, or get their response to COVID-19 supply chain risks wrong. They must move quickly and confidently.
Read the full report here.
Visit www.deloitte.com/COVID-19 for more information.